advocatemmmohan

My photo

ADVOCATEMMMOHAN -  Practicing both IN CIVIL, CRIMINAL AND FAMILY LAWS,Etc.,

WELCOME TO LEGAL WORLD

WELCOME TO MY LEGAL WORLD - FOR KNOWLEDGE IN LAW & FOR LEGAL OPINIONS - SHARE THIS

Sunday, January 19, 2014

Kerala Building Tax Act, 1975 Sections 9(2) and 9(4) = ‘charitable purpose’ as per Section 3(1)(b) of the Act in order to hold it exempt from paying building tax? - Since the appellant failed to prove that the entire building has been used for charitable purpose by rendering free medical aid to the needy, poor people of society not entitled for exemption of building tax - High court rightly confirmed the same - Apex court dismissed the civil appeal = SH MEDICAL CENTRE HOSPITAL ……….APPELLANT Versus STATE OF KERALA & ORS. ………RESPONDENTS = 2014 ( January - Vol - 1-D.B.) Judis.nic.in/ S.C./ file name =41155

Kerala Building Tax Act,  1975 Sections  9(2)  and  9(4) = ‘charitable purpose’ as per Section 3(1)(b) of the Act in order to hold it exempt from paying building tax? - Since the appellant failed to prove that the entire building  has been used for charitable purpose by rendering free  medical  aid  to  the needy, poor people of society not entitled for exemption of building tax - High court rightly confirmed the same - Apex court dismissed the civil appeal = 

  On 16.10.1995 the  respondent  passed  an
      order exempting the appellant from assessment  of  building  tax.  The
      said exemption was  in  connection  with  the  main  building  of  the
      hospital.


      6.   On  16.07.2003,  the  then   Tehsildar,   Kottayam   called   the
      representatives of the appellant to ascertain as to 
whether  exemption
      is available to the appellant under the Kerala Building Tax Act,  1975
      (hereinafter referred to as “the Act”).
A person from  the  office  of
      the Tehsildar, Kottayam visited the appellant hospital and stated that
      the appellant is liable to pay building tax.


      7. Thereafter, the appellant filed a detailed  representation  stating
      that since it  is  a  charitable  institution  engaged  in  charitable
      activities, the appellant has to be exempted from paying building tax.

On 27.02.2004, the appellant received a demand  notice  purportedly
      issued by the Assessing Authority by which the appellant was  assessed
      to building tax under Sections  9(2)  and  9(4)  of  the  Act  wherein
      building tax was assessed at  an  amount  of  [pic]24,77,700/-  for  a
      plinth area of 14826.63 Sq. meters to be paid by the appellant.

 i. Whether the application of income derived from  a  building  for
           charitable purpose is sufficient to hold that a building is used
           ‘principally’ for ‘charitable purpose’ as per Section 3(1)(b) of
           the Act in order to hold it exempt from paying building tax?


       ii. Whether the Kerala High  Court  has  correctly  interpreted  the
           ‘Explanation’ clause to  Section  3(1)  in  the  cases  referred
           (supra) to hold that charitable purpose means solely ‘relief  of
           the poor and free medical relief’?


      iii. What order?
the  fact
   that the institution is set up for charitable purposes as stated  in  its
   Memorandum of Association  cannot  be  enough  to  hold  that  income  is
   necessarily applied for charitable purposes, especially in the  light  of
   the fact that the patients who can afford to pay for it are being charged
   for medical services.
 Now we will examine the question of what ‘charitable purpose’  means.
   The Oxford English Dictionary defines ‘charitable’ as “of or relating  to
   the assistance of those in need”. 
In the present case, it can  be  argued
   that all medical services relate to the assistance of those in need. This
   is a valid interpretation but cannot be accepted for the purposes of tax.
   If these medical services in the present case were being offered free  to
   a majority of the patients rather than a minority of patients,  then  the
   conclusion could have been reached that  the  buildings  are  principally
   used  for  charitable  purposes. 
 Further,  an  amount  of  approximately
               [pic]28,00,000/- of the expenses are towards ‘social work and
   charities’ as per the income and Expenditure Accounts  provided,  whereas
   ‘free medical aid’ is around            [pic]60,00,000/-  for  the  years
   2004-05. 
It is not clearly mentioned what ‘social work and charities’ is.
   Furthermore, an exemption is provided for that area in which free medical
   aid is provided by the appellant-hospital. 
The appellant has not produced
   cogent material evidence before the  competent  authority  or  the  State
   government or before the High Court to show that the entire building  has
   been used for charitable purpose by rendering free  medical  aid  to  the
   needy, poor people of society. 
The fact is that the details furnished  in
   the documents produced would go to show that the  appellant  hospital  is
   earning money by charging from patients and therefore the  claim  of  the
   appellant that the entire area taxed is used for  charitable  purpose  is
   not reflected in the documents produced.  
Hence, we are not  inclined  to
   interfere  with  the  impugned  orders.  The  High  Court  has  correctly
   interpreted the ‘Explanation’ clause to Section 3(1) of the Act  to  hold
   that ‘charitable purpose’ means ‘relief of  the  poor  and  free  medical
   relief’.


