Supreme Court clarifies the scope of ‘Charitable Purpose’ under Kerala Building Tax Act in exemption claims: Lisie Medical Institutions vs. State of Kerala (2023)

Introduction

Date of the Judgment: February 9, 2023

Citation: 2023 INSC 720

Judges: Dr. Dhananjaya Y Chandrachud, CJI, Pamidighantam Sri Narasimha J, and J.B. Pardiwala J.

Can the definition of “charitable purpose” be restricted to just “relief of the poor and free medical relief” when a statute uses the word “includes”? The Supreme Court of India recently addressed this question while interpreting the Kerala Building Tax Act, 1975. The core issue revolved around whether the term “charitable purpose” should be narrowly interpreted to mean only relief to the poor and free medical relief, or if it has a broader scope. The Supreme Court, in this case, clarified that the term “includes” indicates that the definition is not exhaustive. The judgment was delivered by a three-judge bench comprising Chief Justice Dr. Dhananjaya Y Chandrachud, Justice Pamidighantam Sri Narasimha, and Justice J.B. Pardiwala.

Case Background

M/s Lisie Medical Institutions, the appellant, claimed an exemption from building tax under the Kerala Building Tax Act, 1975. The claim was based on the provision that exempts buildings used principally for charitable purposes. The institution argued that its activities fell under the ambit of “charitable purpose.” The State of Kerala, the respondent, contested this claim, leading to a legal dispute. The matter eventually reached the Supreme Court due to differing interpretations of the term “charitable purpose” by the High Court and a previous Supreme Court judgment.

Timeline:

Course of Proceedings

The Kerala High Court, in its judgment dated 18 July 2016, dismissed the Writ Appeal filed by Lisie Medical Institutions, relying on the Supreme Court’s decision in S.H. Medical Centre Hospital v. State of Kerala [(2014) 11 SCC 381]. The High Court stated that the issue concerning the claim of exemption from Building Tax was fully covered against the appellant by the aforementioned judgment. The Supreme Court, in the present case, noted that the High Court’s decision was solely based on the interpretation of the term “charitable purpose” in the SH Medical Centre Hospital case.

Legal Framework

The core of the dispute lies in the interpretation of Section 3(1) of the Kerala Building Tax Act, 1975, which provides exemptions from the tax. Specifically, Section 3(1)(b) states:

“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
(b) buildings used principally for religious charitable or
educational purposes or as factories or workshops.
Explanation.– For the purpose of this sub-section, “Charitable
purpose” includes relief of the poor and free medical relief.”

The explanation to Section 3(1) clarifies that “charitable purpose” includes “relief of the poor and free medical relief.” The Supreme Court emphasized that the use of the word “includes” indicates that the definition is not exhaustive.

Arguments

The appellant, M/s Lisie Medical Institutions, argued that their institution’s activities should be considered as falling under the ambit of “charitable purpose,” thus entitling them to an exemption under Section 3(1)(b) of the Kerala Building Tax Act, 1975. They contended that the term “charitable purpose” should be interpreted broadly and not limited to just “relief of the poor and free medical relief”.

The respondents, the State of Kerala, argued that the term “charitable purpose” should be interpreted narrowly, as was done in the earlier judgment of the Supreme Court in SH Medical Centre Hospital vs State of Kerala [(2014) 11 SCC 381]. They contended that since the explanation to Section 3(1) specifically mentions “relief of the poor and free medical relief,” the term “charitable purpose” should be confined to these activities only. They also argued that the phrase “principally used for charitable purposes” in Section 3(1)(b) should be interpreted to mean the dominant purpose of the building.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the interpretation of the term “charitable purpose” in the explanation to Section 3(1) of the Kerala Building Tax Act, 1975, should be confined to “relief of the poor and free medical relief” only, or if it has a broader scope.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the plain meaning of the word “includes” in the explanation to Section 3(1) of the Kerala Building Tax Act, 1975. The Court emphasized that when a statute uses the word “includes,” it indicates that the definition is not exhaustive. This interpretation is a well-settled principle of statutory interpretation. The Court also noted that the previous judgment in SH Medical Centre Hospital had incorrectly interpreted the explanation by conflating the word “includes” with “means.” The Court clarified that the term “charitable purpose” is broader than just “relief of the poor and free medical relief.”

The Court rejected the narrow interpretation of “charitable purpose” as it would defeat the purpose of the exemption. The Court emphasized that the dominant use of the building should be for charitable purposes, as indicated by the word “principally” in Section 3(1)(b).

The Supreme Court observed that the two judge bench in SH Medical Centre Hospital conflated the use of the word ‘include’ with ‘means’. The Court emphasized that the explanation to Section 3(1)(a) uses the expression ‘includes’ and the plain intendment is that relief of the poor and free medical relief are not exhaustive of the content of charitable purpose.

The Court quoted the following from the referring judgment:
“With due respect to the Bench which rendered the judgment in S.H. Medical Centre Hospital Vs State of Kerala, it appears that an error in interpreting Explanation I to Clause 1 of Section 3 of the Act has occurred in not noticing that it contains the word “includes” and not “means”. This error led to holding that “charitable purpose” meant only “relief of the poor and free medical relief”. Relief to the poor and free medical relief is only one of the facets to charitable purpose and Explanation simply clarifies that too to be a charitable purpose. However, the inclusive definition points out that relief to poor and free medical relief is not exhaustive as to what charitable purpose would mean.”

The Court also observed that the interpretation placed by the two-Judge Bench on the expression “principally used for charitable purposes” does not call for interference in view of the statutory language used in Section 3(1). Principal use refers to the dominant substantive use as distinguished from an ancillary use.

The court stated:
“Consequently, the decision in SH Medical Centre Hospital (supra) to the extent of the interpretation which is placed on the Explanation to Section 3(1)(b) of the Kerala Building Tax Act 1975 does not correctly reflect the position in law which is clarified above. The decision in SH Medical Centre Hospital is, therefore, overruled to the above extent.”

Key Takeaways

• The term “charitable purpose” under the Kerala Building Tax Act, 1975, is not limited to “relief of the poor and free medical relief.”
• The word “includes” in the explanation to Section 3(1) indicates that the definition is not exhaustive.
• Buildings used principally for charitable purposes are eligible for exemption from building tax.
• The dominant or substantive use of the building should be for charitable purposes.

Directions

The Supreme Court set aside the impugned judgment of the High Court and restored the Writ Appeal to the file of the High Court for a decision after keeping open the factual analysis based on the interpretation of Section 3(1).

Development of Law

The ratio decidendi of this case is that the term “charitable purpose” in the context of the Kerala Building Tax Act, 1975, has a broader scope than just “relief of the poor and free medical relief.” This decision clarifies the interpretation of the word “includes” in statutory definitions. This judgment overrules the previous position of law established in SH Medical Centre Hospital vs State of Kerala [(2014) 11 SCC 381] on the interpretation of the explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975.

Conclusion

The Supreme Court’s judgment in M/s Lisie Medical Institutions vs. The State of Kerala clarifies that the term “charitable purpose” under the Kerala Building Tax Act, 1975, has a broader scope than previously interpreted. The Court emphasized that the word “includes” in the explanation to Section 3(1) indicates that the definition is not exhaustive, and the term should not be limited to “relief of the poor and free medical relief.” This decision ensures that institutions engaged in various charitable activities can claim exemptions under the Act, provided their primary purpose is charitable.