PETITIONER:
ELEL HOTELS AND INVESTMENTS LIMITEDAND ANR. ETC. ETC.
Vs.
RESPONDENT:
UNION OF INDIA
DATE OF JUDGMENT02/05/1989
BENCH:
VENKATACHALLIAH, M.N. (J)
BENCH:
VENKATACHALLIAH, M.N. (J)
RANGNATHAN, S.
PATHAK, R.S. (CJ)
MUKHARJI, SABYASACHI (J)
NATRAJAN, S. (J)
CITATION:
1990 AIR 1664 1989 SCR (2) 880
1989 SCC (3) 698 JT 1989 Supl. 195
1989 SCALE (1)1194
CITATOR INFO :
RF 1992 SC 999 (12,13)
ACT:
Constitution of India, 1950: Articles 14 and
19(1)(g)--Hotel Receipts Act, 1980---Whether violative of.
Articles 246, 248 and 254 & Schedule VII--Entries in
legislative list--Whether to be construed in a wide and
comprehensive connotation.
Hotel Receipts Act, 1980: Sections 3, 5 and 6--Legisla-
tive competence--Whether falls under Entry 82, List 1.
HEADNOTE:
The Hotel Receipts Tax Act, 1980 came into force on
9.12.1980. The Act imposed a special tax of 15% on the gross
receipts of certain hotels, where the room charges for
residential accommodation provided to any person during the
previous year were Rs.75 or more per day per individual. The
levy commenced from the assessment year 1981-82 but was
discontinued from 27.2.1982. Charges received from persons
within the purview of certain Vienna Conventions were exempt
from the tax.
The constitutional validity of the said Act was chal-
lenged in these writ petitions, on grounds of lack of legis-
lative competence and of violation of Articles 14 and
19(1)(g).
It was contended on behalf of the petitioners that the
reliance on Entry 82, List I in support of the tax was
wholly misconceived and the tax in pith and substance was an
impost under Entry 62, List II reserved to the States. It
was also contended that the Act is patently violative of
Article 14 since the basis of classification has no nexus
with the object of the tax, in that other hotels which have
much higher gross receipts are left out. It was contended by
the petitioners that the law imposed unreasonable burden on
their freedom of business and constituted a violation of
Article 19(1)(g) of the Constitution.
881
On behalf of the Respondent it was contended that the
said tax fails under Entry 82, List I and the word 'income'
should not be read in a narrow and pedantic sense, but must
be given its widest amplitude. The challenge to the Act on
the ground that it was violative of Articles 14 and
19(1)(g), was also resisted by the Respondent.
Dismissing the writ petitions,
HELD: 1.1. The word 'income' is of elastic import. In
interpreting expressions in the legislative lists a very
'wide meaning should be given to the entries. In understand-
ing the scope and amplitude of the expression 'income' in
Entry 82, List 1, any meaning which fails to accord with the
plenitude of the concept of 'income' in all its width and
comprehensiveness should be avoided. The cardinal rule of
interpretation is that the entries in the legislative lists
are not to be read in a narrow or restricted sense and that
each general word should be held to extend to all ancillary
or subsidiary matters which can fairly and reasonably be
said to be comprehended in it. The widest possible construc-
tion, according to the ordinary meaning of the words in the
entry, must be put upon them. Reference to legislative
practice maybe admissible in reconciling two conflicting
provisions in rival legislative lists. In construing the
words in a constitutional document confering legislative
power the most liberal construction should be put upon the
words so that the same may have effect in their widest
amplitude.
1.2. The expression 'income' in Entry 82, List I, cannot
be subjected, by implication, to any restriction by the way
in which that term might have been deployed in a fiscal
statute. A particular statute enacted under the Entry might,
as a matter of fiscal policy, seek to tax some species of
income alone. The definitions would, therefore, be limited
by the consideration of fiscal policy of a particular stat-
ute. But the expression 'income' in the legislative entry
has always been understood in a wide and comprehensive
connotation to embrace within it every kind of receipt or
gain either of a capital nature or of a revenue nature. The
'taxable-receipts' as defined in the statute cannot be held
to fail outside such a 'wider connotation' of 'income' in
the wider constitutional meaning and sense of the term as
understood in Entry 82, List I.
