Government of Kerala & Anr. v. Mother Superior Adoration Convent

3. While the building involved in Writ Appeal No.1648/2009 is a hostel building owned by a nursing school, the building involved in Writ Appeal No.2495/2009 is a hostel building attached to a Residential Higher Secondary School owned by a private management.” The Full Bench held: “6. The short question that arises for consideration is whether “educational purposes” referred to in the above Section has only a restricted meaning covering buildings, where students are imparted education; or whether it has a wider meaning covering hostel buildings owned by educational institutions to provide accommodation to students in the premises of the educational institutions. The Division Bench of this Court in the above referred judgment held that “educational purposes” cover only purposes which have integral, immediate and proximate connection to education. In the reference order, another Division Bench of which one of us is a member [CNR(J)], took the view that the above test laid down by the other Division Bench in the earlier judgment is satisfied at least in respect of hostels run by nursing schools and medical educational institutions and probably mistake is there only in the conclusion drawn in that judgment. What we notice is that the Division Bench while deciding the matter did not consider the educational Regulations of the Medical Council of India and Nursing Council of India, which make it mandatory that in order to get approval for a medical college or a nursing college, hospital for patients and hostel facilities for students are mandatory. The State also does not controvert this position and in fact all the medical colleges and nursing colleges run in the State including those run by the Government have hospitals of their own or attached hospitals, and have hostels providing accommodation to all students. Except probably few students who hail from the areas very close to the colleges, all the nursing and medical students reside in the hostels attached to their colleges. The students of both medical and nursing colleges require clinical training in hospitals, and students in senior classes are deployed on a turn basis in hospitals. Unless accommodation is provided to the students in the college campus or nearby, it would not be possible for them, particularly for girls, to reach the hospitals attached to the medical and nursing colleges for duty at odd hours in the night. Therefore, the Medical Council of India and Nursing Council of India have made it mandatory for every medical college and nursing college to have hostel facilities, and without such facility no medical or nursing college will get approval from the Medical Council or Nursing Council of India, and only on their approval, the medical educational institution can get affiliation to the University. So much so, in our view, the test laid down by the Division Bench i.e. integral, immediate and proximate connection of the hostel building with education, is squarely satisfied in the cases of hostels attached to nursing schools and other medical educational institutions which require compulsory hostel facility for students for their approval. We, therefore, hold that wherever hostel is compulsory for approval of a course study or an educational institution by the regulatory body as in the case of medical and nursing colleges, hostel building is an integral part of the educational institution, and so much so, accommodation to students provided in the hostel building is for educational purpose and therefore the hostel building qualifies for exemption from building tax. In view of the above finding, we are unable to agree with the conclusion drawn by the Division Bench i.e. denial of exemption to hostel building attached to the nursing school.

7. The next question to be considered is whether hostel facility to students provided by other educational institutions, which are not compulsorily required under the educational regulations to provide accommodation to students, is an educational purpose qualifying the hostel buildings for tax exemption. In this context, we have to necessarily consider the object and scope of the exemption clause provided in the statute. While learned counsel for the appellants have relied on Section 235 of the Kerala Municipalities Act, which provides for exemption to buildings used for educational purposes including hostel buildings owned by the same educational institutions, learned Government Pleader has relied on the decision of the Supreme Court in Municipal Corporation of Delhi v. Children Book Trust, reported in AIR 1992 SC 1456, where the Supreme Court held that school buildings are not entitled to exemption from municipal tax under the Delhi Municipal Corporation Act. On going through the judgment of the Supreme Court, we notice that the provision for exemption from property tax under the Delhi Municipal Corporation Act is not similar to the provisions of the Kerala Building Tax Act, and so much so, in our view, the decision cannot be applied while deciding the claim of exemption made by the appellants in these cases. Even though Section 235 of the Kerala Municipalities Act specifically provides for property tax exemption for hostel buildings owned by the very same educational institutions, there is no specific exemption for hostel buildings in Section 3 (1)(b) of the Kerala Building Tax Act. Therefore, we have to examine whether “educational purposes” referred to in Section 3(1)(b) has only restricted meaning or it has a wider meaning covering all buildings directly or indirectly catering to the needs of student community. In this context, we have to necessarily consider the general pattern of hostel facility provided by education institutions in the State. In the recent past, large number of educational institutions, particularly engineering colleges are established all over Kerala including remote areas and hill stations, where the students admitted are not from local area and they have to necessarily depend on hostel facility to be provided by the educational institution. In fact admissions to medical and engineering colleges are given on central allotment basis and hardly any student can get admission in a college near to his/her house. Therefore, necessarily, the students have to depend on hostel accommodation to pursue their studies. Colleges will not get students if they do not provide hostel accommodation to students near to the College. Therefore, hostel buildings are constructed by educational institutions to attract students to their institutions. Many educational institutions provide only basic facilities like building, electricity and water connections for hostels and in fact, students are running mess on sharing basis. So much so, the State’s contention that hostels attached to educational institutions are commercial ventures intended to make profit, in our view, is unacceptable. In order to consider whether hostel provided by an educational institution is for educational purpose or not, we have to consider the consequences if such educational institution does not have hostel facility to provide accommodation to its students. Obviously, such educational institutions have to source students locally, which may be possible only in the case of Schools. In fact, thousands of schools and colleges in the State do not have hostel facility because they depend on students from the local area only. However, wherever an educational institution has students from different parts of the State, and Non Resident Indians sending their children for studies in Kerala, necessarily the educational institution has to provide hostel facility to the students. In fact, without hostel facility, many educational institutions will not have required number of students to run it. We, therefore, feel accommodation is a necessary facility, which an educational institution is required to provide to it's students; and so long as the purpose of stay of students in the hostel is to study in the educational institution, the purpose of such building, which is used for accommodation of students, qualifies as educational purpose. xxx

