SONA CHANDI OAL COMMITTEE AND ORS. v. STATE OF MAHARASHTRA

Citation: [2004] SUPP. 6 S.C.R. 971

Court: Supreme Court of India

Bench: ASHOK BHAN, A.K. MATHUR

Case summary

SONA CHANDI OAL COMMITTEE AND ORS. v. STATE OF MAHARASHTRA.pdf

Judgment text

SONA CHANbI OAL COMMITTEE AND ORS. v. STATE OF MAHARASHTRA DECEMBER 16, 2004 [ASHOK BHAN AND A. K. MATHUR, JJ. ] Bombay Money-Lenders Act, 1946-Section 9-A-Bombay Moneylenders Rules, 1959-Renewal of money lender's licence-Levy of inspection fee-Nature of, fee or tax in the guise offee-Held : Levy ofinspection fee for renewal of licence depends upon inspection of books of accounts ofmoney lenders-Inspection ofrecords, by itself, is direct service rendered . by the State to money lenders-Furthermore, fee charged is regulatory in nature to control and supervise the functioning of money lending business to protect debtors-Thus, fee imposed in nature offees-Also, inspection fee and licence fee obtained under the Act is not sufficient to meet the expenses incurred on staffperforming duties under the Act, thus, fee imposed is neither arbitrary nor excessive so as to lose the character of fee- Constitution of India, 1950-Article 14.

The question which arose for consideration in these appeals was whether the imposition of inspection fee for the renewal of money lenders licence under the amended provisions of Section 9-A of the Bombay Money Lenders Act, 1946 is a tax in the guise of fee and whether it is so excessive or unreasonable as to lose the character of fee. Appellant-licensed money lenders contended that quid pro quo is a must in the case of fee and in the absence of the same, the levy would be deemed to be a tax; that in the instant case there is no quid pro quo and no benefit is being rendered to the person paying the fee and as such the levy imposed is in the nature of tax though described as fee; that the fees have to be unif'orm; and that the fee could not be imposed on the basis of the annual turnover ofthe money lenders as it would amount to a tax on turnover. Dismissing the appeal, the Court HELD: 1. 1.

Under section 9-A of the Bombay Money-Lenders Act, 1946 inspection fee is levied for renewal of licence. Section 2(5-A) of the Act defines 'inspection fee' as fee leviable under Section 9A in respect of inspection of books of accounts of a money-lender. For grart,ting renewal of licence it is necessary and must th~t the records maintained by the money lenders should be thoroughly examined in order to satisfy whether all the registers are maintained property in accordance with the provisions of the Act and Ru:les and:it is only after satisfying that no irregularities are committed, the money lender becomes entitled to get the renewal of his licence. Renewal of licence is not automatic and can be refused on the grounds specified in Section 8.

Rule 11 ofthe Bombay Money-Lenders Rules, 1959 provides that on receipt of any application for renewal of a licence, Assistant Registrar would call upon the applicant to produce his accounts for inspection and then assess the inspection fee payable under Section 9A in respect of inspection of books ofaccounts and call upon the applicant to pay the inspection fee in the manner prescribed in Rule 10. Under Section 18 of the Act read with Rules 16 and 17 of the Rules, every money lender is required to keep and maintain a cash book and a ledger in such form and in such manner as may be prescribed. Thus, the inspection of records, by itself, provides for service rendered by the State to the money lenders which is done in connection with their request to renew the licence. This is the direct service rendered to the money lenders as the renewal of licence depends upon the inspection of their accounts which is required to be carried out under the Act. [983-G-H; 985-A; 984-A-B] B. S. E.

Brokers' Forum, Bombay and Other v. Securities and Exchange Board ofIndia and Others, (2001) 3 SCC 482; Corporation ofCalcutta and Anr. v. Liberty Cinema, [1965) 2 SCR 477; The Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar ofSri Shirur Mutt, [1954] SCR 1005; Chief Commissioner, Delhi v. Delhi Cloth ~ & General Mills Co. Ltd. , [1978) 2 SCC 367; Om Parkash Agarwal v. Giri Raj Kishori, [1986) 1 SCC 722 and Commissioner of Central Excise, Lucknow, U. P. v. Chhata Sugar Co. Ltd. , [2004) 3 SCC 466, referred to. 1. 2. The object of the 1946 Act is to serve a larger public interest. It is to control the money lending business and protect the debtors from . the malpractices in the business by detecting illegal money lending for which lot of infrastructure is required. The duty of the staff and the officers of the Department is to visit the places of money lending busi- SONA CHAND! OAL COMMITTEE v.