Navinchandra Mafatlal v. CIT, Bombay City, [1955] 1 SCR
829 and Bhagwandas Jain v. Union of India, AIR 1981 S.C.
907, relied on.
Navnitlal v. K.K. Sen, [1965] 1 SCR 909; Governor-Gener-
al in Council v. Province of Madras, [1945] FCR 179 and
Kamakshya
882
Narain Singh v. CIT, 1 ITR 513 (PC), referred to.
2.1. It is now well settled that a very wide latitude is
available to the legislature in the matter of classification
of objects, for purposes of taxation. It must needs to be
so, having regard to the complexities involved in the formu-
lation of a taxation policy. Taxation is not now a mere
source of raising money to defray expenses of Government. It
is a recognised fiscal-tool to achieve fiscal and social
objectives. The differentia of classification presupposes
and proceeds on the premise that it distinguishes and keeps
apart as a distinct class hotels, with higher economic
status reflected in one of the indicia of such economic
superiority. The presumption of constitutionality has not
been dislodged by the petitioners by demonstrating how even
hotels, not brought into the class, have also equal or
higher chargeable-receipts and how the assumption of econom-
ic superiority of hotels to which the Act is applied is
erroneous or irrelevant.
2.2. As regards reasonableness of classification and
restriction on the petitioners' freedom of trade and busi-
ness, similar contentions were raised in a connected case.
As has been held in that case and for the reasons given
therein, the challenge to constitutionality of the provi-
sions of the Act, based on Articles 14 and 19(1)(g) is
rejected.
Federation of Hotel & Restaurant Association of India
etc. v. Union of India, [1989] 2 SCR 918, followed.
JUDGMENT:
ORIGINAL JURISDICTION: Writ Petition Nos. 254 to 261 of
1981.
Under Article 32 of the Constitution of India.
N.A. Palkhiwala, Soli J. Sorabjee, T.R. Andhyarujina,
H.P. Ranina, S. Ganesh, J.B. Dadachanji, Ravinder Narain,
Mrs. A.K. Verma, D.N. Misra, S. Sukumaran, Lira Goswami,
Joel Pares, Ms. Rubia Anand, R.F. Nariman, P.H. Parekh,
Sanjay Bhartari, M.K.S, Menon, R.K. Dhillon, Ms. Rohini
Chhabra, Sunita Sharma, Ms. Ayesha Misra, A. Subba Rao, S.
Balakrishnan, Harish N. Salve, S.S. Shroff, Mrs. P.S.
Shroff, Ms. Malvika Rajkotia, B. Parthasarthi, Vijay Kumar
Verma, Mukul Mudgal, Suresh Verma, Praveen Kumar and Vishnu
Mathur for the Petitioners.
K. Parasaran, B. Datta, V. Jaganatha Rao, K. Sudhakaran, Dr.
883
V. Gauri Shankar, S.K. Dholakia, P.S. Poti, G.A. Shah, Ms.
A. Subhashini, B.B. Ahuja, H.K. Puri, A. Subba Rao, K.R.
Nambiar, A.S. Bhasme and M.N. Shroff for the Respondents.
The Judgment of the Court was delivered by
VENKATACHALIAH, J. In this batch of writ petitions under
Article 32 of the Constitution of India petitioners who are
hoteliers challenge on grounds of lack of legislative compe-
tence and of violation of Articles 14 and 19(1)(g) the
constitutional validity of the Hotel Receipts Tax Act, 1980
(‘Act’ for short) which imposes a special tax on the gross
receipts of certain cetegory of hotels. Section 3 of the Act
limits the application of the ‘Act’ to those hotels where
the “roomcharges” for residential accommodation provided to
any person during the previous year are Rs.75 or more per
day per individual. If a hotel is within this class, then,
Section 5 brings to charge the Hotel’s ‘chargeable-receipts’
as defined under Sec. 6 of the Act.
