2021 (3) TMI 93 - SC - VAT and Sales Tax

Exemption from Building Tax - residential accommodations for nuns - hostel accommodations which are attached to various educational institutions - Section 3(1)(b) of the Kerala Building Tax Act, 1975 - HELD 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. One example will suffice to show the difference between a purpose that is directly connected with religious or educational activity and a purpose which is only indirectly connected with such activity. 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 be connected with 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. 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. A reading of the other provisions of the Act strengthens the aforesaid conclusion. Residential building is defined separately from building in Section 2(l). A residential building means a building or any other structure or part thereof built exclusively for residential purpose. It is important to note that residential building is not the subject matter of exemption under Section 3 of the Act. Quite the contrary is to be found in Section 5A of the Act, which starts with a non-obstante clause, and which states that a luxury tax is to be charged on all residential buildings having a plinth area of 278.7 square meters and which have been completed on or after 1.4.1999. If we were to accept the contention of the State, buildings in which nuns are housed and students are accommodated in hostels which have been completed after 1.4.1999 and which have a plinth area of 278.7 square meters would be liable to pay luxury tax as these buildings would now no longer be buildings used principally for religious or educational purposes, but would be residential buildings used exclusively for residential purposes - However, there is another line of authority which states that even in tax statutes, an exemption provision should be liberally construed in accordance with the object sought to be achieved if such provision is to grant incentive for promoting economic growth or otherwise has some beneficial reason behind it. It is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object 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. Appeal dismissed.

Issues Involved:
1. Interpretation of the exemption provision under Section 3(1)(b) of the Kerala Building Tax Act, 1975.
2. Whether residential accommodations for nuns and hostels for students qualify for exemption under the Act.
3. The applicability of a beneficial interpretation to the exemption provision in a fiscal statute.

Issue-wise Detailed Analysis:

1. Interpretation of the exemption provision under Section 3(1)(b) of the Kerala Building Tax Act, 1975:
The appeals primarily concern the interpretation of Section 3(1)(b) of the Kerala Building Tax Act, 1975, which exempts buildings used principally for religious, charitable, or educational purposes from building tax. The State of Kerala argued that buildings used for residential purposes, such as accommodations for nuns and hostels for students, do not qualify for this exemption. The Court analyzed that the exemption is based on user and not ownership, and the term "principally" indicates that the dominant object test should be applied to determine if a building qualifies for the exemption. The Court concluded that buildings used integrally for religious or educational purposes, such as accommodations for nuns and students, should be exempt from building tax.

2. Whether residential accommodations for nuns and hostels for students qualify for exemption under the Act:
The Court examined the facts of the cases, noting that residential accommodations for nuns and hostels for students are integrally connected with religious and educational activities. For instance, nuns residing in a building next to a convent for religious instruction or students living in hostels attached to educational institutions are directly connected to the core religious or educational activity. The Court distinguished this from cases where buildings are let out for commercial purposes, which would not qualify for the exemption. The Court held that such residential accommodations and hostels are used principally for religious or educational purposes and therefore qualify for the exemption under Section 3(1)(b) of the Act.

3. The applicability of a beneficial interpretation to the exemption provision in a fiscal statute:
The Court discussed the principles of interpreting exemption provisions in fiscal statutes. It noted that while exemption provisions are generally construed strictly, beneficial exemptions intended to promote certain activities should be interpreted liberally. The Court cited several judgments supporting the view that beneficial exemptions should be construed in accordance with the object sought to be achieved. The Court concluded that the exemption under Section 3(1)(b) should be interpreted liberally to further the beneficial purpose of promoting religious, charitable, and educational activities. Consequently, the Court agreed with the conclusions of the Division Bench and the Full Bench of the Kerala High Court, which had held that residential accommodations for nuns and hostels for students qualify for the exemption.

Conclusion:
The Supreme Court dismissed the appeals filed by the State of Kerala and allowed the appeal filed by the assessee, setting aside the judgment of the Division Bench that had decided in favor of the State. The Court upheld the interpretation that buildings used integrally for religious or educational purposes, such as accommodations for nuns and hostels for students, qualify for the exemption under Section 3(1)(b) of the Kerala Building Tax Act, 1975.

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