   19. The tax herein is on the ‘building’. 
The society already  has  income
   tax exemption and the question here  is  whether  the  building  is  used
   principally for ‘charitable purpose’.  
Only  the  building  utilized  for
   providing free medical aid  can  be  said  to  be  used  principally  for
   charitable purpose and it will go against the letter of the law to  grant
   building tax exemption for all the buildings of the hospital irrespective
   of what it is used for simply on the ground that the  overall  object  of
   the hospital is charity although it  is  being  predominantly  run  on  a
   chargeable basis. In this case, the  building  used  for  providing  free
   medical aid must be exempted from paying building tax.


   20. In view of the foregoing, we uphold the judgment of  the  High  Court
   and dismiss the appeal of the appellant-hospital, but without costs.  The
   order dated 16.7.2009 of this Court granting stay shall stand vacated.


2014 ( January - Vol - 1-D.B.) Judis.nic.in/ S.C./ file name  =41155                               
                  Non-Reportable




                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION


                        CIVIL APPEAL NO. 665 OF 2014
                  (Arising out of SLP(C) NO. 13735 OF 2009)




    SH MEDICAL CENTRE HOSPITAL               ……….APPELLANT


                                   Versus


    STATE OF KERALA & ORS.                   ………RESPONDENTS









                               J U D G M E N T



      V.Gopala Gowda, J.

            Leave granted.

      2.    The present appeal arises out of the judgment  and  order  dated
      13th March, 2009 passed by the High Court of Kerala  at  Ernakulam  in
      W.A. No. 362 of 2007 whereby the High Court dismissed the writ  appeal
      of the appellant holding that the appellant-hospital is  not  entitled
      to building tax exemption relying on the judgment of the  Kerala  High
      Court in Medical Trust Hospital v. State of Kerala[1].  The  appellant
      had filed writ petition No.605 of 2007 before the High Court of Kerala
      which dismissed the same by order dated 23.01.2007  on the ground that
      the building of the appellant is not used principally  for  charitable
      purposes, pursuant to which the above said writ appeal was filed which
      was also dismissed. Hence, this appeal.


      3. The facts of the case in brief are stated hereunder:
            SH Medical Centre is a charitable institution  registered  under
      the Travancore Cochin Literary, Scientific  and  Charitable  Societies
      Registration  Act,  1955.  
This  institution  manages  the  appellant
      hospital which is managed by nuns of the Christian religious faith who
      have renounced their worldly existence to  serve  humanity  to  render
      charitable services like free treatment to patients belonging  to  the
      lower strata of the society and charges nominal amount  for  treatment
      from those who can afford such treatment.


      4. The Memorandum of the SH Medical Center states that the  object  of
      the institution is purely philanthropic purposes and  not  profit.
It
      states that the members of the society are not entitled to  any  share
      in the net proceeds of the society and in case the society is wound up
      the assets of the society shall not go to any of the members and shall
      go to any other charitable trust, society or institution with  similar
      objects or to the Government.


      5. The appellant started constructing buildings to house the hospital.
      Several buildings were constructed from 1987-1988 to 2002-2003 for the
      functioning of the hospital. 
On 16.10.1995 the  respondent  passed  an
      order exempting the appellant from assessment  of  building  tax.  The
      said exemption was  in  connection  with  the  main  building  of  the
      hospital.


