Holding

Buildings used for residential accommodation of nuns and hostel accommodation of students, when integrally connected with religious or educational activity, are exempt from building tax under Section 3(1)(b) of the Kerala Building Tax Act, 1975.

Summary

The Supreme Court examined whether residential accommodations for nuns and hostel buildings for students qualify for exemption from building tax under Section 3(1)(b) of the Kerala Building Tax Act, 1975. The State argued that such buildings are merely residential and not used principally for religious or educational purposes, while the respondents contended that the residences are integrally connected with religious instruction or education. The Court interpreted the phrase “used principally for religious, charitable or educational purposes” to include buildings directly connected with those core activities, emphasizing a liberal construction of beneficial exemptions. It held that the exemption should be given effect to buildings whose purpose is not profit‑making but to further religious or educational objectives, and that any ambiguity must be resolved in favour of the exempted. Consequently, the buildings in question were held exempt from building tax, the State’s appeals were dismissed, and the lone appeal favouring the State was allowed, setting aside the lower court’s decision.

Issues considered

Whether residential accommodation for nuns and hostel accommodation for students fall within the exemption under Section 3(1)(b) of the Kerala Building Tax Act, 1975.
Interpretation of the term “used principally for religious, charitable or educational purposes” in the Act.
Whether any ambiguity in the exemption provision should be resolved in favour of the State or the assessee.
Whether the definition of “residential building” under Section 2(l) excludes such buildings from exemption.
Whether a liberal construction is required for beneficial exemptions in tax statutes.

Legislation cited

Kerala Building Tax Act, 1975s. 2(e), s. 2(l), s. 3(1)(b), s. 5A
Kerala Municipalities Acts. 235

Subjects

building taxexemptionreligious purposeeducational purposehostel accommodationstatutory interpretationbeneficial exemptionKerala Building Tax Act

Judgment

26 [2021]
SUPREME COURT 3 S.C.R. 26
REPORTS [2021] 3 S.C.R.

A GOVERNMENT OF KERALA & ANR.
v.
MOTHER SUPERIOR ADORATION CONVENT
(Civil Appeal No. 202 of 2012)
B MARCH 01, 2021
[R. F. NARIMAN AND B. R. GAVAI, JJ.]
Kerala Building Tax Act, 1975 – s.3(1)(b) – Exemption from
building tax – The State claims that no exemption from building tax
should be granted to residential accommodation for nuns, priests
C
or hostel accommodation for students, as these have no direct
connection with religious/educational activity – It was contended
that assuming there is ambiguity in s.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 – Held: A
D reading of s.3(1)(b) 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 – Nuns living in a neighbouring building to a
convent only so that they may receive religious instruction there, or
E
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 – An exemption
provision should be liberally construed in accordance with the object
F sought to be achieved if such provision is to grant incentive for
promoting economic growth or otherwise has some beneficial reason
behind it – One must first ask 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
G
exempted – Therefore, the buildings in question exempted from
building tax.
Disposing the appeals, the Court
HELD: 1. A reading of the provision would show that the
H object for exempting buildings which are used principally for
26
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 27
ADORATION CONVENT

religious, charitable or educational purposes would be for core A
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
B
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 C
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
D
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 E
not to earn profit but residence that is integrally connected with
religious or educational activity. [Para 12][40-E-H; 41-A-B]
2. 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” F
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 G
buildings having a plinth area of 278.7 square meters and which
have been completed on or after 1.4.1999. If the contention of
the State is accepted, buildings in which nuns are housed and
students are accommodated in hostels which have been
H
28 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 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.
B
For this reason also, this Court 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. [Para 13][41-C-F]
C 3. 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
D statutes. This being the case, a literal formalistic interpretation
of the statute at hand is to be eschewed. One must first ask 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, this
E Court agrees with the conclusions reached by the impugned
judgments of the Division Bench and the Full Bench that the
buildings in question should be exempted from building tax.
[Para 24][48-H; 49-A-C]
Union of India v. Wood Papers Ltd (1990) 4 SCC 256 : [1990]
F 2 SCR 659; CST v. Amara Raja Batteries Ltd (2009) 8 SCC
209 : [2009] 11 SCR 953; Commr. of Customs (Preventive) v.
M. Ambalal & Co. (2011) 2 SCC 74 : [2010] 15 SCR 937;
CST v. Industrial Coal Enterprises (1999) 2 SCC 607 : [1999]
1 SCR 871; State of Jharkhand v. Tata Cummins Ltd (2006)
G 4 SCC 57 : [2006] 3 SCR 443; Pondicherry State Coop.
Consumer Federation Ltd. v. Union Territory of Pondicherry
(2008) 1 SCC 206 : [2007] 11 SCR 1118 – relied on.
Star Industries v. Commr. of Customs (Imports) (2016) 2 SCC
362 : [2015] 11 SCR 570; CCE v. Favourite Industries (2012)
H 7 SCC 153; Commr. of Customs v. Dilip Kumar & Co. (2018)
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 29
ADORATION CONVENT

