PETITIONER:
SPENCES HOTEL PVT. LTD. AND ANR.
Vs.
RESPONDENT:
STATE OF WEST BENGAL AND ORS.
DATE OF JUDGMENT15/02/1991
BENCH:
SAIKIA, K.N. (J)
BENCH:
SAIKIA, K.N. (J)
PUNCHHI, M.M.
CITATION:
1991 SCR (1) 429 1991 SCC (2) 154
JT 1991 (1) 479 1991 SCALE (1)225
ACT:
West Bengal Entertainments and Luxuries (Hotels and
Restaurants) Tax Act, 1972-Section 4-Luxury Tax-
Imposition of flat or fixed rate on basis of air-
conditioned floor space-Whether permissible, valid and
legal.
HEADNOTE:
The appellant company was carrying on the business of
running a hotel, bar and restaurant where it had provided
air-conditioning. The second respondent, Collector of
Calcutta, sought to levy luxury tax on the company under the
provisions of the West Bengal Entertainments and Luxuries
(Hotels and Restaurants) Tax Act, 1972 calculated at the
flat or fixed rate of an annual sum of Rs.100 for every 10
Sq. meters of the floor area provided with air-conditioning.
The appellant's representation showing that the tax was
discriminatory was rejected by the Collector. There-upon,
the appellants read a petition in the High Court.
The appellants in their writ petition inter alia
contended that the Act had imposed a flat rate on a
specified air-conditioned floor space in hotels and
restaurants which may be differently situated with reference
to their localities, clientele, services and amenities
rendered, the Act made no distinction on any of these bases,
as such it, did not even attempt a reasonable classification
of these different types or categories of hotels and
restaurants, hence it suffered from the vice of
discrimination under Art. 14 of the Constitution.
Before this Court, the appellants while reiterating the
contentions urged before the High Court, argued that the
legislature while imposing a tax was bound under the
Constitution to make appropriate classification and failure
to do so resulting in clubbing dissimilar hotels and
restaurants for the purpose of luxury tax amounted to an
error by inaction; where the incidence of a tax was
distributed in a manner which was irrational or arbitrary or
where lack of classification created inequality, the tax
would be violative of Article 14; and the provision for air-
conditioning had no direct nexus with the income earned by
the different hotels and restaurants, and on the same ground
section 4 of the luxury tax Act must be declared violative
of Article 14 of the Constitution.
430
On behalf of the respondents it was contended that the
legislature had made the classification in selecting the
hotels and restaurants for the purposes of luxury tax in as
much as only the air-conditioned hotels and restaurants had
been subjected to tax; that the legislature had the widest
latitude in the matter of such classification. and that a
system of taxation need not be absolutely perfect and micro
division and mini classification may not always be made.
Dismissing the appeal this Court,
HELD: (1) A taxing statute will be struck down as
violative of Art. 14 if there is no reasonable basis behind
the classification made by it, or,if the game class of
property, similarly situated, is subjected to unequal
taxation. [442G]
Kunnathat Thathunni Moopil Nair v. The State of Kerala,
[1961] 3 SCR 77; I. T. O. v. Lawrence Singh, AIR (1968) SC
658=(1968) 2 SCR 165; State of Andhra Pradesh v. Nalla Raja,
AIR (1967) SC 1458 1967] 3 SCR 28, referred to.
(2) The luxury tax charged under section 4 of the Act
is a tax on the mere provision for luxury and not on the
hotel property or equipment. The measure or unit and the
rate of taxation are uniform for all within the group
subjected to tax. Further classification within the group
was not considered necessary by the legislature which had
wide latitude in the matter of classification keeping in
view the nature of the taxable event. The tax therefore
could not be said to be discriminatory. [447D-F]
(3) Whether a particular tax is discriminatory or not
must necessarily be considered in light of the nature and
incidence of that particular tax and cannot be judged by
what has been held in the context of other taxes except the
general propositions. The precedents relating to property
taxes such was as land tax, building tax, plantation tax,
and even income tax or a service tax will not be of direct
relevance to a luxury tax, as it is neither a property tax,
nor an income tax but a tax on the provision for luxury. In
case of tax on provision for luxury different aspects
peculiar to the tax have to be borne in mind. [443G]
(4) What exactly is meant by equality in taxation may,
have to be looked at from different angles in different
kinds of taxes. [444E]
(5) The ability or capacity to pay has no doubt been
regarded as
431
the test in determining the justness or equality of
taxation. It is the goal towards which the system has been,
as it must be, steadily working. [444C]
(6) Taxation will not be discriminatory if, within the
sphere of its operation, it affects alike all persons
similarly situated. It, however, does not prohibit special
legislation, or legislation that is limited either in the
objects to which it is directed, or by the territory within
which it is to operate. [445F]
(7) The equal protection of the law's provision in our
Constitution prohibits a discrimination by the State against
its own citizens as well as to one in their favour in
imposing the luxury tax. The provision requiring luxury tax
to be equal and uniform has to be interpreted in light of
its characteristics. The luxury tax is 'uniform' as it is
equal upon all persons belonging to the described class
upon which it is imposed, namely, the owners of air-
conditioned hotels and restaurants. [446G-H]
(8) Equality and uniform policy means uniform and equal
rates of assessment and taxation which has been followed in
this tax. The concept of equality and uniformity has to
adjust from time to time to new and advancing social and
economic conditions and needs of public finance and fiscal
policy, of course within constitutional limitations. [447B]
Express Hotels Private Ltd. v. State of Gujarat,
[1989]3 SCC 677; New Manek Chowk Spinning and Weaving Mills
Co Ltd v. Municipal Corporation of the City of Ahmedabad,
[1967] 2 SCR 679; Ram Prasad Narayan Sahi & Anr. v. The
State of Bihar, [1954] 4 SCR 1129; Steelworth v. State of
Assam, [1962] Supp. 2 SCR 589; Ganga Sagar Corpse. v. State
of U.P., AIR [1980] SC 286: [1980] 1 SCR 769; Khyerbari
Tea Co. v. State of Assam, AIR (1964) SC 935; State of
Kerala v. Haji K. Haji K. Kutty Naha, [1969] 1 SCR 645;
Spences Hotel Pvt. Ltd. v. State of West Bengal, [1975] Tax
L.R. 1890; East India Hotels Ltd. v. State of West Bengal,
AIR (1990) 6 SCR 2029; State of Rajasthan v. Mukachand and
Ors., [1964] 6 SCR 903; State Of Maharashtra & Ors. v.
