In W.A. No. 1386 of 2016 -KER HC- Kerala High Court denies exemption to Lisie Medical Institutions from Building Tax, says not providing medical relief ‘free of cost’
Justice A.K. Jayasankaran Nambiar & Justice Mohammed Nias C.P. [10-07-2023]

Read Order: M/s. Lisie Medical Institutions V. The State of Kerala and Ors

Chahat Varma

New Delhi, July 27, 2023: The Kerala High Court has ruled against M/s. Lisie Medical Institutions (appellant) in their claim for exemption from building tax under the Kerala Building Tax Act. The Court held that the building did not qualify for the exemption as it did not offer medical relief 'free of cost,' a mandatory requirement under the Act to be eligible for the exemption.

Factual background of the case was that the appellant, operating Lisie Hospital in Ernakulam, constructed a building in 2013 to provide medical treatment at concessional rates. Subsequently, the hospital received a notice demanding building tax under the Kerala Building Tax Act. Upon the appellant's request, the Government conducted a review and issued an order, concluding that the building did not qualify for the exemption specified in Section 3(1) of the Act, which pertained to ‘buildings used principally for religious, charitable, or educational purposes’. The Government relied on Explanation 1, clarifying that ‘charitable purpose includes relief of the poor and free medical relief’ for the purpose of Section 3(1) of the Act. The Government's reasoning was that the appellant was not providing medical relief free of cost. Additionally, after examining the income-expense statement of the appellant's institution, it was found that the hospital only allocated a nominal amount to charitable purposes. As the hospital collected fees for providing medical relief, it did not meet the criteria for the exemption under the Act.

The present appeal before the High Court stemmed from a remand by the Supreme Court through its judgment in M/s Lisie Medical Institutions v. The State of Kerala & Ors [LQ/SC/2023/753]. The Supreme Court's judgment was rendered by a three-judge bench, which referred to the judgment of a two-judge bench in Lisie Medical Institutions v. State of Kerala [LQ/SC/2017/809], questioning the validity of a previous two-judge bench decision in SH Medical Centre Hospital v. State of Kerala [LQ/SC/2014/54].

The division bench of Justice A.K. Jayasankaran Nambiar and Justice Mohammed Nias observed that the three-judge Bench, while considering the reference, concluded that in order to qualify for the exemption under Section 3(1) of the Kerala Building Tax Act, the building must be ‘principally’ used for charitable purposes, meaning that the primary and dominant use of the building should be for charitable activities. Regarding Explanation 1 to Section 3(1) of the Act, the bench found that the Explanation indicated that charitable purpose was not limited to the relief of the poor and free medical relief, but included other charitable activities as well.

The bench noted that while a preliminary reading of the statutory provisions and the interpretation provided by the three-judge bench appeared to suggest a straightforward meaning for ‘charitable purpose’ in Explanation 1, upon closer examination, the bench found an aspect of interpretation that had not been addressed in the previous judgments. Specifically, the question arose whether, even if ‘charitable purpose’ in Explanation 1 was interpreted broadly due to the use of inclusive language, there can be a form of medical relief that is considered charitable without being entirely ‘free’ medical relief. The bench expressed their opinion that they do not believe such a lesser form of medical relief, other than completely ‘free’ medical relief, can be encompassed through the inclusive phraseology used in the exemption provision. The bench suggested that in the context of medical relief, the legislature's intention, as reflected in the language of the provision, may indicate that only ‘free’ medical relief should be considered for the purpose of claiming exemption under Section 3(1) of the Act.

Thus, the bench concluded that the appellant's building did not qualify for the exemption under Section 3 of the Act in respect of the medical relief provided in the building. The reason being that the building was not primarily used for providing free medical relief, which was a mandatory requirement under the statutory provision for inclusion under the definition of ‘charitable purpose’. The appellant did not demonstrate that they offered any other services in the said building that would qualify as a charitable purpose under Section 3 of the Act. Therefore, the bench concluded that the appellant's building could not avail the exemption under Section 3 of the Act for the medical relief provided, as the legislature specifically requires that the relief provided must be ‘free’ to be eligible for the exemption.