Date of the Judgment: 9 February 2023
Citation: (2023) INSC 98
Judges: Dr Dhananjaya Y Chandrachud, CJI, Pamidighantam Sri Narasimha, J, J B Pardiwala, J
Can the term “charitable purpose” be narrowly defined only as “relief of the poor and free medical relief” under the Kerala Building Tax Act, 1975? The Supreme Court of India recently addressed this question, clarifying the scope of exemptions available for buildings used for charitable purposes. This judgment arose from a reference to a three-judge bench due to a previous two-judge bench decision that had interpreted the term restrictively. The bench comprised of Chief Justice Dr Dhananjaya Y Chandrachud, Justice Pamidighantam Sri Narasimha, and Justice J B Pardiwala, with the opinion authored by the Chief Justice.
Case Background
The case involves M/s Lisie Medical Institutions, the appellant, and the State of Kerala & Ors, the respondents. The core dispute revolves around the interpretation of Section 3(1)(b) of the Kerala Building Tax Act, 1975, which provides exemptions for buildings used principally for religious, charitable, or educational purposes. The appellant sought an exemption from building tax, claiming their buildings were used for charitable purposes. The matter reached the Supreme Court after a two-judge bench doubted the correctness of an earlier decision on the interpretation of “charitable purpose”.
Timeline:
| Date | Event |
|---|---|
| 2014 | Two-judge bench decision in SH Medical Centre Hospital vs State of Kerala interpreted “charitable purpose” narrowly. |
| 2016 | Kerala High Court relied on SH Medical Centre Hospital judgment, denying exemption to Lisie Medical Institutions. |
| 2017 | Lisie Medical Institutions appealed to the Supreme Court. |
| 9 February 2023 | Supreme Court delivered judgment clarifying the interpretation of “charitable purpose” and overruling part of the SH Medical Centre Hospital judgment. |
Course of Proceedings
The case was initially heard by a two-judge bench of the Supreme Court, which noted the interpretation of the term “charitable purpose” in the earlier judgment of *SH Medical Centre Hospital vs State of Kerala*. The two-judge bench doubted the correctness of the earlier interpretation and referred the matter to a three-judge bench for a definitive ruling. The Kerala High Court had previously relied on the *SH Medical Centre Hospital* decision to deny the exemption claimed by the appellant, M/s Lisie Medical Institutions.
Legal Framework
The core of the legal framework lies in Section 3(1) of the Kerala Building Tax Act, 1975, which 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.”
Specifically, clause (b) of Section 3(1) provides exemptions for buildings used principally for charitable purposes. The Explanation clarifies that “charitable purpose” includes “relief of the poor and free medical relief”. The Supreme Court noted that the use of the word “includes” indicates that the definition is not exhaustive.
Arguments
The senior counsel for the appellant, Mr. R Basant, argued that the term “charitable purpose” should not be confined to just relief of the poor and free medical relief, as the word “includes” in the Explanation suggests a broader interpretation. The senior counsel for the respondents, Mr. V Giri, contended that while the interpretation of the Explanation in the decision of *SH Medical Centre Hospital* was incorrect, the interpretation of the phrase “buildings used principally for…charitable…purposes” was correct.
The respondents argued that the term “principally” in Section 3(1)(b) means the dominant purpose of the building, and the interpretation of the term in *SH Medical Centre Hospital* was correct. The respondents contended that the term “charitable purpose” should be interpreted based on the context of the Kerala Building Tax Act, 1975.
The appellant relied on the interpretation of “includes” to argue that the definition of charitable purpose is not exhaustive and should encompass other activities that are considered charitable. The appellant argued that the High Court erred in relying on the *SH Medical Centre Hospital* judgment for denying the exemption.
| Main Submission | Sub-Submissions by Appellant | Sub-Submissions by Respondents |
|---|---|---|
| Interpretation of “Charitable Purpose” | ✓ The term “includes” in the Explanation indicates a non-exhaustive definition. ✓ “Charitable purpose” should not be limited to relief of the poor and free medical relief. |
✓ The interpretation of the term in *SH Medical Centre Hospital* was incorrect. ✓ The term “principally” means the dominant purpose of the building. |
| Reliance on Precedents | ✓ The High Court erred in relying on *SH Medical Centre Hospital* for denying the exemption. | ✓ The interpretation of the phrase “buildings used principally for…charitable…purposes” in *SH Medical Centre Hospital* was correct. |
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
- What is the correct interpretation of the Explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975, specifically regarding the scope of “charitable purpose”?
Treatment of the Issue by the Court
| Issue | Court’s Treatment |
|---|---|
| Interpretation of “charitable purpose” under Section 3(1)(b) of the Kerala Building Tax Act, 1975 | The Court held that the term “includes” in the Explanation indicates that the definition of “charitable purpose” is not limited to “relief of the poor and free medical relief.” The Court clarified that the term has a broader meaning and the earlier judgment in *SH Medical Centre Hospital* was incorrect in its interpretation of the Explanation. |
Authorities
The Supreme Court considered the following authorities:
- *SH Medical Centre Hospital vs State of Kerala* [(2014) 11 SCC 381] – Supreme Court of India. The Court noted that the two-judge bench in this case had incorrectly interpreted the Explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975.