Madhukar Balkrishna Badiya & Ors., [1988] 4 SCC 290; Twyford
Tea Co. Ltd. & Anr. v. The State of Kerala, [ 1970] 3 SCR
383; Elel Hotels and Investments Ltd. & Ors v. Union of
India, [1989] 3 SCC 698; Gopal v. State of U.P., [19641 4
SCR 869; Ravi Verma v. Union of India, AIR (1969) SC 1094;
(1969) 3 SCR 827; D.S. Nakara v. Union of India, [1983] 1
SCC 305 and Bank of Baroda v. Rednam Negachaya Devi, [1989]
4 SCC 470.
JUDGMENT:
CIVIL APPELLATE JURISDICTION CIVIL: Civil Appeal No. 406
of 1976.
432
Appeal by Certificate from the Judgment and Order dated
2.1-1975 of the Calcutta High Court in Appeal No. 137 of
1974.
G.L. Sanghi, Dhruv Mehta, Aman Vachhar and S.K. Mehta
for the Appellant.
Tapas Ray and G.S. Chatterjee for the Respondents.
Harish N. Salve, Lalit Bhasin, Ms. Nina Gupta, Vibhu
Bhakru, Pranab Mullick and Vineet Kumar for the Intervener.
The Judgment of the Court was delivered by
K.N. SAIKIA, J. This appeal by certificate is from the
Judgment of the Calcutta High Court dated 2.1.1975
dismissing the appeal No. 137 of 1974.
The second appellant is a share-holder and Director of
the first appellant Company M/s. Spences Hotel, Pvt. Ltd.
hereinafter referred to as ‘the Company’ having its
registered office, and carrying on the business of running a
hotel, bar and restaurant, at No. 4 Wellesley Place
Calcutta. The said hotel, bar and restaurant have been
provided by the Company with air-conditioning through a
central air-conditioning plant which, according to
appellants, would normally run between months of March and
October each year remaining unused for the rest of the
year.
The second respondent, Collector of Calcutta by his
Memo No. 4600(86) A.T. dated November 9, 1972 directed the
company to make ad hoc payment of tax under the provisions
of the West Bengal Entertainments and Luxuries (Hotels and
Restaurants) Tax Act, 1972 (W. B. Act XXI of 1972)
hereinafter referred to as ‘the Act’, calculated at the flat
or fixed rate of an annual sum of Rs. 100 for every 10 sq.
metres or part thereof in respect of so much of the floor
area of the hotel which was provided with luxury i.e. air-
conditioning. Again by Memo No. 1161/A.T. dated 13.3.1973
the second respondent called upon the Company to expedite
the submission of the blue print of the space provided with
means for air-conditioning, failing which appropriate legal
action would be taken. The second appellant submitted a
representation showing that the tax was discriminatory and,
therefore, illegal and void, but the second respondent by
his Memo No. 5166/ A.T. dated 22.12.1972 replied that there
was nothing discriminatory in it.
433
The appellants in their writ petition under Article 226
of the Constitution of India in the High Court of Calcutta
contended that the provisions of the Act and the Rules
framed thereunder, enabling the respondents to levy luxury
tax, were unconstitutional and void, and consequently the
notices and memos issued to the appellants were without
jurisdiction and amounted to colourable exercise of
power practising fraud on legislative powers; and it was
prayed inter alia that the Act and the Rules framed
thereunder be declared illegal and void being ultra vires
the constitution of India; that a writ of mandamus or any
other appropriate writ be issued commanding the respondents
and each of them not to give any or any further effect to
the Act, Rules, and the notices.
A learned Single Judge dismissed the writ application
by order dated March 6, 1974 but granted stay of operation
of his order till April 30, 1974 on which date the
appellants preferred therefrom the appeal No. 137 of 1974
and the Division Bench also granted stay pending the
appeal but directed the appellants to deposit a sum of
Rs.6,000 towards luxury tax with the Registrar of the High
Court, which the appellants did; and after hearing by the
impugned Judgment and order dated January 2, 1975 dismissed
the appeal, but granted certificate of fitness to appeal
therefrom to this Court.
