Residential Accommodation For Nuns & Hostels For Students Can Claim Property Tax Exemption U/s 3(1)(b) of the Kerala Building Tax Act: Supreme Court

The Supreme Court held that residential accommodation for nuns and hostel accommodations for students which are attached to various educational institutions can claim property tax exemption under Section 3(1)(b) of the Kerala Building Tax Act, 1975.

"If 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 bench headed by Justice Rohinton Fali Nariman observed while upholding a full bench judgment of the Kerala High Court.

Section 3(1) (b) of the Act reads thus: Exemptions - (1) Nothing in this Act shall apply to-...b) buildings used principally for religious, charitable or educational purposes or as factories or workshops. In this case, the High Court held that if the activities that are going on in the convent are predominantly religious, then, normally, buildings of the convent used for the said purpose should also qualify for exemption. A Full Bench of the High Court had held that buildings owned by educational institutions for providing hostel accommodation to students qualify for building tax exemption under clause (b) of Section 3(1) of the Act. 

Assailing these rulings of the High Court, the State contended 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. According to it, as no religious/educational activities are carried on at all in the buildings which house nuns and hostel accommodation which houses students, such buildings, not being principally used for religious purposes, cannot possibly be exempt under the Act.

"A reading of the provision would show 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, unlike the facts in Civil Appeal No. 202 of 2012, nuns are not residing in a building next to a convent so that they may walk over to the convent for religious instruction. 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.", the bench observed while it disagreed with the contentions raised by the State.

Another contention raised by the state was that an exemption provision contained in a fiscal statute must be construed strictly and in the case of doubt or ambiguity must be construed in favour of the State. The state, to contend thus, relied on Commr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1 where it was held that when there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue. The bench, while rejecting the said contention, observed:

It may be noticed that the 5-Judge Bench judgment did not refer to the line of authority which made a distinction between exemption provisions generally and exemption provisions which 30 have a beneficial purpose. We cannot agree with Shri Gupta's contention that sub-silentio the line of judgments qua beneficial exemptions has been done away with by this 5-Judge Bench. It is well settled that a decision is only an authority for what it decides and not what may logically follow from it (see Quinn v. Leathem [1901] AC 495 as followed in State of Orissa v. Sudhansu Sekhar Misra (1968) 2 SCR 154 at 162,163) 24. This being the case, 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. Consequently, for the reasons given by us, we agree with 31 the conclusions reached by the impugned judgments of the Division Bench and the Full Bench

CASE: GOVERNMENT OF KERALA vs. MOTHER SUPERIOR ADORATION CONVENT [CIVIL APPEAL NO. 202 OF 2012]

CORAM: Justice RF Nariman and BR Gavai

CITATION: LL 2021 SC 121

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