High Court of Kerala Upholds Strict Interpretation of Charitable Purpose for Building Tax Exemption

“It is only in those cases where the charitable purpose sought to be established is the provision of medical relief that the legislature stipulates that the relief provided must be ‘free’.” – High Court of Kerala

In a recent judgment, the High Court of Kerala at Ernakulam has reaffirmed the strict interpretation of the term “charitable purpose” for the purpose of claiming exemption from building tax under the Kerala Building Tax Act. The court held that only free medical relief qualifies as a charitable purpose under the Act, ruling out the eligibility of M/s. Lisie Medical Institutions for the exemption.

The judgment, delivered by the Honorable Mr. Justice A.K. Jayasankaran Nambiar and the Honorable Mr. Justice Mohammed Nias C.P., stated, “It is not in dispute that the building of the appellant was not principally used for providing free medical relief as required under the statutory provision for inclusion under the definition of charitable purpose.” The court further noted that the appellant’s expenditure towards free medical relief was nominal and did not meet the threshold for substantial relief.

The court emphasized the importance of a strict interpretation of exemption provisions, stating, “An exemption provision is like an exception and, on the normal principle of construction or interpretation of statutes, it is construed strictly either because of legislative intention or on economic justification of inequitable burden or progressive approach of fiscal provisions intended to augment state revenue.” It highlighted that while exemptions should be given full effect once applicable, at the entry stage, a strict interpretation must be followed.

The judgment also considered the appellant’s contention as a charitable institution under the Income Tax Act. However, the court found that even if a liberal interpretation were applied, the appellant’s building did not qualify for exemption based on the extent of medical relief provided.

This decision affirms previous judgments, including SH Medical Centre Hospital v. State of Kerala and Unity Hospital, which established that only free medical relief constitutes a charitable purpose for the purpose of building tax exemption under the Act. The court’s ruling demonstrates the importance of complying with statutory requirements and the limited scope for alternative forms of medical relief to qualify as charitable purposes.

With this judgment, the High Court has provided clarity on the interpretation of the exemption provision and reiterated the necessity of meeting the strict requirements for claiming building tax exemption for charitable purposes.

Date of Decision: July 10, 2023

M/S. LISIE MEDICAL INSTITUTIONS vs THE STATE OF KERALA