In the High Court it was first contended by the
appellants that under Entry 62 of List 11 of the Seventh
schedule taxes could be imposed only on luxuries i.e. obj-
ects or articles of luxury, but the impugned Act instead of
imposing tax on air-conditioners as articles of luxury has
imposed tax on air-conditioned floor space and as such it
was a property tax on the basis of floor space and not a tax
on any apparatus, instrument of articles of luxury and as
such ultra vires the powers of the state legislature. The
second contention was that Section 4 of the Act imposes a
flat rate of Rs. 100 per annum on a specified air-
conditioned floor space in hotels and restaurants which may
be differently situated with reference to their localities,
clientele, services and amenities rendered and the Act makes
no distinction on any of these bases and as such it did not
even attempt a reasonable classification of these different
types or categories of hotels and restaurants, and,
therefore, it suffered from the vice of discrimination under
Art. 14 of the constitution.
Mr. G. L. Sanghi, the learned counsel for the
appellants, fairly submits that in view of the Constitution
Bench decision in Express Hotels Private Ltd. v. State of
Gujarat and Anr, [1989] 3 SCC 677,
434
before which Bench the West Bengal petition was also there,
the above first contention stands concluded against the
appellants. The second contention, however, according to
counsel, was not urged before the Constitution Bench and as
such is still open to the appellants. Reiterating that
contention counsel submits that the State has levied luxury
tax at a flat rate of an annual sum of Rs. 100 for every 10
square metres, or part thereof in respect of so much of the
floor area of a hotel which is provided with luxury
irrespective of the locality, quality, standard or size of
the hotels and restaurants; there is no attempt whatsoever
by the State to classify and in fact the tax is sought to be
imposed indiscriminately without discernment; and there is
total failure on the part of the state in not recognizing
the inherent differences in hotels and restaurants. Counsel
produces a list of classified hotels which according to him,
clearly shows vast differences between different hotels and
this is magnified not only by the fact of different rates
charged but also different kinds of services/facilities
provided. The appellants also refer to criteria for one star
hotels, which, it is submitted, show that the levy of tax on
floor area has no nexus with the subject of tax, namely,
luxuries. Regarding the flat rate it is submitted that this
Court has in more than one case deprecated the practice of
imposition of tax at flat rate and he relies on the
decisions in Kunnathat Thathunni Moopil Nair v. The State of
Kerala and Anr., [ 1961] 3 SCR 77 (90-92); New Manek Chowk
Spinning and Weaving Mills Co. Ltd. & Ors., v. Municipal
Corporation of the City of Ahmedabad & Ors., [ 1967] 2 SCR
679 (692) and State of Kerala v. Haji K. Haji K. Kutty Naha
& Ors., [ 1969] 1 SCR 645 (649). Counsel further submits
that there is no nexus or co-relation between floor and
space of a hotel and the extent of luxury provided on
account of air-conditioning and the provision for air-
conditioning or air-cooling is not a material factor which
would determine the extent of use and benefit and quantum of
income to be received from a given area of air-conditioning
floor space. Depending on the quality and nature of several
other amenities provided by hotels and restaurants, some of
these establishments are able to give more space per capita
to their residents and customers for a certain rate or rent
or price than other hotels and restaurants of different
standards, although both are air-conditioned or air-cooled.
It is submitted that a very old hotel of otherwise poor
standard situated in the outskirts of the city and an ultra
modern expensive hotel with excellent amenities situated in
the best locality would be charged with the same amount of
luxury tax if the extent of floorage of both were the same,
only because both are air-conditioned. This clubbing of
unequals for the purposes of imposition of luxury tax is
discriminatory. “Because my hotel is situated outside the
congested area and my space
435
is wider and my rooms are bigger and my floor space is more
should I be made to pay more tax than the five stars hotels
whose earnings and rates are much higher than those of
mine?” According to counsel the legislature while imposing a
tax is bound under the Constitution to make appropriate
classification and failure to do so resulting in clubbing
dissimilar hotels and restaurants for the purpose of luxury
tax amounts to an error by inaction.
Mr. H.N. Salve, the learned counsel for the intervener
M/s East India Hotel Ltd., submits that where the incidence
of a tax is distributed in a manner which is irrational or
arbitrary or where lack of classification creates
inequality, the tax would be violative of Article 14 of the
Constitution of India. In the instant case, according to
counsel, neither the charge, nor the rate, but the
‘measure’, that is the air-conditioned floor space of
assumed homogeneity or uniformity that suffers from the vice
of non-classification causing inequality in incidence of the
tax.
Mr. Tapas Ray, the learned counsel for the respondents,
submits, inter alia, that the Legislature made the
classification in selecting the hotels and restaurants for
the purpose of luxury tax inasmuch as only the air-
conditioning hotels and restaurants have been subjected to
tax and non-air-conditioned ones left out. The Legislature,
counsel submits, has the widest latitude in the matter of
such classification and so long as luxury has been defined
with reference to a named space, namely, air-conditioned
hotels and restaurants, there could be no question of
infringement of Article 14. The prescribing of a flat or a
fixed rate for a certain measure of air-conditioned space
would also not amount to discrimination all such air-
conditioned space being treated equally. A system of
taxation, it is submitted, need not be absolutely perfect
and micro division and mini classification may not always be
made.
