Supreme Court Exempts Building Tax Applicable To Residential Accommodation for Nuns, Students' hostels

Supreme Court Exempts Building Tax Applicable To Residential Accommodation for Nuns, Students' hostels

The Supreme Court (SC) bench comprising of Justices Rohinton Nariman and BR Gavai held in the case titled Government of Kerala (Appellant) v. Mother Superior Adoration Convent (Respondent) that the beneficial purpose of the exemption contained in Section 3(1)(b) of Kerala Building Tax Act, 1975 (Act) must be given full effect.

The Top Court on 1 March 2021, upheld the decision of the Kerala High Court (HC) and stated 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 the Act.

The Court stated, "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."

The batch of appeals was filed by the Government of Kerala before the SC against the judgment of the HC. The HC had decided to exempt residential buildings of nuns and hostels attached to educational institutions from the purview of building tax.

Section 3(1)(b) of the Act grants exempts buildings used principally for religious, charitable, or educational purposes, or as factories, or workshops from building tax.

The State was represented by the Senior Advocate Jaideep Gupta, who stated before the SC that exemption provision contained in the Act must be construed strictly, and in the case of doubt, or ambiguity, it must be construed in favour of the State.

The senior advocate argued that a building that is used principally for religious or educational purposes can only be a building that is used for religious/educational activity.

He added that such a building cannot be used for any other activity which has no direct connection with religious/educational activity, such as residential quarters for nuns, priests, or hostel accommodation for students.

On behalf of respondents, it was averred that beneficial legislation that is meant to further religious, charitable, and educational purposes should not be construed narrowly, and should be construed by the object sought to be achieved.

The respondents stated that the judgments of the HC wherein it granted an exemption to residential quarters of nuns or hostels of students should not be disturbed and the said decision should be upheld.

The SC observed that the object of the said provision is to grant tax exemption to the 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.

The Top Court while differentiating between a purpose that is directly connected with religious or educational activity and a purpose that is only indirectly connected with such activity narrated an example.

It clarified the difference with an example, "Take a case where the neighboring building to the convent is let out on rent to any member of the public, and the rent is then utilized 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 plowed back only into religious activity? Letting out a building for a commercial purpose would lose any rational connection with religious activity."

The Court further stated that "The indirect connection with religious activity being the profits which are plowed back into religious activity would obviously not suffice to exempt such a building."

The bench stated that the nuns are living in a neighboring building to a convent only so that they may receive religious instruction there.

It further stated that if students are living in a hostel close to the school or college where they are studying, it is obvious that the purpose of such residence is not to earn a profit. Such a residence shall be considered to be integrally connected with religious or educational activity.

The Apex Court while dismissing the appeals filed by the State upheld the decision of the HC of granting tax exemptions.