9 SCC 1 : [2018] 7 SCR 1191; Sun Export Corporation v. A
Collector of Customs 1997 (6) SCC 564 : [1997] 1 Suppl.
SCR 434; Quinn v. Leathem (1901) AC 495; State of Orissa
v. Sudhansu Sekhar Misra [1968] 2 SCR 154; State of
Gujarat v. Zinabhai Ranchhodji Darji (1972) 1 SCC 233 :
[1972] 2 SCR 686; Bishamber Dass Kohli v. Satya Bhalla
B
(1993) 1 SCC 566 : [1993] 1 SCR 171; Duroflex Coir
Industries Ltd. v. CST (1993) Supp 1 SCC 568; State of
Karnataka v. G. Seenappa (1993) Supp 1 SCC 648; Bonam
Satyavathi v. Addala Raghavulu (1994) Supp 2 SCC 556 –
referred to.
C
Case Law Reference
[1990] 2 SCR 659 relied on para 14
[2015] 11 SCR 570 referred to para 15
[1999] 1 SCR 871 relied on para 16 D
[2006] 3 SCR 443 relied on para 17
[2007] 11 SCR 1118 relied on para 18
[2009] 11 SCR 953 relied on para 19
[2010] 15 SCR 937 relied on para 20 E

(2012) 7 SCC 153 referred to para 21
[2018] 7 SCR 1191 referred to para 22
[1997] 1 Suppl. SCR 434 referred to para 22
F
(1901) AC 495 relied on para 23
[1968] 2 SCR 154 referred to para 23
[1972] 2 SCR 686 referred to para 25
[1993] 1 SCR 171 referred to para 25 G
(1993) Supp 1 SCC 568 referred to para 25
(1993) Supp 1 SCC 648 referred to para 25
(1994) Supp 2 SCC 556 referred to para 25
H
30 SUPREME COURT REPORTS [2021] 3 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 202 of
2012.
From the Judgment and Order dated 22.11.2007 of the High Court
of Kerala at Ernakulam in WP(C) No. 27108 of 2006(B).
With
B
Civil Appeal Nos. 6589 of 2015, 10298 of 2016, 10297 of 2016,
10881 of 2016, 203 of 2012, 204 of 2012, 207 of 2012, 206 of 2012, 205
of 2012, 745 of 2021, 5036 of 2015, 8351 of 2014, 746 of 2021, 747 of
2021, 8352 of 2014, 4445 of 2015, 4446 of 2015, 4447 of 2015, 7368 of
2016.
C
Jaideep Gupta, Sr. Adv., C. K. Sasi, Atul Shankar Vinod, M. P.
Vinod, Krishnamohan K. Menon, Ms. Dania Nayyar, Pawanshree
Agrawal, Radha Shyam Jena, P.A. Noor Muhamed, Ms. Giffara S.,
Bilal Niamathulla, Ms. Ruxana PN, Rameshwar Prasad Goyal, A.
Venayagam Balan, Sajith. P, T. G. Narayanan Nair, Roy Abraham, Ms.
D Reena Roy, Akhil Roy, Himinder Lal, Nishe Rajen Shonker, Ms. Liz
Mathew, A.M. Pattiyani, Ms. Manju Pattiyani, Ms. Akshara Pattiyani,
Jose Abraham, Mrs. Priyanka Prakash, Mrs. Beena Prakash, G. Prakash,
Advs. for the appearing parties.
The Judgment of the Court was delivered by
E
R. F. NARIMAN, J.
1. Leave granted.
2. All these appeals pertain to an exemption provision contained
in the Kerala Building Tax Act, 1975. Under Section 3(1)(b) buildings
F that are used principally for religious, charitable or educational purposes
or as factories or workshops are exempted from building tax under the
Act. All of the appeals, except one, are by the State of Kerala against a
judgment dated 22.11.2007 passed by a Division Bench of the Kerala
High Court in Government of Kerala & Anr v. Mother Superior Adoration
Convent (Civil Appeal No.202 of 2012) and a Full Bench judgment in
G State of Kerala & Ors v. Unity Hospital (P) Ltd. (Civil Appeal No. 207
of 2012), being a judgment dated 21.12.2010. Both judgments decided to
exempt the buildings in question. The other appeals by the State contain
judgments which follow either or both of these judgments. The only
appeal by an assessee namely, Administrator, Jos Giri Hospital v.
H Government of Kerala (Civil Appeal No.204 of 2012), is from a judgment
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 31
ADORATION CONVENT [R. F. NARIMAN, J.]