STATE 973 ness, inspect the accounts and other matters relating to the business, to find out illegal money lending, carry out raids in suspicious cases and do regular inspection as provided in the Act. Therefore, the fee charged is regulatory in nature to control and supervise the functioning of the money lending business to protect the debtors, majority of them are poor peasants, tenants, agricultural labourers and salaried workers who are unable to repay their loans. (985-B-C) 1. 3. The strength to the stafflooking after money lending work has considerably and significantly increased in the recent past. The. total receipts from insection fees and licence fees under the Act are very meagre in the range of 25 to 30 lakhs every year forming a very small ... part of the total receipts of the Co-operative Department which are to the tune of Rs. 21 crores.

Since the Act is a social legislation with the intention to protect the debtors from the malpractices in the business, the State is performing its duties even though the revenue under the Act is not even sufficient to meet the expenditure on the staff performing r: duties under the Act. Therefore, it cannot be held that the fees are either arbitrary or excessive. (985-D-E-F) 1. 4. It cannot be said that the fees have to be uniform. Fees are ordinarily uniform but absence of uniformity is not the sole criterion on which it can be said that the levy is . in the nature of tax. (986-D-E] Secunderabad Hyderabad Hotel Owners' Association v. Hyderabad Municipal Corporation, Hyderabad, [1999] 2 SCC 274; State ofMaharashtra v. The Salvation Army, Western India Territory, [1975] 1 SCC 509 and Sreenivasa General Traders v. State ofAndhra Pradesh, [1983) 4 SCC ·353, relied on. 1. 5.

The submission that fee could not be levied on the basis of the annual turnover of the money lenders because such levy would amount to a tax on turnover cannot be accepted. The annual turnover is not the subject matter of fee but only a measure of levy. (986-B] B. S. E. Brokers' Forum, Bombay and Others v. Securities and Exchange Board of India and Others, (2001) 3 SCC 482, referred to. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 992 of2003. I- From the Judgment and Order dated 23. 8. 2002 of the Bombay High Court at Nagpur Bench in W. P. No. 314of1993. G. L. Sanghi, Vipin Sanghi, E. C. Agrawala, Rishi Agarwala, Mukesh Agarwal and Manu Krishnan for the Appellants. Mukesh K. Giri and Ravindra Keshavrao Adsure for the Respondent. The Judgment of the Court was delivered by BHAN, J. : This appeal by grant of leave is directed against the judgment and order ofthe High Court of Bombay, Bench at Nagpur, in Writ Petition No. 314 of 1993.

The High Court in the impugned judgment has upheld the validity of provisions of Section 9-A of the Bombay Money Lenders Act, 1946 (hereinafter referred to as 'the Act') as amended by Maharashtra Act No. 7 of 1992 which, according to the appellants, who are licensed money lenders, is ultra vires. the provisions of the Constitution of India insofar as it seeks to levy inspection fee for the renewal of money lender's licence. Appellants therefore seek striking down of Section 9-A of the Act and consequent thereto the quashing of the demand notice for payment of inspection fee. not sufficient to meet the expenses incurred for the staff looking after the money lending business. The High Court came to the conclusion that there was no merit in the contentions raised by the appellants. It was held that there was nexus between the fee charged and the service rendered.

The fee charged was regulatory in nature to further the objects of the Act so as to control and supervise the functioning of the money lenders in order to protect the debtors. Such an exercise was a must for fulfilling the purpose of the Act for which infrastructure was required. Taking note of the heavy increase in the Pay Jnd Allowances of Establishment and the receipt from inspection and licence fee, it was observed that the same were meagre and not even sufficient to meet the expenses incurred for the staff looking after the money lending business. The basic question which we are called upon to decide is whether the fee ofthe nature impugned before us is, as a matter of fact, a tax in the guise offee and whether it is so excessive or unreasonable as to loose the character of fee. Shri G. L. Sanghi, learned Senior Counsel, placing heavy reliance on the Constitution Bench judgment of this Court in Corporation ofCalcutta & Anr. v.