The precise question, therefore, is whether Section 4
of the Act can be held to be ultra vires the Article 14 of
the Constitution of India for failure to make required
classification and for imposition of luxury tax on flat or
fixed rate only on the basis of air-conditioned floor space.
The Act is one “to provide for the imposition of taxes
on entertainments and luxuries in hotels and restaurants”.
As defined in Section 2(b) “entertainment” means any
exhibition, performance, amusement, game, sport, cabaret,
dance or floor show and includes performance by any singer,
musician or bandsman provided in any
436
hotel or restaurant. As defined in 2(ca) “hotel” means a
building or part of a building or any place where any
activity or business is carried on in providing lodging or
boarding or any kind of accommodation, with or without
supply of food, drinks or refreshments, to the members of
the public on payment or for any consideration with the
object of making profit. As defined in clause (h)
“restaurant” includes an eating-house. “Luxury” as defined
in clause (d) means provision for air-conditioning through
air-conditioner or central air-conditioning or any other
mechanical means provided in any of the rooms, or in any
part of a building which constitutes a hotel or restaurant;
and “luxury tax” as defined in clause (e) means a tax levied
under Section 4 of the Act.
Section 4 is the charging Section dealing with
liability for luxury tax. At the relevant time it said:
“There shall be charged, levied and paid to the
State Government a luxury tax by the proprietor of
every hotel and restaurant (in which there is
provision for luxury) and such tax shall be
calculated at the rate of an annual sum of rupees
one hundred for every ten square metres or part
thereof in respect of so much of the floor area of
the hotel which is provided with luxury.”
For appreciation of the rival arguments it is necessary
first to ascertain the taxable event in the above provision.
The question is whether the taxable event is the existence
or provision for air-conditioning or its use or income
derived from it. In Spences Hotel Pvt. Ltd. v. State of West
Bengal, reported in 1975 Tax L.R. 1890 (1892) the Calcutta
High Court took the view:
“In view of the social and economic structure of
our country there can be no doubt that an air-
conditioned space whether in hotel or in a
restaurant is a luxury by itself. People enter into
these spaces for enjoyment of a
luxury…………………. The comfort that a
person derives in a hot summer day in an air-
conditioned space is a luxury particularly in the
context of the conditions in which the masses live
in India today. In our opinion, the State
legislature is competent to impose a tax on this
luxury.”
This Court approved the above view in Express
Hotels Pvt. Ltd. case (supra). The submission that as
Section 4 of the West Bengal Act
437
envisaged a tax on the mere existence for the provision of
the luxury even if luxury was not utilized by any person and
hence it was beyond the scope of the legislative entry was
rejected observing that the concept of luxuries in the
legislative entry took within it everything that could
fairly and reasonably be said to be comprehended in it. On a
perusal of Section 4 of the Act there arises no doubt that
it is the provision for air-conditioning to the measure of
space which is the taxable event and not the articles or
properties through or by which it is provided nor the income
derived therefrom. As has been observed in East India Hotels
Ltd. v. State of West Bengal and Ors., AIR 1990 SC 2029, the
submission that there must be both giving and receiving of
luxury and that a tax on the mere existence of luxury would
be insufficient to support a law imposing the tax was not
accepted and it was held by this Court that taxable event
need not necessarily be the actual utilisation or the actual
consumption of the luxury and that a luxury which can
reasonably be said to be amenable to a potential consumer
does provide the nexus for valid enactment. Mr. Salve
correctly submitted that the charging event is the provision
for air-conditioning in a hotel or restaurant as a luxury.
Thus the taxing event is the provision for air-conditioning
in hotels and restaurants, its mere existence, irrespective
of the means of doing so and irrespective of its utilisation
or the income derived therefrom. The arguments regarding
discrimination, therefore, must be relevant to this taxing
event.
We may now examine the cases relied on by the
parties. Kunnathat Thathunni Moopil Nair v. The State of
Kerala and Anr.(supra) is a case on land tax and not a tax
on service or provision. By Section 4 of the Travancore Land
Tax Act 1955 as amended by Act 10 of 1957 all lands in the
State of whatever description and held under whatever tenure
were to be charged and levied a uniform rate of tax to be
called the basic tax. Section 7 gave power to the
Government to exempt from the operation of the Act such
lands or class of lands which the Government might by
notification, decide. The appellants forest owners
challenged the provisions of the Act on the ground of
contravention, amongst others, of Article 14 of the
Constitution in asmuch as the Act did not have any regard to
the quality of the lands or its productive capacity and the
levy of a tax at a flat rate of Rs.2 per acre imposed very
unreasonable restrictions on the right to hold property. A
Constitution Bench of this Court held that a taxing statute
was not wholly immune from attack on the ground that it
infringed the equality clause in Article 14, though the
courts were not concerned with the policy underlying a
taxing statute or whether a particular tax could not have
been imposed in a different way or in a way that the
438
court might think more just and equitable. Examining the
provisions this Court observed that the Act had no reference
to income, either actual or potential, from the property
sought to be taxed. It obliged every person who held land
to pay the tax at a flat rate prescribed, whether or not he
made any income out of the property, or whether or not the
property was capable of yielding any income. It was also
observed that ordinarily a tax on land or land revenue was
assessed on the actual or potential productivity of the land
sought to be taxed and the tax had reference to the income
actually made, or which had been made with due diligence,
and, therefore, tax was levied with due regard to the
incidence of the taxation. Under the provisions of the Act
as some persons owning and possessing the same area of land,
but earning no income, the land being arid desert, others
earning only some income by raising possible crops
making heavy investments, and others earning income
sufficient to pay the tax only, while still others
earning sufficient income out of the fertile land, the
tax would affect the pockets of the different owners
differently. This Court accordingly held that inequality
was writ large on the Act and was inherent in the
very provisions of the taxing section and that there
was no attempted classification and nothing more need
be said as to what could have been the basis for the
valid classification. It is accordingly argued both by
Mr. Singhvi and Mr. Salve that in the instant case the
provision for air-conditioning has no direct nexus
with the incomes earned by the different hotels and
restaurants and on the same ground Section 4 of the
Act must be declared violative of Article 14 of the
Constitution.
