'Not Providing Free Medical Relief': Kerala High Court Dismisses Lisie Hospital's Plea Seeking Building Tax Exemption

The Kerala High Court recently dismissed the Appeal preferred by Lisie Hospital, claiming building tax exemption in respect of one of its buildings constructed in the year 2013. 

The Apex Court in February 2023, had remanded the matter to the High Court for decision on the factual aspects of the case, after clarifying that the term 'charitable purposes' in Section 3(1) of the Kerala Building Tax Act (hereinafter, 'the Act') would not be limited to "free medical relief" alone. 

Lisie Hospital had sought tax exemption relying on tax exemption for 'buildings used principally for religious, charitable or educational purposes or as factories or workshops'.

The Division Bench comprising Justice A.K. Jayasankaran Nambiar and Justice Mohammed Nias C.P. in the writ appeal before it, found that the building in question was not used 'principally' for providing free medical relief for inclusion under the definition of 'charitable purpose'. 

"...we find that 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. It is also not the case of the appellant that it rendered in the said building, any of the other services that qualify as charitable purpose under Section 3 of the Act. We therefore cannot see how the appellant’s building would qualify for the exemption under Section 3 of the Act in respect of the medical relief provided in the building in question," the Court observed. 

The Bench added that even a liberal and expansive interpretation of the term 'charitable purpose' could also not be adopted since the hospital had expended only 4.23% and 4.56% of its total income for the years 2013-14 and 2014-15 towards free medical relief, which "cannot be seen as substantial in any sense of the term". 

Factual Background

Lisie Hospital was served with a notice demanding building tax under the Act, in respect of a building constructed by it in 2013, wherein it was providing medical treatment at concessional rates. On a reference made to the Government as per Section 3(1) of the Act to ascertain as to whether the said building would qualify for tax exemption, it was held that building would not be eligible for tax exemption. The Government reasoned in its Order dated March 17, 2016, that when read with Explanation 1 to Section 3(1) of the Act which stipulates that exemption in respect of buildings used for charitable purpose would include relief of the poor and free medical relief, the building under consideration did not satisfy the said purpose. 

The Government also examined the income-expense statement of the appellant’s institution and found that only a nominal amount was spent for charitable purposes. When the Government Order was appealed against by the appellant before the Supreme Court, the Court dismissed the plea, in SH Medical Centre Hospital vs State Of Kerala & Ors (2014) 11 SCC 381 to the extent it held that ‘charitable purpose’ meant only ‘relief of the poor and free medical relief’. An earlier Division Bench of the High Court had denied building tax exemption to Lisie Medical Institutions on the ground that they were not providing medical services for free.

In 2017, when a further appeal was preferred before the Supreme Court, a two-judge bench doubted the decision in SH Medical Center (Supra) and referred to a three-judge bench for an authoritative pronouncement. The referring Bench took the view on the ground that the Explanation to the provision merely clarified that "relief to the poor and free medical relief" was only one of the facets of charitable purpose, and that the use of the word 'includes' in the Explanation indicated that there could be other facets of charitable purposes as well. 

The 3 Judge Bench on February 9, 2023, held that while the building would have to 'principally' be used for the charitable purposes in order to qualify for the exemption contemplated under Section 3(1) of the Act, the meaning of the term 'charitable purposes', would not be limited to free medical relief.

"Undoubtedly, Section 3(1) provides that nothing in the act shall apply to buildings which are used principally for specific purposes, including among them, charitable purposes. The Explanation shows that charitable purpose includes and is therefore not confined to relief of poor and free medical relief. Consequently, the decision in SH Medical to the extent of the interpretation of Explanation 1 of Section 3 does not correctly reflect the position of law," the Supreme Court had held while overruling the SH Medical Centre Case (Supra) to that extent. It however, remanded the matter to the High Court, not having embarked upon any of the factual aspects in the matter. 

Arguments Raised

It was contended by Advocates Issac M. Perumpillil and Jijo Paul Kallookkaran on behalf of the appellant that the appellant’s building would qualify for exemption since the principal use of it was for providing medical relief at concessional rates. The Counsels argued that the 3 Judge Bench of the Apex Court had stated in the reference that other kinds of charitable activities would also qualify as charitable purposes under the statute. 

The Government Pleader Rafiq Mohammed, however, refuted the same and submitted that only a user of the building for providing free medical relief that would qualify for the exemption.

Findings of the Court

At the outset, the Court was faced with the question as to whether there could be a lesser form of medical relief than “free” medical relief, when it came to qualifying 'medical relief' as a 'charitable purpose' in Explanation 1 of Section 3 of the Act. 

The Court observed that a Full Bench of the High Court had, in Unity Hospital (P) Ltd v. State of Kerala (2010), held that it is only free medical relief that would qualify as a charitable purpose for the purposes of the exemption under the statutory provision. The Court noted that the above position was affirmed by the Apex Court decision in Govt. of Kerala & Anr. v. Mother Superior Adoration Convent (2021). In the latter case, the Apex Court had held that where a High Court construes a local statute, deference ought to be given to the High Court judgments in interpreting such a statute particularly when they have stood the test of time. 

The Court further noted that an exemption provision is like an exception and on the normal principle of construction or interpretation of statutes, and that it thus ought to be 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. 

"When the legislative provision in the instant case indicates that it is the highest extent of relief viz. “free medical relief” that is specified in the inclusive definition for the grant of a benefit of exemption from tax, we feel that a dilution of the prescription as regards the extent of medical relief required for claiming exemption under the statute would tantamount to widening the scope and ambit of the exemption contemplated under the statutory provision at the entry stage, where it is a strict interpretation that is to be adopted," the Court observed. 

The Court was thus of the considered opinion 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. It added that it was also not the case that substantial amount of free medical relief to the poor was being provided, either. 

The Court thus dismissed the writ appeal. 

It however clarified that it held the appellant not entitled to the exemption, solely on the ground that claim for exemption was premised on the contention that the building had been used 'principally' for providing medical relief that would qualify as a charitable purpose under Section 3 of the Act. 

"We are mindful that the Supreme Court had remitted this case for our consideration after setting aside the earlier judgment of a Division Bench of this Court that had arrived at the same finding of ineligibility of the appellant for the benefit of the exemption. Our finding, however, is based on an entirely different line of reasoning and hence not inconsistent with the decision of the three Judge Bench that remitted the matter to this Court," the Court added. 

Case Title: M/S Lisie Medical Institutions v. State of Kerala & Ors. 

Citation: 2023 LiveLaw (Ker) 340 

Click Here To Read/Download The Judgment