of the Division Bench of the Kerala High Court deciding the case in A
favour of the State. However, this judgment was referred to the Full
Bench which decided the judgment in State of Kerala & Ors v. Unity
Hospital (P) Ltd. (Civil Appeal No. 207 of 2012) and has been stated to
have reached an incorrect conclusion.
3. On facts, there is a similarity in most of the cases before us. B
Either there are residential accommodations for nuns as in the first appeal
before us or there are hostel accommodations which are attached to
various educational institutions. In both cases, the State claims that no
exemption should be granted as residential accommodation for nuns and
hostels for students would be for residential as apart from religious or
educational purposes and would not therefore be covered by the C
exemption contained in Section 3(1)(b) of the Act.
4. We may take up the facts in Civil Appeal No.202 of 2012. In
this case, by an order of assessment dated 14.03.2002, building tax was
levied on residential accommodation for nuns who underwent religious
training to become nuns in a convent. Against the aforesaid assessment D
to tax, the respondent filed O.P. No.11246 of 2002 and the High court
vide its judgment and order dated 29.5.2002 quashed the aforesaid
assessment order and directed the Tehsildar to refer the case to the
Government for its decision. A representation was made to the
Government by the respondent on 10.2.2004 in which it was stated: E
“2. At present we the 8 sisters residing here are deputed to render
services in religious as well as charitable needs of the Vinjan Matha
Church, East Thodupuzha and the people around the Church,
irrespective of caste, creed and community.
xxx xxx xxx F
In order to become sisters, we had undergone 8 years rigorous
religious education and training and then decided to lead a life of
a SANYASINI throughout our life.
xxx xxx xxx
G
8. The vow of obedience, is intended to make use of the individual
sisters by their elected superior sisters, where their services are
most needed. It means, we the present sisters attached to this
convent at present are not permanent members here. We have
H
32 SUPREME COURT REPORTS [2021] 3 S.C.R.

A come from different places, and each one of us will be individually
transferred to other places, as our Superior’s Council decides.
9. So much so, the convent is a permanent set up here to render
the religious and charitable needs of the locality, whereas the
members are individually deputed to render the services for a
B period found proper.
xxx xxx xxx
11. The convent was established by the Council decision of the
St. Mary’s Province of the Congregation of the Sisters of
Adoration of the Blessed Sacrament.
C
12. The building is also intended for accommodating the junior
sisters who are undergoing their college education in the nearby
Newman College - Thodupuzha. Thus, at present 8 students-sisters
also are residing here.