State of Kerala v. Haji K. Haji K. Kutty Naha &
Ors. (supra) was a case challenging Section 4 of the
Kerala Buildings Tax Act, 1961. Under that section
buildings constructed after the coming into force of
the Act and having a floor area of one thousand
square feet or more were subjected to tax on a
graduated scale. The tax was levied on the basis of
floor area only and no classification was attempted. It
was held that in enacting the provision no attempt at
any rational classification had been made by the
Legislature and it had not taken into consideration
the class to which a building belonged, the nature of
construction, the purpose for which it was used, its
situation, its capacity for profitable user and other
relevant circumstances which had a bearing on the
matters of taxation. Merely the floor area of the
building was adopted as the basis of tax irrespective of
all other considerations. This Court observed that the
law by which a tax was levied must not be
inconsistent with any provision of the Constitution and
that the validity of the taxing statute was open to
question on the ground that it infringed the
fundamental rights. When objects persons and
transactions essentially
439
dissimilar were treated by the imposition of a uniform tax,
discrimination might itself in some cases result in denial
of equality. This Court further observed that in view of
the inherent complexity of fiscal legislation a larger
discretion was available to the Legislation in the matter of
classification, so long as it adhered to the fundamental
principles underlying the doctrine of equality. Though the
Legislature had wide range of flexibility in the matter of
classification there must not be denial of equality in the
matter of taxation, and the High Court was accordingly held
to have been justified in holding that the charging section
of the Act was violative of the equality clause of the
Constitution.
In State of Rajasthan v. Mukachand and Ors., [ 1964] 6
SCR 903, the validity of Sections 2(e) and 7(2) of
Jagirdar’s Debt Reduction Act (Rajasthan Act 9 of 1937) was
challenged. Section 2(e) defined ‘debt’ to mean an advance
in cash or in kind including any transaction which is in
substance a debt but not including an advance as aforesaid
made on or after impugned part of Section 2(e).
In New Manek Chowk Spinning and Weaving Mills
Co. Ltd. and Ors. v. Municipal Corporation of the
City of Ahmedabad and Ors. (supra) the question
was whether under the Bombay Provincial Municipal
Corporation Act (49 of 1949) levy of property tax
on textile factories at flat rate per 100 sq. ft. of floor
area was violative of Article 14 of the Constitution. A
Constitution Bench of this Court held that the method
of levy of tax on the basis of floor area was
against the provision of the Act and the Rules made
thereunder and that the rateable value of the
property must be assessed after determining the
rack rent or the annual rental value in respect of
each premises which was to be computed on the basis
of the annual rent for which the property might
reasonably be expected to be let from year to year.
The method of taxation on the basis of floor area, it
had been observed, was sure to give rise to inequalities
as there had been no classification of factories on any
rational basis.
In State of Maharashtra & Ors. v. Madhukar
Balkrishna Badiya
440
& Ors., [ 19881 4 SCC 290, the validity of the Bombay Motor
Vehicles Tax Act, 1958 (65 of 958) sections 3(1-C) and 9(6)
(as amended by Maharashtra Acts 14 of 1987, 33 of 1987
and 9 of 1988) which levied `one time tax’ at 15 times
the annual rate on motor cycles and tricycles, was
challenged. It was held by this Court that the Act did
not suffer from any vice of discrimination on the
ground that the company-owned vehicles were taxed at
three times the rate payable by individuals as the
system was prevailing historically. It was also held that
in cases of fiscal legislation wide discretion was conferred
on the legislature in the matter of classification and
that the Court would ordinarily be slow in interfering
with the statute on ground of discrimination if a set of
facts justified the same.
In Twyford Tea Co. Ltd. & Anr. v. The State of
Kerala & Anr., [1970] 3 SCR 383 the Kerala Plantation
(Additional Tax) Act, 1960 (Act 17 of 1960) and the
Kerala Plantation (Additional Tax) Amendment Act, 1967
(Act 19 of 1967) were challenged. The Act of 1960
levied an additional tax on plantations. Plantations
meant land used for growing Cocoanut, Arecanut,
Rubber, Coffee, Tea, Cardamom and Pepper. Under
Section 3 of the Act, for each financial year a
plantation tax additional to the basic tax charged on land
tax under the Land Tax Act, 1955 was payable at the rate
mentioned in Schedule I of the Act, the rate being Rs.8
per acre. The plantations of 5 acres or below held by
a person did not attract tax. For the purpose of
finding out the extent of the plantation in acres held by
a person a method of calculation was laid down in
Schedule 11. The 1960 Act was amended by the 1967
Amendment Act. By the Amending Act the word
‘additional’ was removed from all places and it was declared
that the tax was additional to the land revenue or any
tax in lieu thereof, if any, payable in respect of such
land. The unit of assessment was changed from acre to
hectare and the rate of tax in Schedule I was raised to
Rs.50 per hectare. The tax was payable in respect of 2
hectares of plantations or more with an exemption for
the first hectare. According to the new Schedule 11
the extent of plantation for the purpose of tax in the
case of Cocoanut, Arecanut, Rubber, Coffee and
Pepper plantations was arrived at by dividing the total
number of trees, plants or vines standing thereon by
a number specified in each case. Twyford Tea Co.
challenged the Act after amendment mainly on the
ground of violation of Article 14 urging that there were
differences of fertility and rainfall in the different
areas where the plantations were situated and figures
compiled by the Tea Board were placed to show the
differences in yield between different estates, and
Moopil Nair’s case (supra) was relied on to argue
that the uniform tax on unequals resulted in dis-
441
crimination (a) as between the tea plantations themselves
and (b) as between different kinds of plantations. The
legislative competency was also challenged.
Hidayatullah, C.J. speaking for the Constitution
Bench while dismissing the petitions held that the
legislature had a wide range of selection and freedom
in appraisal not only in tile objects of taxation and
the manner of taxation but also in the determination of
the rate or rates applicable. If production were always
to be taken into account there would have to be a
settlement for every year and the tax would become a
kind of income-tax. The burden of proving
discrimination was always heavy and heavier still was
the proving in taxing statute. The burden was on the
person complaining of discrimination to prove not
possible inequality but hostile unequal treatment, more so
when uniform taxes were levied. The State could not
be asked to demonstrate equality. The petitioners in
that case could not single out any particular plantations
for hostile or unequal treatment.It was observed that
in Moopil Nair’s case the tax was held to be
discriminatory because it paid no heed to quality or
productive capacity of land and the tax was also held to be
confiscatory since owners of unproductive land were
liable to be eliminated by slow degrees unlike in
Twyford case where tax was only levied in crop
yielding land determining the extent of crop yielding
plantation. It was observed that a uniform tax may fall
more heavily on plantations than on others because the
profits were widely discrepant but that by itself could
not involve discrimination for then hardly any tax direct
or indirect would escape the same censure.
In Elel Hotels and Investments Ltd & Ors. v.
Union of India, [1989] 3 SCC 698, Venkatachaliah, J.
speaking for the Constitution Bench held that
classification of hotels on the basis of room charges for
the purpose of levy of tax could not be said to be
discriminatory as the legislature had wide discretion in
taxing objects, persons and things. It was said at
paragraph 20:
“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 need to be so,
having regard to the complexities involved in the
formulation 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 hotel with higher
economic
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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 economic superiority of
hotels to which the Act is applied is erroneous
or irrelevant.
In Ram Prasad Narayan Sahi & Anr. v. The State
of Bihar and Ors., [1953] 4 SCR 1129 wherein the
Sathi Lands (Restoration) Act, 1950 declaring settlement
of land with particular individual was challenged on
the ground of discrimination. Mukherjee, J. speaking
for the Court observed that the equal protection clause in
Article 14 of the Constitution aimed at striking down
hostile discrimination and applied to all persons
similarly situated, but it was certainly open to the
legislature to classify particular legislative objects;
however, such selection or differentiation must not be
arbitrary and should rest upon rational basis having
regard to the object which the legislature had in view.
The intrinsic complexity of fiscal adjustments of
diverse elements and wide discretion and latitude of
the legislature in the matter of classification for
taxation purposes was emphasised by Sabyasachi
Mukharji, J. as he then was, in State of
Maharashtra & Ors. v. Madhukar Balakrishna Badiya &
Ors., (supra) which was a case under the Bombay
Motor Vehicles Tax Act, 1958 (as amended by
Maharashtra Act 14 of 1987). In para 14 of the report it was
said:
“About discrimination it is well to remember that
a taxation law cannot claim immunity from the
equality clause in Art. 14 of the Constitution
but in view of the intrinsic complexity of fiscal
adjustments of diverse elements, a
considerably wide discretion and latitude in the
matter of classification for taxation purpose is
permissible.”
From the propositions of law enunciated in the above cases
by this Court, it is well settled that a taxation will be
struck down as violative of Art. 14 if there is no
reasonable basis behind the classification made by it, or,
if the same class of property, similarly situated, is
subjected to unequal taxation as was held in L T. 0. v.
Lawrence Singh, AIR 1968 SC 658 (661): 1968 2 SCR 165. If
there is no reason for the classification then also the law
will be struck down. However, as was held in Kunnathat v.
State of Kerala, (supra) and State of Andhra Pradesh v.
Nalla Raia, AIR 1967 SC 1458: [1967] 3 SCR 28, if the
taxation imposes
443
a similar burden on every one with reference to that
particular kind and extent of property, on the same basis
of taxation, the law shall not be open to attack on the
ground that the result of the taxation is to impose
unequal burdens on different persons. It was held in
Steelworth of taxation of V. State of Assam, [1962] Supp.
2 SCR 589, that in law of taxaton of income it is competent
for the legislature to graduate the rate of tax
according to the ability to pay. In Gattga Sagar Corpse. v.
State of U. P., AIR 1980 SC 286: [1980] 1 SCR 769 also
it has been held that in the matter of taxation laws
the court permits a greater latitude to the
discretion of the legislature and in Khyerbari Tea
Co. v. State of Assam, AIR 1964 SC 935 (94t) it has
been held that in tax matters the State is allowed to
pick and choose districts, objects, persons, methods
and even rates for taxation if it does so reasonably.
In Twyford Tea Co. v. State of Kerala, (supra) it has been
observed that when a statute divides the objects of tax
into groups or categories, so long as there is equality
and uniformity within each group, the tax cannot be
attacked as violative of Art. 14, although due to
fortuitous circumstances or a particular situation some
included within a group may get some advantage
over others, provided of course they are not sought
out for special treatment. It has repeatedly been
held, for example, in Khyerbari Tea Co – (supra),
Gopal v. State of U. P. I AIR 1964 SC – 370 (375):
(1964) 4 SCR 869 and Steelworth v. State of Assam,
(supra) and Ravi Varma v. Union of India, AIR 1969
SC 1094: (1969) 3 SCR 827, that as to what articles
should be taxed is a question of policy and there cannot
be any complaint merely because the legislature has
decided to Nakara & Ors. v. Union of tax certain
articles and not others. In D.S India, [ 1983] 1 SCC 305,
Desai, J. even expressed that too microscopic a
classification may also be violative of Art. 14. It was
reiterated in Bank of Baroda v.-Rednam Nagachaya
Devi, [1989]4 SCC 470 that the burden is always on the
person alleging the violation of Art. 14 of the
Constitution of India to raise specific pleas and
grounds and to prove it.
Whether a particular tax is discriminatory or not
must necessarily be considered in light of the nature and
incidence of that particular tax and cannot be judged
by what has been held in the context of other taxes
except the general propositions. The precedents relating
to property taxes such as land tax, building tax,
plantation tax, and even income tax or a service tax will
not be of direct relevance to a luxury tax, as it is
neither a property tax, nor an income tax but a tax on
the provision for luxury. In case of tax on provision
for luxury different aspects peculiar to the tax have
to be borne in mind. The system of taxation has
changed a great deal from Kautilya to kaldor and even
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thereafter. The history of taxation is one of evolution as
is the case in all human affairs. Its progress is one of
constant growth and development in keeping with the
advancing economic and social conditions; and the fiscal
intelligence of the State has been advancing concomitantly,
subjecting by new means and methods hitherto untaxed
property, income, service and provisions to taxation. With
the change of scientific, commercial and economic conditions
and ways of life new species of property, both tangible and
intangible gaining enormous values have come into existence
and new means of reaching and subjecting the same to
contribute towards public finance are being developed,
perfected and put into practical operation by the legisla-
tures and courts of this country, of course within
constitutional limitations. The ability or capacity to pay
has no doubt been regarded as the test in determining the
justness or equality of taxation. It is the goal towards
which the system has been, as it must be, steadily working.
The equality, justness and fairness of this ideal is
realised when one reflects upon the vast wealth accumulated
by the advantaged ones but not by people in general. The
idea of distributive justice is more or less intuitive in
this regard. This, however, has to harmonise well with a
proportional system of taxation, that is to say, a tax at a
fixed and uniform rate in proportion to the taxable event, a
measure of providing air-conditioned space. In possible
cases of simple space taxation or pollution taxation courts
may be a little embarrassed in attempting to apply the
principle of ability or capacity to pay. What, exactly is
meant by equality in taxation may, therefore, have to be
looked at from different angles in different kinds of taxes.
This reminds us what John Stuart Mill said in Chapter V of
Utilitarianism.
“Some people may think that they have rational
insight into the truth of the proposition that men
ought to be taxed equally, others that they have
such insight into truth of the proposition that men
ought to be taxed in proportion to what they earn,
others that they have rational insight into the
truth of the proposition that men ought to be taxed
more than in proportion to what they earn. Can
they be sure that in thinking this, they are not
simply, being influenced by the imaginative and
quasi-aesthetic appeal of making the amount of
payments proportionate to the number of people, or
making it proportionate to their incomes?”
It may be, that this truth is simply that our
imagination disposes us to think in terms of distributive
justice. It is, therefore, pertinent to observe that along
with the insight into a particular truth or an
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aesthetic value, the expediency and practicability of a
particular taxation has also to be borne in mind.
As was pointed out by Gustav Radbruch in his Legal
Philosophy (P. 90):
“Justice demands that equals be treated equally,
different ones differently according to their
differences; but it leaves open the two
questions, whom to consider equal or
different, and how to treat them. Justice
determines only the form of law. In order to get
the content of the law, a second idea must
be added, viz. expediency. The question
of justice has been raised and answered
independently of questions of expediency or
suitability for any purpose, including the
purpose of the state. But within the frame-
work of the question of the purpose of law, the
state for the first time enters the scope of
our investigation. Since law, or an essential
part of it, is the will of the state, and the
state, or an essential part of it, is an
institution of law, the questions of the purpose
of law and the purpose of the state are
inseparable.”
