The Supreme Court on Monday held that residential accommodation for nuns and students’ hostels attached to educational institutions are eligible for exemption from building tax under Section 3(1)(b) of Kerala Building Tax Act, 1975 (Government of Kerala v. Mother Superior Adoration Convent).
A Bench of Justices Rohinton Nariman and BR Gavai held that the beneficial purpose of the exemption contained in Section 3(1)(b) of the Kerala Building Tax Act (Act) must be given full effect and a literal formal interpretation of the provision must be eschewed.
“We must first ask ourselves what the object is sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted,” the Court ruled.
The Court was hearing a batch of appeals filed by Kerala government against decisions of the Kerala High Court which had decided to exempt residential buildings of nuns and hostels attached to educational institutions from the purview of building tax.
Section 3(1)b) grants exempts buildings used principally for religious, charitable or educational purposes or as factories or workshops from building tax.
Senior Advocate Jaideep Gupta, representing the State government, contended that exemption provision contained in a fiscal statute must be construed strictly and in the case of doubt or ambiguity, it must be construed in favour of the State.
In the instant case, it was his argument that a building used principally for religious or educational purposes can only be a building that is used for religious/educational activity and not for activity which has no direct connection with religious/educational activity, such as residential quarters for nuns, priests, or hostel accommodation for students.
He argued that even assuming that there is ambiguity in Section 3(1)(b), in that a purpose connected with the religious/educational activity may be included, yet the ambiguity has to be resolved in favour of the State.
On the other hand, the counsel for respondents argued that a beneficial legislation which is meant to further religious, charitable and educational purposes should not be construed in a narrow fashion and should be construed in accordance with the object sought to be achieved. Hence, the judgments of the Kerala High Court granting exemption to residential quarters of nuns or hostels of students should not be disturbed, it was contended.
The Court noted that a reading of the provision showed that the object for exempting buildings which are used principally for religious, charitable, or educational purposes would be for core religious, charitable or educational activity as well as purposes directly connected with religious activity.
To differentiate between a purpose that is directly connected with religious or educational activity and a purpose which is only indirectly connected with such activity, the Court narrated an example.
“Take a case where the neighbouring building to the convent is let out on rent to any member of the public, and the rent is then utilised only for core religious activity. Can it be said that the letting out at market rent would relate to religious activity because the rental that is received is ploughed back only into religious activity? Letting out a building for a commercial purpose would lose any rational connection with religious activity. The indirect connection with religious activity being the profits which are ploughed back into religious activity would obviously not suffice to exempt such a building,” the Court observed.
But if on the other hand, nuns are living in a neighbouring building to a convent only so that they may receive religious instruction there, or if students are living in a hostel close to the school or college in which they are imparted instruction, it is obvious that the purpose of such residence is not to earn profit but residence that is integrally connected with religious or educational activity, the Court said.
The Court, therefore, dismissed the appeals filed by the State of Kerala and upheld the exemptions granted.