D 13. The Building is two storeyed and measures approximately
5000sq.ft. The ground floor contains a prayer hall, kitchen,
refectory, study hall and small rooms for sisters. The upper floor
contains 5 rooms for sisters, a dormitory and study hall.
14. The building is not at all given for amount at any time, and it
will not be given so in the future also. It will be used only as a
E
religious house.”
5. This representation was turned down by the Government’s order
dated 11.09.2006 as follows:
“The Government has examined the matter in detail. The petitioner
F was heard on 16.9.2004 and he claimed that the building is
exclusively used for accommodating the nuns who are engaged
in religious and charitable activities. No part of the building is
rented out or used for any other purpose. On perusal of the records
the documents produced at the time of hearing it has become
evident that the convent is not principally used for any religious or
G charitable purpose. The District Collector, Idukki as per letter read
as fourth paper above has also informed that no charitable activities
are undertaken in the convent and the building is used for the
residential purpose of nuns.
xxx xxx xxx
H
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 33
ADORATION CONVENT [R. F. NARIMAN, J.]

It includes professing once used in public expressing it by private A
and public worship, practicing rituals and ceremonies. It also
includes observances, ceremonies and functions which are being
customarily performed by members of a particular religion. If the
main use of the major portion of a building is for the above then
that building can be said to be used principally for religious
B
purposes.
xxx xxx xxx
In the above circumstances, Government Order that the building
in Survey No. 206 Thodupuzha village, Thodupuzha Taluk having
plinth area of 903.24 M2 owned by the Adoration Convent, Shanti C
Bhavan, Thodupuzha is not eligible for exemption under Section 3
of the Kerala Building Tax Act, 1975.”
6. A writ petition being Writ Petition No.27108 of 2006 was filed
against the said order before a learned Single Judge who then referred
the matter to a Division Bench as he did not agree with an earlier judgment D
of a learned Single Judge of the Kerala High Court. By the impugned
judgment dated 22.11.2007, a Division Bench of the Kerala High Court
held as follows:
“8. If the activities that are going on in the convent are
predominantly religious, then, normally, buildings of the convent E
used for the said purpose should also qualify for exemption. Of
course, if any particular building is used for any commercial
activity, such buildings could be segregated. It is not in dispute
that a chapel is used for religious purposes. Attached to that, there
may be a room for the Chaplain for taking rest etc. Can that room
be segregated and said that it is not used for religious purposes. F
We feel that the answer should be in the negative. If the buildings
of convents are generally used for religious purposes and one of
the buildings is used for residence of an inmate there, it shall also
be treated as one, used for religious purposes. Any interpretation
to the contrary will be irrational. So, we are of the view that the G
buildings, used for the residence of the nuns in a convent, is
principally used for religious purposes and therefore, should also
qualify for exemption. We are in respectful agreement with the
views expressed by C.N. Ramachandran Nair, J., in Writ Petition
(C) No.27250/06. The judgment in W.A.2424/05 deals with the
H
34 SUPREME COURT REPORTS [2021] 3 S.C.R.

A case of a boarding and lodging house for students run by a convent
where rooms are let out collecting a fee. If the convent is running
a commercial or industrial unit, the building housing that
establishment will not qualify for exemption. That principle cannot
be applied in the case of the building used for accommodating
nuns in the convent. The decision of the Apex Court relied on by
B
the learned Government Pleader also does not have any application
to the facts of this case. The point considered therein was whether
the building used for accommodating a school can be treated as a
building used for charitable purposes or religious activities. The
principle stated therein does not have any application to the facts
C of this case.”
7. The Full Bench judgment of 2010 contained in Civil Appeal
No.207 of 2012 was as a result of a Division Bench doubting the
correctness of the Division Bench judgment in Administrator, Jos Giri
Hospital v. Government of Kerala that is contained in Civil Appeal No.204
D of 2012. Paragraphs 2 and 3 of the Full Bench posed the question raised
thus:
“2. The question raised is whether hostel building of an educational
institution is entitled for exemption from building tax under Section
3(1)(b) of the Kerala Building Tax Act, 1975 (hereinafter referred
E to as the Act for short), which provides for building tax exemption
for buildings used for “educational purposes”.
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
F 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
G 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
H
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 35
ADORATION CONVENT [R. F. NARIMAN, J.]

which have integral, immediate and proximate connection to A
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
B
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 C
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
D
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 E
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
F
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 G
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
H
36 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 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
B
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
C 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
D 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
E 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
F 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
G 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
H educational institutions, particularly engineering colleges are
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 37
ADORATION CONVENT [R. F. NARIMAN, J.]

