Taxation: Exemptions should generally be strictly interpreted but beneficial exemptions having their purpose as encouragement or promotion of certain activities should be liberally interpreted, Supreme Court

The SC on March 1, 2021 {GOVERNMENT OF KERALA & ANR. vs. MOTHER SUPERIOR ADORATION CONVENT} held that it is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. It was held that the rule regarding exemptions is that exemptions should generally be strictly interpreted but beneficial exemptions having their purpose as encouragement or promotion of certain activities should be liberally interpreted.

It was also held by the Bench, comprising of Justice R. F. Nariman and Justice B.R. Gavai that it is well settled that a decision is only an authority for what it decides and not what may logically follow from it (see Quinn v. Leathem [1901] AC 495 as followed in State of Orissa v. Sudhansu Sekhar Misra (1968) 2 SCR 154 at 162,163).

The SC held that it is obvious that the beneficial purpose of the exemption contained in Section 3(1)(b) of Kerala Building Tax Act, 1975 must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. It was held that this being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. It was held that we must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted. Consequently, the SC agreed with the conclusions reached by the impugned judgments of the Division Bench and the Full Bench of the Kerala High Court.