      6.   On  16.07.2003,  the  then   Tehsildar,   Kottayam   called   the
      representatives of the appellant to ascertain as to 
whether  exemption
      is available to the appellant under the Kerala Building Tax Act,  1975
      (hereinafter referred to as “the Act”).
A person from  the  office  of
      the Tehsildar, Kottayam visited the appellant hospital and stated that
      the appellant is liable to pay building tax.


      7. Thereafter, the appellant filed a detailed  representation  stating
      that since it  is  a  charitable  institution  engaged  in  charitable
      activities, the appellant has to be exempted from paying building tax.


      8. On 27.02.2004, the appellant received a demand  notice  purportedly
      issued by the Assessing Authority by which the appellant was  assessed
      to building tax under Sections  9(2)  and  9(4)  of  the  Act  wherein
      building tax was assessed at  an  amount  of  [pic]24,77,700/-  for  a
      plinth area of 14826.63 Sq. meters to be paid by the appellant.


      9. Aggrieved by the aforesaid orders dated 27.02.2004,  the  appellant
      filed Writ Petition(C)No. 9968  of  2004  before  the  High  Court  of
      Kerala.
          By an order dated 02.04.2004, the learned single Judge of the High
      Court disposed  of  the  writ  petition  directing  the  Tehsildar  to
      reconsider the assessment in the light of the judgments  of  the  High
      Court but rejected the request of the appellant  to  refer  the  issue
      relating to exemption to the Government under Section 3(2) of the Act.
      Against this rejection order the appellant filed a Writ Appeal No. 875
      of 2004 before the High Court. The Division Bench of  the  High  Court
      disposed of the  writ  appeal  with  a  direction  to  the  Tehsildar,
      Kottayam to refer the matter to the  Government  for  deciding  as  to
      whether the building is entitled to  get  exemption  from  payment  of
      building tax under Section 3(1) (b) of the Act.


      10. By an order dated 01.11.2006, the Government  of  Kerala  rejected
      the contention of the appellant that they are  entitled  to  exemption
      under the Act as free medical service is given only in the plinth area
      of 448.40 Sq. mtrs. in the  third  floor  of  the  main  building  and
      therefore only the said portion is exempt from paying building tax.


      11. Aggrieved by the aforesaid  order,  the  appellant  filed  a  Writ
      Petition (C) No. 605 of 2007 before the High Court  praying  to  quash
      the  orders  dated  01.11.2006  and  27.02.2004  and  to  declare  the
      appellant to be  a  charitable  institution  under  the  Act.  In  the
      petition the appellant had annexed the audited income and  expenditure
      account of the hospital as well as balance sheet for the years 2002 to
      2005.


      12. The learned single Judge of the  High  Court  dismissed  the  writ
      petition on the ground that the building of the appellant is not  used
      principally for charitable purposes.  
To arrive at the said conclusion
      the learned single Judge took into account the  gross  income  of  the
      appellant and compared the gross income vis-a-vis the amount spent  on
      free medical aid and social work.
Aggrieved by the aforesaid order the
      appellant filed a Writ Appeal No. 362  of  2007  before  the  Division
      Bench of the High Court. By an order dated  13.03.2009,  the  Division
      Bench of the High Court dismissed the writ appeal by  relying  on  two
      Division Bench decisions of  the  High  Court  in  (1)  Medical  Trust
      Hospital (supra) and (2) Thirurangadi Muslim  Orphanage  Committee  v.
      The Government of Kerala [W.P. (C) No. 4426 of 2009(B)] and held  that
      as long as the appellant is a hospital run on chargeable basis  it  is
      not entitled to exemption.


      13. Both the single Judge as well as the Division Bench  of  the  High
      Court interpreted the ‘Explanation’ Clause of Section 3(1) of the  Act
      to hold that the buildings were not used principally for a  charitable
      purpose as the medical services were not rendered free  of  charge  to
      all patients, but only to those who could not afford it. The rest were
      charged a nominal fee for services at the Hospital.
The explanation to
      Section 3 of the Act reads as under :
                 “For the purposes of this sub-section, “charitable purpose”
                 includes relief of the poor and free medical aid.”