Liberty Cinema; [1965] 2 SCR 477 in support of his submission contended that quidpro quo is a must in the case of fee and in the absence ofthe same, the levy would be deemed to be a fax. Since in the present case there is no quid pro quo and no benefit is being rendered to the person paying the fee, the levy imposed is in the nature of tax though described as fee. Facts of the case were, under the Calcutta Municipal Act, 1951, a person was required to take a licence from the Corporation to run a cinema house for public amusement. Under Section 548(2), for every licence under the Act, a licence fee could be charged at such rate as fixed from time to time by the Corporation. In 1948 the Corporation fixed fees on the basis of the annual valuation of the cinema halls. The assessee who was the owner and licensee of the cinema theatre had been paying licence fee @ Rs. 400 per year. In 1958 the Corporation by a resolution changed the basis of assessment of the fee.

Under the new method the fee was to be assessed at rates prescribed per show according to the sanctioned seating capacity of the cinema houses and the assessee had to pay a fee of Rs. 6,000 per year. The assessee filed a petition in the High Court for the issuance of a writ for quashing the resolution. The writ petition was allowed. The Corporation came up in appeal to this Court, which was accepted. The case of the / Corporation was that th~ levy was a tax and not a fee. Accepting the plea ' of the Corporation, it was observed that in order to make a levy a fee for services rendered, the levy must confer special benefits to the person on whom it is imposed. The levy under Section 548(2) was not a "fee in return for services" as the Act did not provide for any services of a special kind being rendered, resulting in benefits to the person on whom it was imposed. The levy was held to be a tax. In The Commissioner, Hindu Religious Endowments, Madras v.

Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, [1954] SCR 1005 this Court enumerated the different characteristics oftax and fee. It was held that the tax was levied as a part of common burden while a fee was a payment for special benefits or privilege to the person paying the same. Though it was not possible to formulate a definition of fee that cou! d apply to all cases as there were different kinds of fee, but a fee may generally be defined as a charge for special service rendered to individuals by some governmental agency. It was observed that amount of fee levied is supposed to be based on the expenses incurred by the Government in rendering the service. Pointing out the distinction between a tax and fee, it was observed that tax is a compulsory exaction of money by a public authority for public purposes enforceable by law and is not payment for services rendered. In ChiefCommissioner, Delhi v. Delhi Cloth & General Mills Co. Ltd.

, [1978] 2 sec 367' it was held by this Court that levy of fee should be in . consideration of certain services which the individuals accept either willingly or unwillingly and that the collection from such levy should not be set apart or merged with the general revenue of the State to be spent for general public purpose but should be appropriated for the specific purpose for which the levy is being made. In Om Parkash Agarwal v. Giri Raj Kishori, [1986] I SCC 722 it was held that levy imposed could not be treated as a fee and was tax primarily because the collection so made was being utilised not for fulfilling the objects of the Act under which the collection is authorised, but for the general requirement of the State's functions. Shri Sanghi also placed reliance on a recent judgment of this Court in Commissioner of Central Excise, Lucknow, UP. v. Chhata Sugar Co. Ltd.

, [2004] 3 sec 466] wherein the question was whether administrative charges collected by the sugar factory for molasses sold from the buyers/allottees on behalf of the State Government in terms of Section 8(5) of the U. P. Sheera Niyantran Adhiniyam, 1964 constituted a duty or impost in the nature of a tax and consequently, not includible in the value as defined in terms of Section 4(4)(d)(ii) ofthe Central Excise Act, 1944. The Court, after analysing the provisic.. ns of the Act, held that sugar factory was merely a collecting agent of administrative charges for the State Government. The administrative charges were not a component of a consideration received by the sugar factory and did not form part ofthe revenue ofthe sugar factory. The administrative charges could not be appropriated to the revenue account of the sugar factory and, therefore, there was no element of quid pro quo as far as the administrative charges. in the hands of the sugar factory are concerned.

The administrative charges were thus held to be a tax and not a fee. A three Judge Bench of this Court in B. S. E. Brokers' Forum, Bombay and Others v. