Kerala Building Tax Exemption: Supreme Court Clarifies ‘Charitable Purpose’ Definition

The Supreme Court of India, in the case of Lisie Medical Institutions vs. State of Kerala & Others, addressed a crucial question concerning the interpretation of ‘charitable purpose’ under Section 3(1)(b) of the Kerala Building Tax Act, 1975. The case revolved around whether medical institutions providing free and paid services could claim exemption from building tax. The Court clarified that the term ‘charitable purpose’ is not limited to ‘relief of the poor and free medical relief’ but includes a broader range of charitable activities.

Background of the Case

The appellant, Lisie Medical Institutions, sought exemption from building tax under Section 3(1)(b) of the Kerala Building Tax Act, 1975. The provision exempts buildings used ‘principally for religious, charitable, or educational purposes.’ An explanation to the provision states that ‘charitable purpose’ includes ‘relief of the poor and free medical relief.’ The Kerala High Court, relying on a previous Supreme Court judgment in S.H. Medical Centre Hospital vs. State of Kerala, held that the exemption only applied to institutions providing free medical services.

Read also: https://judgmentlibrary.com/supreme-courts-landmark-ruling-on-sikkim-tax-exemption-clarifications-and-amendments-explained/

The appellant challenged this interpretation, arguing that the term ‘charitable purpose’ should be understood more broadly and not confined to only free services. The Supreme Court was tasked with determining whether the High Court’s interpretation was correct.

Arguments by the Appellant (Lisie Medical Institutions)

• The appellant argued that the High Court had misinterpreted the term ‘charitable purpose’ by limiting it to ‘relief of the poor and free medical relief.’
• It was contended that the use of the word ‘includes’ in the explanation indicates that ‘charitable purpose’ is broader than just free medical services.
• The institution claimed that it provides substantial charitable services, including subsidized medical care, and should qualify for the exemption.
• The previous ruling in S.H. Medical Centre Hospital had incorrectly read the explanation as an exhaustive definition rather than an inclusive one.

Arguments by the Respondent (State of Kerala)

• The State of Kerala argued that tax exemption should be narrowly interpreted, applying only to institutions that provide entirely free medical services.
• It was contended that the legislative intent was to grant exemption only to institutions that primarily serve the poor without any profit motive.
• The State relied on the decision in S.H. Medical Centre Hospital, which had upheld the restrictive interpretation of ‘charitable purpose.’

Supreme Court’s Analysis and Judgment

The Supreme Court found that the High Court had incorrectly interpreted the law by treating the explanation as an exhaustive definition. The Court noted that the word ‘includes’ signifies an expansive meaning rather than a restrictive one.

Read also: https://judgmentlibrary.com/supreme-court-rules-on-tax-exemption-for-industrial-units-key-legal-insights/

The judgment emphasized:

• When a statute uses the word ‘includes,’ it suggests that the listed items are illustrative and not exhaustive.
• The explanation under Section 3(1)(b) does not limit ‘charitable purpose’ to ‘relief of the poor and free medical relief’ but merely provides examples.
• Medical institutions providing charitable services, even if they charge some fees, may still qualify for exemption if their primary objective is charitable.

The Court overruled the previous judgment in S.H. Medical Centre Hospital, stating:

“The two-Judge Bench in S.H. Medical Centre Hospital conflated the use of the word ‘include’ with ‘means.’ The plain intendment is that relief of the poor and free medical relief are not exhaustive of the content of charitable purpose.”

The Court further clarified that the principal use of the building should be for charitable purposes to qualify for the exemption. If a building is primarily used for commercial purposes, it would not qualify even if some charitable activities are carried out.

Final Verdict

• The Supreme Court set aside the Kerala High Court’s ruling.
• The case was remanded to the High Court for reconsideration based on the clarified interpretation of ‘charitable purpose.’
• The ruling reaffirmed that medical institutions providing substantial charitable services, even if not entirely free, could qualify for tax exemption.

This judgment provides a broader interpretation of ‘charitable purpose’ and ensures that institutions genuinely engaged in charitable activities receive the intended benefits under the Kerala Building Tax Act, 1975.

Read also: https://judgmentlibrary.com/gujarat-multiplex-tax-exemption-dispute-supreme-court-upholds-high-courts-verdict/

Petitioner Name: Lisie Medical Institutions.
Respondent Name: State of Kerala & Others.
Judgment By: Justice Dhananjaya Y Chandrachud, Justice Pamidighantam Sri Narasimha, Justice J.B. Pardiwala.
Place Of Incident: Kerala.
Judgment Date: 08-02-2023.

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