      The High Court, mainly relying on the Medical Trust case  (supra)  has
      held that since it has already been held by the Kerala High Court that
      charitable purpose means rendering medical relief ‘free of charge’  as
      per the  Explanation  clause  to  Section  3(1)(a)  of  the  Act,  the
      appellant was not entitled to exemption from paying  building  tax  as
      they were charging nominal charges from patients who could  afford  it
      and was giving free services to those who could not.


      14. The matter is in appeal before us. The  learned  counsel  for  the
      appellant, Mr.Senthil Jagadeeshan  has  contended  that  the  Division
      Bench has erred in relying upon the judgments  in  the  Medical  Trust
      case and the Thirurangadi Muslim Orphanage Committee case  (supra)  as
      the said judgments were rendered in the facts of those  cases  and  no
      proposition of law has been laid down in the said decisions that if  a
      hospital is run on chargeable basis it is not entitled  to  exemption.
      Further, it was contended that in the  case  of  State  of  Kerala  v.
      Gregorious Medical Mission[2],
it was held that  the  fact  that  some
      amount is collected from the patients will not be sufficient reason to
      hold that the building can be excluded from the beneficial  provisions
      contained in Section 3 of the Act if the hospital is intended for  the
      relief of the sick without  any  motive  for  making  profit.
It  was
      submitted that a perusal of the Memorandum of Association as  well  as
      the Rules and Regulations of the appellant hospital clearly shows that
      it has been set up  solely  for  philanthropic  purposes  without  any
      profit motive, and it also clearly states that  in  case  the  society
      running the hospital is wound up, the assets of the hospital shall  go
      to any other charitable society  having  similar  objects  or  to  the
      Government.
The counsel for the  appellant  has  urged  before  us  to
      consider that for any hospital to be  able  to  provide  free  medical
      relief to poor patients, some income would have to be generated and it
      would otherwise be virtually impossible for any hospital to  undertake
      free medical service.
The counsel then went on to refer to the  Income
      and Expenditure Account of the appellant hospital which shows that 
for
      the  years  2002-03,2003-04  and  2004-05,  the  appellant  has  spent
      [pic]75.12 lakhs, [pic]78.39 lakhs and [pic]88.33  lakhs  respectively
      for providing free medical services and  for  charity.  
For  the  said
      years, the net income of the  appellant  hospital  has  been  [pic]4.2
      lakhs, [pic]5.37 lakhs and [pic]8.33 lakhs  respectively  and
 it  was
      submitted that the High Court ought to have compared the amount  spent
      for free medical services vis-a-vis net income and  not  gross  income
      which was what was done to hold that  the  buildings  were  not  ‘used
      principally’ for the charitable  purpose  as  required  under  Section
      3(1)(b) of the Act. By doing this, it was contended that  the  various
      expenses for running the hospital were ignored.


      15. The  respondents,  on  the  other  hand,  through  learned  senior
      counsel, Mr. Jogy Scaria, have contended that  the  appellant  is  not
      entitled for exemption from paying building tax  as  the  hospital  is
      making profit and hence cannot be considered a charitable institution.
      It was submitted  that  from  the  perusal  of  the  accounts  of  the
      hospital,  it  is  evident  that  the  hospital  authorities  are  not
      rendering any medical service free of cost and are making  profit  and
      is not running under ’no loss no profit’ basis as claimed. The purpose
      for which  the  building  is  used  is  the  only  relevant  fact  for
      determining whether the appellant is exempt from paying  building  tax
      and simply because the income derived from it is used  for  charitable
      purpose, it cannot be exempted from paying building tax.
The  counsel
      for the respondents relied on the Medical Trust case (supra) in  order
      to show that charitable purpose means free medical relief as  held  in
      that case, and since the  appellant  is  not  providing  free  medical
      relief for all and is instead charging a nominal fee for those who can
      afford it, it cannot claim exemption from building tax.


      16. We have heard the learned counsel for both the parties and perused
      the evidence on record  and  examined  the  rival  legal  and  factual
      contentions. The following questions would arise for consideration :
        i. Whether the application of income derived from  a  building  for
           charitable purpose is sufficient to hold that a building is used
           ‘principally’ for ‘charitable purpose’ as per Section 3(1)(b) of
           the Act in order to hold it exempt from paying building tax?


       ii. Whether the Kerala High  Court  has  correctly  interpreted  the
           ‘Explanation’ clause to  Section  3(1)  in  the  cases  referred
           (supra) to hold that charitable purpose means solely ‘relief  of
           the poor and free medical relief’?


      iii. What order?