What then ‘equal protection of laws’ means as
applied to taxation? Equal protection cannot be said
to be denied by a statute which operates alike on all
persons and property similarly situated, or by proceedings
for the assessment and collection of taxes which
follows the course usually pursued in the State. It
prohibits any person or class of persons from being
singled out as special subject for discrimination and
hostile legislation; but is does not require equal rates of
taxation on different classes of property, nor does it
prohibit unequal taxation so long as the inequality
is not based upon arbitrary classification.
Taxation will not be discriminatory if, within the
sphere of its operation, it affects alike all persons
similarly situated. It, however, does not prohibit
special legislation, or legislation that is limited either
in the objects to which it is directed, or by the territory
within which it is to operate. In the words of Cooley: It
merely requires that all persons subjected to such
legislation shall be treated alike, under like
circumstances and conditions, both in the privileges
conferred and in the liabilities imposed. The rule of
equality required no more than that the same means and
methods be applied impartially to all the
constituents of each class, so that the law shall operate
equally and uniformly upon all persons in similar
circumstances. Nor does this requirement preclude the
classification of property, trades, profession and
events for taxation-subjecting one kind to one rate of
taxation, and another to a different rate. “The rule
of equality of taxation is not intended to
446
prevent a State from adjusting its system of taxation in all
proper and reasonable ways. It may, if it choses, exempt
certain classes of property from any taxation at all, may
impose different specific taxes upon different trades and
professions.” “It cannot be said that it is intended to
compel the State to adopt an iron rule of equal taxation.”
In the words of Cooley:
“Absolute equality impossible. Inequality of
taxes means substantial differences. Practical
equality is constitutional equality. There is
no imperative requirement that taxation shall
be absolutely equal. If there were, the
operations of government must come to a stop,
from the absolute impossibility of fulfilling
it. The most casual attention to the nature
and operation of taxes will put this beyond
question. No single tax can be
apportioned so as to be exactly just and any
combination of taxes is likely in individual
cases to increase instead of diminish the
inequality.”
(Cooley on Taxation, 4th Edn. Vol.l.p. 558)
“Perfect equality intaxation has been said time
and again, to be impossible and unattainable.
Approximation to it is all that can be had. Under
any system of taxation, however, wisely and
carefully framed, a disproportionate share of the
public burdens would be thrown on certain kinds of
property, because they are visible and tangible,
while others are of a nature to elude vigilance. It
is only where statutes are passed which impose
taxes on false and unjust principle, or operate
to produce gross inequality, so that they cannot be
deemed in any just sense proportional in their
effect on those who are to bear the public charges
that courts can interpose and arrest the course of
legislation by declaring such enactments void.”
“Perfectly equal taxation”, it has been said, “will
remain an unattainable good as long as laws and
government and man are imperfect.” ‘Perfect
uniformity and perfect equality of taxation’, in all the
aspects in which the
human mind can view it, is a baseless dream.
The equal protection of the law’s provision in our
Constitution prohibits a discrimination by the State against
its own citizens as well as to one in their favour in
imposing the luxury tax. The provision requiring luxury tax
to be equal and uniform has to be interpreted in light of
its characteristics. The luxury tax is ‘uniform’ as it is
equal upon all persons belonging to the described class upon
which it is imposed, namely, the owners of air-conditioned
hotels and restau-
447
rants. The Act requires the luxury tax to be in proportion
of or proportional the air-conditioned space and it requires
the tax to be uniform upon the same class of owners of air-
conditioned hotels and restaurants which means that all
similarly situated owners shall be treated alike. It does
not suffer from lack of classificaion but instead impliedly
authorises it by leaving out non-air-conditioned hotels and
restaurants. Equality and uniform policy means uniform
and equal rates of assessment and taxation which has
been followed in this tax. The concept of equality
and uniformity has to adjust from time to time to
new and advancing social and economic conditions and
needs of public finance and fiscal policy, of course
within constitutional limitations.
The submission that the incidents falls
differently on different classes of hotel owner is
not tenable inasmuch as the impact is the result of
having different measures of air-conditioned space by
different owners. This luxury tax having not been
based on income earned therefrom the classification of
the owners on basis of income or stars is irrelevant.
The question that different proportions of air-
conditioned spaces are used in different hotels and
restaurants earning different proportions of income is
also not relevent as the tax is not based on use of
the space. The kinds of air-conditioning or the
implements used are also not relevant. It is a tax on
the mere provision for luxury and not on the hotel
property or equipment, as we have already said.
The measure or unit and the rate of taxation are uniform
for all within the group subjected to tax. Further
classification within the group was not considered
necessary by the legislature which had wide latitude
in the matter of classification keeping in view the
nature of the taxable event. We accordingly hold that
the luxury tax charged under s. 4 of the Act could
not be said to be discriminatory, and
consequently, the impugned notices also could not be said
to be illegal or void.
The result is that this appeal fails and it is
dismissed with costs quantified at Rs.5,000 (Rupees Five
Thousand only).
R. S. S. Appeal dismissed.
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