established all over Kerala including remote areas and hill stations, A
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.
B
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 C
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
D
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 E
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,
F
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 G
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
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38 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 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
B
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.”
C 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
D 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
E 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
F 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.
G
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,
H
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 39
ADORATION CONVENT [R. F. NARIMAN, J.]

and this being the case, the aforesaid judgments do not require to be A
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:
“2. Definitions - In this Act, unless the context otherwise requires, B

(e) “building” means a house, out-house, garage, or any other
structure, or part thereof, whether of masonry, bricks, wood, metal
or other material, but does not include any portable shelter or any
shed constructed principally of mud, bamboos, leaves, grass or
thatch or a latrine which is not attached to the main structure. C

(i) “owner” includes a person who for the time being is receiving,
or is entitled to receive, the rent of any building, whether on his
own account or on account of himself and others or as an agent,
trustee, guardian or receiver for any other person or who should
so received the rent or be entitled to receive it if the building or D
part thereof were let to a tenant;
(l) “residential building” means a building or any other structure
or part thereof built exclusively for residential purpose including
outhouses or garages appurtenant to the building for the more
beneficial enjoyment of the main building but does not include E
hotels, boarding places, lodges and the like.]
3. Exemptions - (1) Nothing in this Act shall apply to-
(a) buildings owned by the Government of Kerala or the
Government of India or any local authority; and
F
(b) buildings used principally for religious, charitable or educational
purposes or as factories or workshops.
Explanation. - For the purposes of this sub-section, “charitable
purpose” includes relief of the poor and free medical relief.
5. Charge of building tax - (1) Subject to the other provisions G
contained in this Act, there shall be charged a tax (hereinafter
referred to as “building tax”) based on the plinth area at the rate
specified in the Schedule on every building the construction of
which is completed on or after the appointed day.
H
40 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 5A. Charge of luxury tax - [1) Notwithstanding anything
contained in this Act, there shall be charged a luxury tax based on
the plinth area at the rate specified in Schedule II, annually on all
residential buildings having a plinth area of 278.7 square metres
completed on or after the 1st day of April, 1999.”
B 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
C 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
D 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
E 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
F 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
G 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
H
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 41
ADORATION CONVENT [R. F. NARIMAN, J.]

rational connection with religious activity. The indirect connection with A
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
B
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 C
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 D
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 E
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 F
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: G
“4. Entitlement of exemption depends on construction of the
expression “any factory commencing production” used in the Table
extracted above. Literally exemption is freedom from liability, tax
or duty. Fiscally it may assume varying shapes, specially, in a
growing economy. For instance tax holiday to new units, H
42 SUPREME COURT REPORTS [2021] 3 S.C.R.

A concessional rate of tax to goods or persons for limited period or
with the specific objective etc. That is why its construction, unlike
charging provision, has to be tested on different touchstone. In
fact an exemption provision is like an exception and on normal
principle of construction or interpretation of statutes it is construed
strictly either because of legislative intention or on economic
B
justification of inequitable burden or progressive approach of fiscal
provisions intended to augment State revenue. But once exception
or exemption becomes applicable no rule or principle requires it to
be construed strictly. Truly speaking liberal and strict construction
of an exemption provision are to be invoked at different stages of
C interpreting it. When the question is whether a subject falls in the
notification or in the exemption clause then it being in nature of
exception is to be construed strictly and against the subject but
once ambiguity or doubt about applicability is lifted and the subject
falls in the notification then full play should be given to it and it
calls for a wider and liberal construction. Therefore, the first
D
exercise that has to be undertaken is if the production of packing
and wrapping material in the factory as it existed prior to 1964 is
covered in the notification.”
15. This statement of the law was followed in a number of
judgments. Suffice it to say that in Star Industries v. Commr. of
E 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
F 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
G (1999) 2 SCC 607, this Court held:
“11. In CIT v. Straw Board Mfg. Co. Ltd. 1989 Supp (2) SCC
523 this Court held that in taxing statutes, provision for concessional
rate of tax should be liberally construed. So also in Bajaj Tempo
Ltd. v. CIT(1992) 3 SCC 78 it was held that provision granting
H incentive for promoting economic growth and development in taxing
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 43
ADORATION CONVENT [R. F. NARIMAN, J.]