9. We are therefore of the view 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. However all buildings accommodating students do not qualify for building tax exemption because there are so many lodge buildings constructed by various people around educational institutions which do not have hostel facility, to rent out to students in such educational institutions. Letting out of buildings by private agencies is a commercial activity whether tenants are students or not. In other words, only hostel buildings owned by educational institutions for accommodating it's own students in such hostels will qualify for exemption under clause (b) of Section 3(1) the Act.”

8. Shri Jaideep Gupta, learned senior advocate appearing on behalf of the State of Kerala, assailed the correctness of these judgments. According to him, 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. For this proposition, he cited a number of judgments. He then analysed Section 3(1)(b) of the Act and argued 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 and this being so, on this short ground, the judgment of the Division Bench and the judgment of the Full Bench are incorrect. He further went on to argue that the term “building” has been defined in Section 2(e) of the Act as meaning a separate house, out-house, etc. and that in the present case 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.

9. Learned counsel for the respondents supported the judgment of the Division Bench and the Full Bench, arguing that on facts, 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, and this being the case, the aforesaid judgments do not require to be disturbed.

10. Having heard learned counsel appearing for all parties, we must first set out the relevant provisions of the Kerala Building Tax Act, 1975:

11. Before coming to the case law that has been cited before us, it is important to first analyse Section 3(1)(b) with which we are directly concerned. First and foremost, the subject matter is “buildings” which as defined, would include a house or other structure. Secondly, the exemption is based upon user and not ownership. Third, what is important is the expression “principally”, showing thereby that the legislature decided to grant this exemption qua buildings which are “principally” and not exclusively used for the purposes mentioned therein. Dominant object therefore is the test to be applied to see whether such building is or is not exempt. Fourthly, religious, charitable or educational purposes are earmarked by the legislature as qualifying for the exemption as they do not pertain to business or commercial activity. Fifthly, what is important is that even factories or workshops which produce goods and provide services are also exempt, despite profit motive, as the legislature obviously wishes to boost production in factories and services in workshops. What is important to note is that the expression “used principally for” is wider than the expression “as” which precedes the words “factories or workshops”.

12. 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.

13. 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. This would turn the object sought to be achieved in exempting such buildings on its head. For this reason also, we cannot countenance a plea by the State that buildings which are used for purposes integrally connected with religious or educational activity are yet outside the scope of the exemption contained in Section 3(1)(b) of the Act. We may now examine the case law.

14. In Union of India v. Wood Papers Ltd (1990) 4 SCC 256 the rule as to exemption notifications in tax statutes was felicitously laid down as follows:

15. This statement of the law was followed in a number of judgments. Suffice it to say that in Star Industries v. Commr. of Customs (Imports) (2016) 2 SCC 362, a large number of judgments are referred to for the same proposition (see paragraphs 32 to 34).

16. 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. In such cases, the rationale of the judgments following Wood Papers (supra) does not apply. In fact, the legislative intent is not to burden the subject with tax so that some specific public interest is furthered. Thus, in CST v. Industrial Coal Enterprises (1999) 2 SCC 607, this Court held:

17. Likewise, in State of Jharkhand v. Tata Cummins Ltd (2006) 4 SCC 57 in dealing with a tax exemption for setting up an industry in a backward area, this Court held as follows:

18. Similarly, in Pondicherry State Coop. Consumer Federation Ltd. v. Union Territory of Pondicherry (2008) 1 SCC 206 this Court held:

6. In our view the law laid down in this decision is applicable to the present case on all fours. Here also the authorities had firstly certified the assessee's industry to be small-scale industry and had then proceeded to grant exemption to it from payment of sales tax on the goods manufactured. The said certificate was not found to have been erroneously issued and was very much in vogue when the showcause notices came to be served on the assessee. The G.O. providing exemption clearly suggested that such exemption was given in the public interest. Therefore, it is obvious that the decision in Vadilal Chemicals case (2005) 6 SCC 292 would be equally applicable as even in that case what the industry did was to bottle the ammonia gas purchased in bulk. In the present case it is palmolive oil which is purchased in bulk and is repacked so as to facilitate its sale in the retail market.

