Distinction in Interpretation of Exemption Notification issued generally and exemption provisions which have a beneficial purpose
Hon’ble Supreme Court in the case GOVERNMENT OF KERALA & ANR. VS MOTHER SUPERIOR ADORATION CONVENT – 2021-VIL-43-SC analysed long line of judgments on interpretation of exemption notification in tax statutes and held that 5-Judge Bench judgment in Commr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1 did not refer to the line of authority which made a distinction between exemption provisions generally and exemption provisions which have a beneficial purpose. It was held by the Hon’ble Supreme Court 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 this matter the core issue was whether exemption granted to buildings used principally for religious or educational purpose be extended to residential accommodation for nuns and hostels for students.
This issue was answered by the Hon’ble Supreme Court by holding that residential accommodation for nuns and hostels for students would be eligible for exemption when Section 3(1)(b) of the Kerala Building Tax Act, 1975 exempted buildings that are used principally for religious, charitable or educational purposes or as factories or workshops from building tax under the Act.
It was held that 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”.
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.
It is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) must be given full effect to. 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.
Author Bio
