Kerala High Court Upholds Differential Property-Tax Exemption for Government and Aided Schools

1. Introduction

Mar Baselios School v. State of Kerala (decided on 14 August 2025) is a clubbed writ-petition decision of the Kerala High Court that tests the constitutional validity of amendments made by the Kerala Finance (No. 2) Act, 2023 (Act 18 of 2023). The petitioners—thirty-plus unaided schools and their management bodies—challenged the deletion of clause (ba) and the narrowing of clause (b) in Section 207 of the Kerala Panchayat Raj Act, 1994 and Section 235 of the Kerala Municipality Act, 1994.

Pre-amendment, all recognised schools up to Higher Secondary level—government, aided, or unaided—enjoyed exemption from property tax and service cess. Post-amendment (effective 01.04.2023), the exemption survives only for:

Buildings “exclusively used for educational or allied purposes” under the ownership of institutions owned by the Central/State Government, aided by them, or financed by them.

Unaided private schools were thereby brought into the property-tax net. They alleged that this distinction violated Article 14 (equality before the law) because it constituted an unreasonable classification. The State defended the change as a fiscal measure justified by intelligible differentia.

2. Summary of the Judgment

Justice Ziyad Rahman A.A. dismissed all writ petitions, holding:

The classification between (i) government/ aided schools and (ii) unaided schools is not arbitrary but founded on intelligible differentia.
The differentia bears a rational connection to the objective of the amendments—fiscal prudence and optimal utilisation of public funds used for providing subsidised education.
Tax statutes enjoy wider latitude; courts will interfere only if palpable arbitrariness is shown. That threshold is not crossed here.

Consequently, unaided schools must henceforth pay property tax; government and aided institutions remain exempt.

3. Analysis

3.1 Precedents Cited

Kunnathat Thathunni Moopil Nair v. State of Kerala (1961) 3 SCR 77 – Established that even facially equal tax laws can violate Article 14 if they operate unevenly on similarly situated entities; but legislatures have broad discretion in fiscal classification.
State of Andhra Pradesh v. Nalla Raja Reddy (AIR 1967 SC 1458) – Laid down the twin tests of reasonable classification: (a) intelligible differentia; (b) nexus with the statute’s object.
Aashirwad Films v. Union of India (2007) 6 SCC 624 – Affirmed that taxing statutes enjoy greater latitude but remain challengeable under Article 14.
Deepak Sibal v. Punjab University (1989) 2 SCC 145 – Held that illogical or unfair objectives render classification unreasonable.
State of Punjab v. Davinder Singh (2025) 1 SCC 1 – Re-iterated that sub-classification within a larger homogeneous group requires a clear basis.
R.K. Garg v. Union of India (1981) 4 SCC 675 – Stressed judicial restraint in economic legislation.
Manager, Vimal Jyothi Engineering College v. State of Kerala (WP(C) 18185/2019) & Sreenarayana Gurukulam College of Engineering v. State of Kerala (2016) 4 KHC 482 – Kerala High Court precedents which had earlier upheld similar tax classifications for self-financing professional colleges.

These authorities collectively underline the permissible breadth of fiscal classifications and the strict burden on challengers to show palpable discrimination.

3.2 Court’s Legal Reasoning

Purpose of the Statute: Property tax funds local-body functions. Simultaneously, the State bears a constitutional obligation (Directive Principles) to provide free or affordable education. Exempting buildings fully financed by public money directly furthers that obligation.
Intelligible Differentia: Government/aided schools are constructed, maintained and staffed using public funds; they collect nil or nominal fees. Unaided schools rely on private capital and fee income. Thus their fiscal profiles differ materially.
Nexus: Requiring unaided schools to pay tax enhances revenue without undermining State-funded education. Exempting publicly funded schools avoids circular public-money transfer (taxing one arm of the State to pay another).
Greater Latitude for Tax Laws: Invoking R.K. Garg, the Court emphasised that economic legislation is accorded presumption of constitutionality unless manifestly arbitrary.
Reliance on Coordinate Bench Decisions: The Court followed its own precedents that had upheld analogous distinctions in higher-education context, promoting consistency and stare decisis.

3.3 Potential Impact

Financial Impact on Unaided Schools: Immediate liability to pay property tax and service cess from 01 April 2023. Annual outgo may be substantial, compelling schools to adjust budgets or fees.
Policy Signal: Reinforces the State’s shift towards “user-pays” for private education providers, reserving fiscal concessions for publicly funded institutions.
Litigation Likelihood: The decision is likely to deter similar Article 14 challenges in Kerala; however, broader challenges could be mounted in other States that enact comparable amendments.
Local-Body Revenue: Municipalities and Panchayats stand to receive a new revenue stream from thousands of unaided schools.
Precedential Value: Affirms that differential tax treatment based on ownership/ funding patterns can pass constitutional muster, potentially influencing future fiscal legislation beyond education (e.g., health-care facilities).

4. Complex Concepts Simplified

Unaided School: A private institution that receives no recurring financial aid from the government; it meets expenses mainly through student fees.
Property Tax Exemption: A statutory waiver allowing specified buildings/lands to avoid annual tax otherwise levied by local bodies.
Intelligible Differentia: A clear, rational basis for treating one set of persons differently from another under Article 14.
Rational Nexus: The logical connection between the classification and the legislative objective.
Taxing Statute Latitude: Courts allow legislatures more freedom in economic/tax matters, intervening only if discrimination is glaring.
Stare Decisis: The doctrine that courts should follow prior rulings to maintain legal consistency.

5. Conclusion

The Kerala High Court’s decision in Mar Baselios School re-affirms the wide constitutional space enjoyed by legislatures when structuring fiscal benefits. By upholding the withdrawal of property-tax exemption for unaided schools, the Court validates a policy choice that channels public subsidies exclusively to institutions financed by public money. For unaided educational institutions, the ruling heralds increased operating costs and underscores the need for prudent financial planning. More broadly, the judgment strengthens the jurisprudential principle that differential treatment grounded in public-funding considerations can withstand Article 14 scrutiny—so long as the classification remains rationally connected to legislative objectives.