statutes should be liberally construed and restriction placed on it A
by way of exception should be construed in a reasonable and
purposive manner so as to advance the objective of the provision.
12. We find that the object of granting exemption from payment
of sales tax has always been for encouraging capital investment
and establishment of industrial units for the purpose of increasing B
production of goods and promoting the development of industry in
the State. If the test laid down in Bajaj Tempo Ltd. case (1992) 3
SCC 78 is applied, there is no doubt whatever that the exemption
granted to the respondent from 9-8-1985 when it fulfilled all the
prescribed conditions will not cease to operate just because the
capital investment exceeded the limit of Rs 3 lakhs on account of C
the respondent becoming the owner of land and building to which
the unit was shifted. If the construction sought to be placed by the
appellant is accepted, the very purpose and object of the grant of
exemption will be defeated. After all, the respondent had only
shifted the unit to its own premises which made it much more D
convenient and easier for the respondent to carry on the production
of the goods undisturbed by the vagaries of the lessor and without
any necessity to spend a part of its income on rent. It is not the
case of the appellant that there were any mala fides on the part of
the respondent in obtaining exemption in the first instance as a
unit with a capital investment below Rs 3 lakhs and increasing the E
capital investment subsequently to an amount exceeding Rs 3 lakhs
with a view to defeat the provisions of any of the relevant statutes.
The bona fides of the respondent have never been questioned by
the appellant.”
17. Likewise, in State of Jharkhand v. Tata Cummins Ltd F
(2006) 4 SCC 57 in dealing with a tax exemption for setting up an industry
in a backward area, this Court held as follows:
“16. Before analysing the above policy read with the notifications,
it is important to bear in mind the connotation of the word “tax”. A
tax is a payment for raising general revenue. It is a burden. It is G
based on the principle of ability or capacity to pay. It is a
manifestation of the taxing power of the State. An exemption
from payment of tax under an enactment is an exemption from
the tax liability. Therefore, every such exemption notification has
to be read strictly. However, when an assessee is promised with H
44 SUPREME COURT REPORTS [2021] 3 S.C.R.

A a tax exemption for setting up an industry in the backward area
as a term of the industrial policy, we have to read the implementing
notifications in the context of the industrial policy. In such a case,
the exemption notifications have to be read liberally keeping in
mind the objects envisaged by the industrial policy and not in a
strict sense as in the case of exemptions from tax liability under
B
the taxing statute.”
18. Similarly, in Pondicherry State Coop. Consumer
Federation Ltd. v. Union Territory of Pondicherry (2008) 1 SCC
206 this Court held:
C “5. Learned Senior Counsel Shri Venkatraman appearing for the
appellant assessee submitted that this question was no more res
integra and was covered by the judgment of this Court in Vadilal
Chemicals Ltd. v. State of A.P. (2005) 6 SCC 292. It was pointed
out that in that case an identical question fell for consideration
under the similar circumstances. There also, the question was as
D to whether the small-scale industry which was engaged in bottling
of anhydrous ammonia could be said to be entitled to the exemption
from payment of sales tax on the ground that it was manufacturing
such goods since there was a general exemption offered by the
Andhra Pradesh Government by GOMs No. 117 dated 17-3-1993
E to the small-scale industry. There also it was found on inspection
that the assessee industry was allowed irregular tax exemption
on the first sales of anhydrous liquefied ammonia as it was found
that the commodity that was purchased and sold was one of the
same and there was no new commodity that had emerged and
that the assessee had only done bottling of ammonia. The show-
F cause notices were issued to the assessee in that case suggesting
therein that the activity of bottling/packing of gases into unit
containers from bulk quantities was not recognised as
“manufacture” even under the Central Excise Act. In that view
the question which fell for consideration before this Court was as
G to whether under the circumstances the assessee could claim the
exemption. This Court firstly held that the exemption certificate
was granted by the authorities after due consideration. It was
then noted that though the exemption was available on the products
“manufactured” in industrial units, the interpretation put forth by
the authorities on the word “manufacture” was incorrect. This
H
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 45
ADORATION CONVENT [R. F. NARIMAN, J.]