The Act was passed on 4.12.1980 and came into force on
9.12.1980 when it received the assent of the President of
India. The levy under the ‘Act’ commences from the assess-
ment-year 1981-82 and brings to tax the chargeable receipts
of the corresponding previous year. The rate of tax is a
flat rate of 15 per cent of the “chargeablereceipts” defined
in sec. 6 as the total amount of all charges, by whatever
name called, received by or accruing or arising to the
assessee in the previous-year in connection with the provi-
sion of residential accommodation, food, drink and other
services in the course of carrying on the business of a
hotel. But such charges received from persons within purview
of Vienna Convention on Diplomatic Relations, 1961, or
Vienna Convention on Consular Relations are exempt from the
tax. The machinery under the Income-tax Act, 1961, is en-
grafted for purposes of assessment, levy and collection of
tax under the Act.
It is, however, relevant to note that though the ‘Act’
is put into force from the Asst. Year 1981-82 the levy was
discontinued from 27.2.1982.
2. This batch of writ petitions were heard along with
Writ Petition 1395 of 1987 and the connected writ petitions
in which the constitutional validity of the Expenditure Tax
Act, 1987, was challenged on substantially similar grounds.
In the present ‘Act’ the levy is on ‘Chargeable-Receipts’
while in the Expenditure Tax Act, 1987, it is on “Charge-
able-Expenditure” which represents substantially the same
items as to constitute ‘Chargeable-Receipts’ under the
present ‘Act’. We have disposed WP 1395 of 1987 and the
connected matters by a separate Judgment.
884
3. Sections 3, 5, 6 of the Act have a bearing on the
application of the contentions urged in support of the
challenge to the constitutionality of the Act. Section 3
reads:
“3.(1) Subject to the provisions of sub-sec-
tion (2) and subsection (3), this Act shall
apply in relation to every hotel wherein the
room charges for residential accommodation
provided to any person at any time during the
previous year are seventy-five rupees or more
per day per individual.
Explanation.–Where the room charges
are payable otherwise than on daily basis or
per individual, then the room charges shall be
computed as for a day and per individual based
on the period of occupation of the residential
accommodation for which the charges are pay-
able and the number of individuals ordinarily
permitted to occupy such accommodation accord-
ing to the rules and custom of the hotel.
(2) Where a composite charge is
payable in respect of residential accommoda-
tion and food, the room charges included
therein shall be determined in the prescribed
manner.
(3) Where–
(i) a composite charge is payable in
respect of residential accommodation, food,
drink and other services, or any of them, and
the case is not covered by the provisions of
sub-section (2); or
(ii) it appears to the Income-tax
Officer that the charges for residential
accommodation, food, drink or other services
are so arranged that the room charges are
understated and the other charges are over-
stated,
the Income-tax Officer shall, for the purposes
of subsection (1), determine the room charges
on such reasonable basis as he may deem fit.”
Section 5(1) provides:
“5.(1) Subject to the provisions of this Act,
there shall be
885
charged on every person carrying on the
business of a hotel in relation to which this
Act applies, for every assessment year com-
mencing on or after the 1st day of April, 198
1, a tax in respect of his chargeable receipts
of the previous year at the rate of fifteen
per cent of such receipts:
Provided that Where such chargeable receipts
include any charges received in foreign ex-
change, then, the tax payable by the assessee
shall be reduced by an amount equal to five
per cent of the charges (exclusive of the
amounts payable by way of sales tax, enter-
tainment tax, tax on luxuries or tax under
this Act) so received in foreign exchange.”
Explanation–omitted as unnecessary
Section 5(2)–omitted as unnecessary except
explanation (ii)
Explanation (ii) to Section 5(2) provides:
“any food, drink or other services shall be
deemed to have been provided on the premises
of a hotel if the same is or are provided in
the hotel or any place appurtenant thereto and
where the hotel is situate in a part of build-
ing, in any other part of the building.”
Section 6 provides:
“6(1) Subject to the provisions of this Act,
the chargeable receipts of any previous year
of an assessee shall be the total amount of
all charges, by whatever name called, received
by, or accruing or arising to, the assessee in
connection with the provision of residential
accommodation, food, drink and other services
or any of them (including such charges from
persons not provided with such accommodation)
in the course of carrying on the business of a
hotel to which this Act applies and shall also
include every amount collected by the assessee
by way of tax under this Act, sales tax,
entertainment tax and tax on luxuries.”
(2) For the removal of doubts, it is
hereby declared that where any such charges
have been included in the chargeable receipts
of any previous year as charges accuring or
arising to the assessee during that previous
year,
886
such charges shall not be included in the
chargeable receipts of any subsequent previous
year in which they are received by the asses-
see.”