  17. Answer to Question Nos. i & ii:

      In our considered view, the High Court was correct in holding that the
   application of income derived from a  building  for  charitable  purposes
   does not amount to the building being ‘principally used’  for  charitable
   purpose.
In the present case, if we have to rule against the High Court’s
   judgment, it will be necessary to have  more  evidence  with  respect  to
   details such as what the nominal charges are for patients who can  afford
   it and the number of patients offered free  medical  care  vis-a-vis  the
   number of patients who pay for the services.
The argument that the income
   is applied for charitable purposes can be accepted only if  it  is  known
   what portion of the income goes into charity i.e. free medical  services.
   Does the percentage of patients receiving free medical services  increase
   every year?
If we hold that the income derived from a building is applied
   for charitable purposes then that has to be clearly proved, and
the  fact
   that the institution is set up for charitable purposes as stated  in  its
   Memorandum of Association  cannot  be  enough  to  hold  that  income  is
   necessarily applied for charitable purposes, especially in the  light  of
   the fact that the patients who can afford to pay for it are being charged
   for medical services.


   18. Now we will examine the question of what ‘charitable purpose’  means.
   The Oxford English Dictionary defines ‘charitable’ as “of or relating  to
   the assistance of those in need”. 
In the present case, it can  be  argued
   that all medical services relate to the assistance of those in need. This
   is a valid interpretation but cannot be accepted for the purposes of tax.
   If these medical services in the present case were being offered free  to
   a majority of the patients rather than a minority of patients,  then  the
   conclusion could have been reached that  the  buildings  are  principally
   used  for  charitable  purposes. 
 Further,  an  amount  of  approximately
               [pic]28,00,000/- of the expenses are towards ‘social work and
   charities’ as per the income and Expenditure Accounts  provided,  whereas
   ‘free medical aid’ is around            [pic]60,00,000/-  for  the  years
   2004-05. 
It is not clearly mentioned what ‘social work and charities’ is.
   Furthermore, an exemption is provided for that area in which free medical
   aid is provided by the appellant-hospital. 
The appellant has not produced
   cogent material evidence before the  competent  authority  or  the  State
   government or before the High Court to show that the entire building  has
   been used for charitable purpose by rendering free  medical  aid  to  the
   needy, poor people of society. 
The fact is that the details furnished  in
   the documents produced would go to show that the  appellant  hospital  is
   earning money by charging from patients and therefore the  claim  of  the
   appellant that the entire area taxed is used for  charitable  purpose  is
   not reflected in the documents produced.  
Hence, we are not  inclined  to
   interfere  with  the  impugned  orders.  The  High  Court  has  correctly
   interpreted the ‘Explanation’ clause to Section 3(1) of the Act  to  hold
   that ‘charitable purpose’ means ‘relief of  the  poor  and  free  medical
   relief’.


   19. The tax herein is on the ‘building’.
The society already  has  income
   tax exemption and the question here  is  whether  the  building  is  used
   principally for ‘charitable purpose’.  
Only  the  building  utilized  for
   providing free medical aid  can  be  said  to  be  used  principally  for
   charitable purpose and it will go against the letter of the law to  grant
   building tax exemption for all the buildings of the hospital irrespective
   of what it is used for simply on the ground that the  overall  object  of
   the hospital is charity although it  is  being  predominantly  run  on  a
   chargeable basis. In this case, the  building  used  for  providing  free
   medical aid must be exempted from paying building tax.


   20. In view of the foregoing, we uphold the judgment of  the  High  Court
   and dismiss the appeal of the appellant-hospital, but without costs.  The
   order dated 16.7.2009 of this Court granting stay shall stand vacated.



                                ………………………………………………………………………J.
                                [SUDHANSU JYOTI MUKHOPADHAYA]


                                     ………………………………………………………………………J.
                                      [V. GOPALA GOWDA]
      New Delhi,
      January 16, 2014.










                           -----------------------
      [1]    2004 (2) KLT 139
      [2]    (1992) 1 KLT 230

                           -----------------------
                                     17


No comments:

Post a Comment

Note: Only a member of this blog may post a comment.