Court took the view that the authorities had based the interpretation A
of word “manufacture” on the law relating to excise and that it
was erroneous to do so. It was observed that in the State Sales
Tax Act there was no provision relating to “manufacture” and the
concept was to be found only in the 1993 G.O. which had provided
the exemption. The Court further took the view that the exemption
B
was granted with a view to give a fillip to the industry in the State
and also for the industrial units of the State. The Court, therefore,
took the view that a liberal interpretation of the term “manufacture”
should have been adopted by the State authorities, more
particularly, when the State authorities had granted the certificate
of eligibility after due consideration of the facts. C
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 D
not found to have been erroneously issued and was very much in
vogue when the show-cause 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 E
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 F
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: G
“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
H
46 SUPREME COURT REPORTS [2021] 3 S.C.R.

A 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
B
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
C since in the present case the exemption was granted to all small-
scale 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
D
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
E 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
F 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
G 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
H
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 47
ADORATION CONVENT [R. F. NARIMAN, J.]

would have to be taken. We accordingly allow the appeal, set A
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:
“21. An exemption notification should be given a literary (sic literal) B
meaning. Recourse to other principles or canons of interpretation
of statute should be resorted to only in the event the same give
rise to anomaly or absurdity. The exemption notification must be
construed having regard to the purpose and object it seeks to
achieve. The Government sought for increase in industrial C
development in the State. Such a benevolent act on the part of the
State, unless there exists any statutory interdict, should be given
full effect. (See Vadilal Chemicals Ltd. v. State of A.P. (2005) 6
SCC 292)”
20. Likewise, even under the Customs Act, this Court in Commr. D
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:
E
“16. It is settled law that the notification has to be read as a whole.
If any of the conditions laid down in the notification is not fulfilled,
the party is not entitled to the benefit of that notification. The rule
regarding exemptions is that exemptions should generally be strictly
interpreted but beneficial exemptions having their purpose as
encouragement or promotion of certain activities should be liberally F
interpreted. This composite rule is not stated in any particular
judgment in so many words. In fact, majority of judgments
emphasise that exemptions are to be strictly interpreted while some
of them insist that exemptions in fiscal statutes are to be liberally
interpreted giving an apparent impression that they are G
contradictory to each other. But this is only apparent. A close
scrutiny will reveal that there is no real contradiction amongst the
judgments at all. The synthesis of the views is quite clearly that
the general rule is strict interpretation while special rule in the
case of beneficial and promotional exemption is liberal
H
48 SUPREME COURT REPORTS [2021] 3 S.C.R.

A interpretation. The two go very well with each other because
they relate to two different sets of circumstances.”
21. This judgment was followed in CCE v. Favourite Industries
(2012) 7 SCC 153 (see paragraph 42).
22. A recent 5-Judge Bench judgment was cited by Shri Gupta in
B 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
C such exemption. This Court after dealing with a number of judgments
relating to exemption provisions in tax statutes, ultimately concluded as
follows:
“66. To sum up, we answer the reference holding as under:
66.1. Exemption notification should be interpreted strictly; the
D burden of proving applicability would be on the assessee to show
that his case comes within the parameters of the exemption clause
or exemption notification.
66.2. When there is ambiguity in exemption notification which is
subject to strict interpretation, the benefit of such ambiguity cannot
E be claimed by the subject/assessee and it must be interpreted in
favour of the Revenue.
66.3. The ratio in Sun Export case [Sun Export Corpn. v. Collector
of Customs, (1997) 6 SCC 564] is not correct and all the decisions
which took similar view as in Sun Export case stand overruled.”
F
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
G 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
H the exemption contained in Section 3(1)(b) must be given full effect to,
GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIOR 49
ADORATION CONVENT [R. F. NARIMAN, J.]

the line of authority being applicable to the facts of these cases being the A
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
B
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 C
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 D
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.
E
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.

Ankit Gyan Appeals disposed of. F

G

H