Other provisions are machinery-provisions,
providing for the mode of assessment: levy and
collection of the tax; for appeals; for of-
fences: penalties; punishments, etc. The
challenge to the ‘Act’ is, in the main, lack
of legislative competence on the part of the
Union Parliament to enact the law.
Respondent-union seeks to support the legisla-
tion under and as referable to Entry 82 of
List 1 i.e., Taxes on Income. The contentions
raised in support of the petitions are these:
(a) That in pith and substance, the
law is one imposing a tax on luxuries provided
in Hotels and therefore, the law is one under
Entry 62, List I of the 7th Schedule to the
Constitution and outside the Union power;
(b) That, at all events, the Act is
patently violative of Article 14 in that the
basis of classification of hotels on the
dividing line of room charges, though in
itself an intelligible one, has, however, no
nexus, let alone any rational nexus with the
object of the law viz., to impose a tax on
income;
While hotels which collect room
charges of Rs.75 per day from any individual
in the previous year fail within the tax net,
other hotels which have much higher gross-
receipts are left out. The classification does
not include all persons who, from the point of
view of the objects of the Act, are similarly
situated.
(c) That the law imposes unreasona-
ble burden on the petitioners’ freedom of
business and constitutes a violation of Arti-
cle 19(1)(g) of the Constitution.
4. Re: Contention (a):
Shri Palkhivala contended that the impugned law which
seeks to impose a tax on what is styled ‘Chargeable-re-
ceipts’ which includes payments for residential accommoda-
tion, food, drink and other services at petitioners’ hotels
really brings to tax “luxuries”–an impost under Entry 62,
List I, reserved to the States. Learned counsel submitted
that the reliance by the Respondents on Entry 82, List I, to
support the impost as a tax on income is wholly misconceived
887
inasmuch as, the concepts of “income” and “tax on income”
have definite legal connotations crystallised by settled
legislative-practice and do not admit of “gross-receipts”
being treated as “income” for purposes of levy of tax under
Entry 82, List I. Learned counsel submitted that neither the
nomenclature given to the tax nor the standard by which it
is measured can determine its true nature and the legisla-
ture cannot enlarge its power by choosing an appropriate
name to the tax.
To show the essential characteristics of what is the
concept of ‘income’ learned counsel referred to certain
observations of the Supreme Court of the United Stated of
America:
“… it becomes essential to distinguish
between what is and what is not “income” as
the term is there used; and to apply the
distinction, as cases arise, according to
truth and substance, without regard to form.
Congress cannot by any definition it may adopt
conclude the matter, since it cannot by legis-
lation alter the Constitution, from which
alone it derives its power to legislate, and
within whose limitations alone that power can
be lawfully exercised.
The fundamental relation of “capital”
to “income” has been much discussed by econo-
mists, the former being likened to the tree or
the land, the latter to the fruit or the crop;
the former depicted as a reservoir supplied
from springs, the latter as the outlet stream,
to be measured by its flow during a period of
time.”
[See: Eisner v. Macomber, 64 Law Ed. 521 at
528]
Learned counsel also relied upon the
following observations of Gajendragadkar, J.
in Navnitlal v. K.K.Sen, [1965] 1 SCR 909 at
915
“This doctrine does not, however, mean
that ….. ”
” Parliament can choose to tax as income an
item which in no rational sense can be regard-
ed as a citizen’s income. The item taxed
should rationally be capable of being consid-
ered as the income of a citizen ….. “
Learned counsel submitted that the grosS-receipts of a
hotel received from a customer towards room charges, food,
drink and other services provided at the hotel cannot con-
stitute ‘income’ known as
888
such to law. The submission, in substance are two fold:
first that while the “Chargeable-Receipts” as conceived in
the “Act” do not constitute ‘income’ for purposes, and
within the meaning of Entry 82 list I, as the receipts
cannot rationally be related to the concept of ‘income’;
and, secondly, that in pith and substance the levy is one
under Entry 62 list I within the States’ power. Learned
counsel inviting attention to the following observations of
Lord Salmond’s in Governor-General in Council v. Province of
Madras, [1945] FCR 179at 191
” ….. Their Lordships do not doubt that
the effect of these words is that, if the
legislative powers of the Federal and Provin-
cial legislatures, which are enumerated in
List I and List II of the seventh schedule,
cannot fairly be reconciled, the latter must
give way to the former. But it appears to them
that it is right first to consider whether a
fair reconciliation cannot be effected by
giving to the language of the Federal Legisla-
tive List a meaning which, if less wide than
it might in another context bear, is yet one
that can properly be given to it, and equally
giving to the language of the Provincial
Legislative List a meaning which it can prop-
erly bear.”
submitted that Entry 62 list II and Entry 82 list I would
require to be reconciled accordingly.