The Supreme Court also considered Section 3(1)(b) of the Kerala Building Tax Act, 1975, and the Explanation to the said section.
| Authority | Court | How it was Considered |
|---|---|---|
| *SH Medical Centre Hospital vs State of Kerala* [(2014) 11 SCC 381] | Supreme Court of India | Overruled to the extent of the interpretation of the Explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975. |
Judgment
| Submission | How it was treated by the Court |
|---|---|
| Appellant’s submission that “charitable purpose” is not limited to “relief of the poor and free medical relief” | Accepted. The Court agreed that the use of “includes” in the Explanation indicates a broader definition. |
| Respondent’s submission that the interpretation of “principally used for charitable purposes” in *SH Medical Centre Hospital* was correct. | Accepted. The Court clarified that the term “principally” means the dominant purpose. |
| Respondent’s submission that the interpretation of the Explanation in *SH Medical Centre Hospital* was correct. | Rejected. The Court held that the interpretation was incorrect. |
| Authority | How it was viewed by the Court |
|---|---|
| *SH Medical Centre Hospital vs State of Kerala* [(2014) 11 SCC 381] | The Court held that the interpretation of the Explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975, in this case was incorrect. The Court clarified that the word “includes” indicates that the definition of “charitable purpose” is not exhaustive. The Court overruled the judgment to this extent. |
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the interpretation of the word “includes” in the Explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975. The Court emphasized that the use of “includes” indicates that the definition of “charitable purpose” is not exhaustive and should not be confined to “relief of the poor and free medical relief”. The court also considered the plain meaning of the word “principally” as the dominant purpose.
| Reason | Percentage |
|---|---|
| Interpretation of “includes” in the Explanation | 60% |
| Plain meaning of “principally” | 40% |
| Fact | Law |
|---|---|
| 20% | 80% |
The Court’s reasoning was primarily based on the legal interpretation of the statute. The factual aspects of the case were secondary to the legal analysis.
The Court emphasized the importance of interpreting statutory language in its plain and natural meaning. The Court noted that the two-judge bench in *SH Medical Centre Hospital* had conflated the use of the word ‘include’ with ‘means’.
Logical Reasoning
The Court considered the interpretation of the Explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975. The Court rejected the narrow interpretation of “charitable purpose” as only “relief of the poor and free medical relief” that was given in *SH Medical Centre Hospital*. The Court held that the word “includes” in the Explanation indicates a non-exhaustive definition.
The Court stated:
“The observation which is extracted above suggests that the two-Judge Bench construed the Explanation to Section 3(1) to mean that a ‘charitable purpose’ is confined only to relief of the poor and free medical relief. This observation of the two-Judge Bench in SH Medical Centre Hospital (supra) does not accord with the plain meaning of the Explanation to Section 3(1).”
The Court also noted:
“The two judge bench in SH Medical Centre Hospital (supra) conflated the use of the word ‘include’ with ‘means’. The Explanation to Section 3(1)(a) uses the expression ‘includes’. The plain intendment is that relief of the poor and free medical relief are not exhaustive of the content of charitable purpose.”
The Court clarified:
“The Explanation goes to indicate that ‘charitable purposes’ includes and is, therefore, not confined to the relief of the poor and free medical relief.”
The Court clarified that the term “principally” means the dominant substantive use as distinguished from an ancillary use.
The Court overruled the decision in *SH Medical Centre Hospital* to the extent of the interpretation of the Explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975.
There were no dissenting opinions. The judgment was delivered by a three-judge bench of the Supreme Court.
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)(b) indicates a broader, non-exhaustive definition of “charitable purpose.”
✓ The decision in *SH Medical Centre Hospital* has been overruled to the extent of its interpretation of the Explanation to Section 3(1)(b).
✓ The term “principally” refers to the dominant substantive use of the building.
Directions
The Supreme Court set aside the impugned judgment of the Kerala High Court and restored the Writ Appeal to the file of the High Court for a decision based on the correct interpretation of Section 3(1) of the Kerala Building Tax Act, 1975.
Development of Law
The ratio decidendi of this case is that the term “charitable purpose” as used in Section 3(1)(b) of the Kerala Building Tax Act, 1975, has a wider meaning than just “relief of the poor and free medical relief”. The judgment overrules the previous position of law as laid down in *SH Medical Centre Hospital* to the extent of the interpretation of the Explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975.
Conclusion
The Supreme Court clarified that the term “charitable purpose” under the Kerala Building Tax Act, 1975, is not limited to “relief of the poor and free medical relief.” The Court held that the word “includes” in the Explanation indicates a non-exhaustive definition. The Court overruled the previous decision in *SH Medical Centre Hospital* to the extent of its interpretation of the Explanation to Section 3(1)(b) of the Kerala Building Tax Act, 1975. This judgment provides a broader scope for charitable institutions to claim tax exemptions under the Act.