ELEL HOTELS AND INVESTMENTS LIMITED AND ANR. ETC. ETC. v. UNION OF INDIA

Citation: [1989] 2 S.C.R. 880

Court: Supreme Court of India

Bench: R.S. PATHAK, SABYASACHI MUKHERJI, S. NATARAJAN, M.N. VENKATACHALIAH, S. RANGANATHAN

Case summary

i The constitutional validity of the said Act was challenged in these writ petitions, on grounds of lack of legislative competence and of viola- , tion of Articles 14 and 19(I)(g)....

Judgment text

> ELEL HOTELS AND INVESTMENTS LIMITED AND ANR. ETC. ETC. v. UNION OF INDIA ' MAY 2, 1989 ,.... [R. S. PATHAK, CJ, SABYASACHI MUKHARJI, S. NATARAJAN, M. N. VENKATACHAL! AH AND • S. RANGANATHAN, JJ. ] Constitution of India, 1950: Articles 14 and 19(l)(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-Legislative competence-Whether falls under Entry 82, List/. 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. i The constitutional validity of the said Act was challenged in these writ petitions, on grounds of lack of legislative competence and of viola- , tion of Articles 14 and 19(I)(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 rtax 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 A receipts are left out. It was contended hy the petitioners that the law imposed unreasonable burden on their freedom of business and constituted a violation of Article 19(I)(g) of the Constitution. ELEL HOTELS AND INVESTMENTS v. U. 0. 1.

881 On behalf of the Respondent it was contended that the said tax . ~ falls 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, _i... 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 understanding the scope and amplitude of the expression '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 interprela· ~ lion 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 cons· ! ruction, according to the ordinary meaning of the words in the entry, must be put upon them. Reference to legislative practice maybe admis· sible in reconciling two conflicting provisions in rival legislative lists. In construing the words in a constitutional document confering legislative --J_ 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 enacled under the Entry might, as a matter of fiscal policy, seek to tax some species of income alone. The definitions would, therefore, be limited hy 7 the consideration of fiscal policy of a particular statute. 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 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. ~ Navinchandra Mafatlal v. CIT, Bombay City, [1955] 1 SCR 829 and Bhagwandas Jain v. Union ofIndia, AIR 1981 S. C. 907, relied on. ' Navnitlal v. K. K. Sen, [1965] l SCR 909; Governor-General in Council v. Province of Madras, [1945] FCR 179 and Kamakshya Narain Singh v. CIT; l ! TR 513 (PC), referred to. 2. t.

it is now well settled that a very wide latitude is available to the legislature in ihe lltaiter of classification of objects, 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 B. mere source of raising money to defray eli:penses 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 economic 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 business, similar contentiolls 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 provisions of the Act, based on Articles 14 and 19(l)(g) is rejected. ~ E. Federation of Hotel & Restaurant Association of India etc. v. Union ofIndia, (1989] 2 SCR 918, followed. 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. ELEL HOTELS AND INVESTMENTS''· U. O. L [VENKATACHALIAH, J. I 883 Ac 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 P. espondents. The Judgment of the Cmrt was delivered by VENl(ATACHALli\11, J. In this batch of writ petitions under Article 32 of the Constitution of India petitioners who are hoteliers ,. J. , ! 3 ch <-.. 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 tradi• tionally 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 assessee was assailed on the ground that it did not constitute 'income' for the purposes and within the meaning of Entry 82 of List L -\ The amplitude of the expression 'income' in Entry 82 of List I came in for consideration.

In that context, this Court said: I" "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 bf 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. " ELELHOTELSANDINVESTMENTS v. U. 0. 1. [VENKATACHALIAH,J. ] 891 ~ The expression 'income' in Entry 82, List I cannot, therefore~e subjected, by implication, to any restriction by th-. way in which that term might have been deplayed in a fiseal 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 statute.

But expression 'income' in the legislative entry has always been under- ~ 4stood in a wide and comprehensive connotation to embrace within it · . every kind of receipt or gain either of a ca,pital 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 siniilar 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 differentia 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 availiable 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 Tourisim Industry in particular have been considered in the petitions assailing the vires of the Expenditure Tax. Act, 1987.

It is now well settled that a very wide latitude is availabfo 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 .. H ~ mere source of raising money to defray expenses of Government. It is a recognised fiscal-tool to £hieve fiscal and social objectives. The defferentia 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 dis- 8 lodged 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. 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.