5. Learned Attorney General, appearing for the Union of
India sought to support the impost as a tax on income under
Entry 82 of list I. It was urged that the word ‘income’ in
that entry broadly indicates the topic or field of legisla-
tion and that it should not be read in a narrow and pedantic
sense, but must be given its widest amplitude and should not
be limited by any particular definition which a legislature
might have chosen for the limited purposes of that legisla-
tion. The Statutory-definitions of and meanings given to
‘income’ are matters of legislative policy and do not ex-
haust the content of the legislative entry by the particular
manner in which, and the extent to which, the statute has
chosen to define that expression.
6. On a consideration of the matter, we arc of the
opinion that the submission of the learned Attorney General
as to the source of the legislative power to enact a law of
the kind in question require to be accepted. The Word ‘i-
ncome’ is of elastic import. In interpreting expressions in
the legislative lists a very wide meaning should be given to
the entries. In understanding the scope and amplitude of the
expres-
889
sion ‘income’ in Entry 82, list I, any meaning which fails
to accord with the plenitude of the concept of ‘income’ in
all its width and comprehensiveness should be avoided. The
cardinal rule of interpretation is that the entries in the
legislative lists are not to be read in a narrow or re-
stricted sense and that each general’word should be held to
extend to all ancillary or subsidiary matters which can
fairly and reasonably be said to be comprehended in it. The
widest possible construction, according to the ordinary
meaning of the words in the entry, must be put upon them.
Reference to legislative practice may be admissible in
reconciling two conflicting provisions in rival legislative
lists. In construing the words in a constitutional document
conferring legislative power the most liberal construction
should be put upon the words so that the same may have
effect in their widest amplitude.
In Navinchandra Mafatlal v. CIT, Bombay City, [1955] 1
SCR 829 the question was whether the provisions of section
12(b) of the Indian Income-tax Act, 1922, imposing a tax on
capital gains was ultra-vires the powers of the federal
legislature under Government of India Act, 1935. It was
contended that taxes on income under Entry 54, list I, of
the Government of India Act, 1935, did not embrace within
its scope a tax on capital gains. This contention was re-
jected. This Court after referring to the following observa-
tions of the judicial committee in Kamakshya Narain Singh v.
CIT, 1 ITR 5 13 (PC)
“income it is true, is a word difficult and
perhaps impossible to define in any precise
general formula. It is a word of the broadest
connotation.”
proceeded to observe:
“What, then, is the ordinary, natural and
grammatical meaning of the word “income”?
According to the dictionary it means “a thing
that comes in”. (See Oxford Dictionary, Vol.
V, page 162; Stroud, Vol. II, pages 14-16). In
the United States of America and in Australia
both of which also are English speaking coun-
tries the word “income” is understood in a
wide sense so as to include a capital gain:
Reference may be made to Eisner v. Macomber,
Merchants’ Loan & Trust Co. v. Smietunka, and
United States v. Stewart, and Resch v. Federal
Commissioner of Taxation.. In each of these
cases very wide meaning was ascribed to the
word “income” as its natural meaning. The
relevant observations of learned
890
Judges deciding those cases which have been
quoted in the judgment of Tendolkar J. quite
clearly indicate that such wide meaning was
put upon the word “income” not because of any
particular legislative practice either in the
United States or in the Commonwealth of Aus-
tralia but because such was the normal concept
and connotation of the ordinary English word
“income”. Its natural meaning embraces any
profit or gain which is actually received.
This is in consonance with the observations of
Lord Wright to which reference has already
been made.”
(Emphasis
Supplied)
Indeed, Navneet Lal’s case, relied upon by
Shri Palkhiwala, would itself conclude the
point:
“In dealing with this point, it is necessary
to consider what exactly is the denotation of
the word “income” used in the relevant Entry.
