Kerala High Court Sets Aside Rejection Of Regional Sports Centre's Building Tax Exemption Claim

The Kerala High Court on 18 August set aside the Kerala Government's rejection of the Regional Sports Centre, Kochi's claim for exemption from building tax and directed it to reconsider the claim afresh.

Justice Harisankar V. Menon passed the order after finding that the Government had failed to properly consider material showing that the Centre provided free sports coaching to several students and trainees. He held:

"The Government to reconsider the claim for exemption raised by the petitioner afresh with specific reference to the observations made as above."

The Regional Sports Centre is a society registered under the Travancore Cochin Literary, Scientific and Charitable Societies Registration Act, 1955. It was established to promote sports, games, cultural and physical activities and operates a sports complex in Elamkulam Village, Kochi. It stated that it has 33 sports facilities and that its buildings are principally used for sports training and other activities undertaken for public welfare.

The dispute arose after the authorities initiated proceedings under the Kerala Building Tax Act, 1975 in respect of the buildings and structures constructed by the Centre.

The Centre claimed exemption under Section 3(1)(b) of the Kerala Building Tax Act, which exempts buildings principally used for charitable or educational purposes from building tax. It also relied on its registration and recognition under Sections 12A and 80G of the Income Tax Act and contended that its activities were carried out without any profit motive.

It approached the Government seeking exemption from building tax. However, the Government rejected the claim by an order dated 25 April 2023, following which the Centre challenged the order before the High Court.

Before the High Court, it submitted that its primary objective was to promote sports for public welfare and that its activities amounted to the advancement of an object of general public utility. Further, that it provided free coaching to various persons and that the income earned from renting out its premises and shop rooms was used for running the Sports Centre.

The State, however, argued that the Centre charged substantial membership fees, daily user charges and coaching fees. It submitted that free training was allegedly being provided only to four persons and therefore the Centre's activities could not be treated as charitable. It further contended that sports training could not be treated as being for “educational purposes” under the exemption provision.

The High Court agreed with the State that the Centre could not claim exemption merely under the category of “educational purposes”. It referred to the Supreme Court's ruling in Sole Trustee, Loka Shikshana Trust v. Commissioner of Income Tax, and observed that “education” refers to systematic instruction, schooling or training through formal educational institutions and cannot be interpreted so broadly as to include the promotion of sports.

However, the Bench found that the Centre's alternative claim under the charitable purposes category had not been properly examined. It noted that the Centre had produced a list showing that free coaching was being provided to several students and trainees in different sports. The Government's order, however, proceeded on the basis that free training was being provided only to four persons and failed to consider the material produced by the Centre.

It observed that this was significant because Section 3(1)(b) requires the building to be used “principally” for charitable purposes, rather than exclusively for such purposes.

Relying on the Supreme Court's decision in Government of Kerala v. Mother Superior, the Bench held that the relevant question was whether the principal use of the buildings satisfied the statutory requirement for exemption.

It also noted that the Centre's premises were used for tournaments and other events and that certain portions were rented out. However, it held that the issue had to be examined by determining the principal use of the buildings rather than rejecting the exemption merely because some income generating activities were carried out.

Further, it referred to the Supreme Court's decision in Lissy Medical Institutions v. State of Kerala, observing that the charitable purposes contemplated under Explanation I to Section 3(1) are not confined to relief of the poor and free medical relief.

Finding that the Government had not properly considered the relevant material, the Bench set aside its 25 April 2023 order and directed it to reconsider the Centre's exemption claim afresh. It directed the Government to provide the Centre an opportunity of hearing and pass a fresh order within six months.

Accordingly, the High Court directed that all coercive proceedings against the Regional Sports Centre shall remain in abeyance until the Government takes a fresh decision.

For Petitioner: Advocates K.M. Firoz and Nishil P.S.

For Respondent: Government Pleader Harima Hariharan