7. Shri T.L.V. Iyer, Senior Advocate appearing on behalf of the Union Territory of Pondicherry, however, tried to suggest that the exemption from payment of tax granted on 19-5-1989 was granted by the Director of Industries and it was clear from that exemption that it was only on the basis of GOMs No. 15/74 dated 25-6-1974. Our attention was invited to the last lines of the aforementioned G.O. dated 19-5-1989. The last portion is as under: “The unit is exempted from payment of sales tax for five years vide GOMs NO. 15/74/FIN(CT) dated 25-6-1974.” On this the learned Senior Counsel argued that, therefore, it had to be proved that the goods were manufactured by the assessee and in the present case since the palmolive oil did not change its character on its being repacked by the assessee, it could not be said that the assessee had manufactured any goods. Learned counsel also urges that in the absence of any definition of “manufactured goods” in the Sales Tax Act, we would have to fall back upon either the dictionary meaning of the term or to borrow it from the Central Excise Act. We are afraid, the contention cannot be accepted in the wake of clear law laid down by this Court in Vadilal Chemicals case (2005) 6 SCC 292. We have already shown as to how the decision in that case is applicable to the present situation. In that view we are of the clear opinion that since in the present case the exemption was granted to all smallscale industrial units registered with the Director of Industries and since the assessee was recognised and certified as a small industrial unit, engaged in the activity of repacking of edible oil and further since the exemption was granted with the open eyes to this particular industry, the State cannot be allowed to turn around and take a stance that the appellant assessee was not entitled to the exemption on the ground that it did not manufacture any goods. We are in respectful agreement with the view taken in Vadilal Chemicals case (2005) 6 SCC 292 which is more particularly reflected in paras 19 and 20 of that decision where this Court observed as under: (SCC p. 298, para 20) “20. In this case the State Sales Tax Act contains no provision relating to ‘manufacture’. The concept only finds place in the 1993 G.O. issued by the Department of Commerce and Industries. It appears from the context of the other provisions of the 1993 G.O. that the word ‘manufacture’ had been used to exclude dealers who merely purchased the goods and resold the same on retail price. What the State Government wanted was investment and industrial activity. It is in this background that the 1993 G.O. must be interpreted. (See CST v. Industrial Coal Enterprises (1999) 2 SCC 607). The exemption was granted in terms of the 1993 G.O. the thrust of which was to increase industrial development in the State.”

8. We respectfully agree with the aforesaid observations and would choose to take the same view by accepting the contention of the appellant that a liberal view of GOMs No. 15/74 dated 25-6- 1974 would have to be taken. We accordingly allow the appeal, set aside the order passed by the High Court and restore that of the Tribunal but without any order as to costs.”

19. While construing an exemption in a sales tax statute, this Court in CST v. Amara Raja Batteries Ltd (2009) 8 SCC 209 held:

20. Likewise, even under the Customs Act, this Court in Commr. of Customs (Preventive) v. M. Ambalal & Co. (2011) 2 SCC 74 made a clear distinction between exemptions which are to be strictly interpreted as opposed to beneficial exemptions having as their purpose - encouragement or promotion of certain activities. This case felicitously put the law thus follows:

21. This judgment was followed in CCE v. Favourite Industries

22. A recent 5-Judge Bench judgment was cited by Shri Gupta in Commr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1. The 5- Judge Bench was set up as a 3-Judge Bench in Sun Export Corporation v. Collector of Customs 1997 (6) SCC 564 was doubted, as the said judgment ruled that an ambiguity in a tax exemption provision must be interpreted so as to favour the assessee claiming the benefit of such exemption. This Court after dealing with a number of judgments relating to exemption provisions in tax statutes, ultimately concluded as follows:

23. 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 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 the conclusions reached by the impugned judgments of the Division Bench and the Full Bench.

25. The matter can also be seen from a slightly different angle. Where a High Court construes a local statute, ordinarily deference must be given to the High Court judgments in interpreting such a statute, particularly when they have stood the test of time (see State of Gujarat v. Zinabhai Ranchhodji Darji (1972) 1 SCC 233 at paragraph 10, Bishamber Dass Kohli v. Satya Bhalla (1993) 1 SCC 566 at paragraph 11, Duroflex Coir Industries Ltd. v. CST 1993 Supp (1) SCC 568 at paragraph 2, State of Karnataka v. G. Seenappa 1993 Supp (1) SCC 648 at paragraph 3 and Bonam Satyavathi v. Addala Raghavulu 1994 Supp (2) SCC 556 at paragraph 4). This is all the more applicable in the case of tax statutes where persons arrange their affairs on the basis of the legal position as it exists.

26. In the result, the appeals filed by the State of Kerala are dismissed. The appeal filed in Civil Appeal No.204 of 2012 is allowed and the judgment of the Division Bench is set aside. ……………..………………J. (R. F. Nariman) ………………………………J. (B.R. Gavai) New Delhi. March 01, 2021.