It is hardly necessary to emphasise that the
entries in the Lists cannot be read in a
narrow or restricted sense.”
“But in considering the question as to whether
a particular item in the hands of a citizen
can be regarded as his income or not, it would
be inappropriate to apply the tests tradition-
ally prescribed by the Income-tax Act as
such.”
In Bhagwandas Jain v. Union of India, AIR 1981
SC 907 the question of includibility, for
purposes of income-tax, of the assessee’s
notional income from a house property in the
personal residential occupation of the asses-
see was assailed on the ground that it did not
constitute ‘income’ for the purposes and
within the meaning of Entry 82 of List I. The
amplitude of the expression ‘income’ in Entry
82 of List I came in for consideration. In
that context, this Court said:
“Even in its ordinary economic sense, the
expression ‘income’ includes not merely what
is received or what comes in by exploiting the
use of a property but also what one saves by
using it oneself. That which can be converted
into income can be reasonably regarded as
giving rise to income. The tax levied under
the Act is on the income (though computed in
an artificial way) from house property in the
above sense and not on house property.”
891
The expression ‘income’ in Entry 82, List I cannot,
therefore, be subjected, by implication, to any restriction
by the way in which that term might have been deplayed in a
fiscal statute. A particular statute enacted under the
Entry, might, as a matter of fiscal policy, seek to tax some
species of income alone. The definitions would, therefore,
be limited by the consideration of fiscal policy of a par-
ticular statute. But expression ‘income’ in the legislative
entry has always been understood in a wide and comprehensive
connotation to embrace within it every kind of receipt or
gain either of a capital nature or of a revenue nature. The
‘taxable-receipts’ as defined in the statute cannot be held
to fall outside such a ‘wider connotation’ of ‘income’ in
the wider constitutional meaning and sense of the term as
understood in Entry 82, List I.
Contention (a), therefore,, fails.
7. Re: Contention (b) and (c):
We had an occasion to deal with a similar argument in
the other batch of cases dealing with the constitutionality
of the Expenditure Tax Act, 1987, where the ‘chargeable-
expenditure’ incurred in a particular class of hotels alone
was brought to tax, leaving the other hotels out. We have
rejected the challenge to the constitutionality of the
provisions of that Act based on Article 14 and 19(1)(g).
There, hotels in which room charges were Rs.400 or more per
day per person were alone brought under the Act. The differ-
entia was held to be both intelligible and endowed with a
rational nexus to the objects of the legislation viz.,
bringing to tax certain class of expenditure incurred at
hotels which were legislatively presumed to, attract an
economically superior class of clientale. Having regard to
the wide latitude available to the Legislature in fiscal
adjustments, the classification was found not violative of
Article 14.
8. Similar contentions as to the unreasonableness of the
restrictions which the imposition of the impugned tax was
said to bring about on the petitioners’ freedom of trade and
business and the adverse affect of this tax on a significant
area of national economy generally and the Tourism Industry
in particular have been considered in the petitions assail-
ing the vires of the Expenditure Tax Act, 1987. It is now
well settled that a very wide latitude is available to the
legislature in the matter of classification of objects,
persons and things for purposes of taxation. It must needs
to be so, having regard to the complexities involved in the
formulation of a taxation policy. Taxation is not now a
892
mere source of raising money to defray expenses of Govern-
ment. It is a recognised fiscal-tool to chief fiscal and
social objectives. The defferentia of classification presup-
poses and proceeds on the premise that it distinguishes and
keeps apart as a distinct class hotels, with higher economic
status reflected in one of the indicia of such economic
superiority. The presumption of constitutionality has not
been dislodged by the petitioners by demonstrating how even
hotels, not brought into the class, have also equal or
higher chargeable-receipts and how the assumption of econom-
ic superiority of hotels to which the Act is applied is
erroneous or irrelevant.
9. For the reasons stated in and following our Judgment
in the said W.P. 1395/87 and connected cases contentions (b)
and (c) are also held and answered against the petitioners.
10. In the result, for the foregoing reasons these
petitions are dismissed. There will, however, be no order as
to costs in these petitions.
G.N. Petitions dismissed.
893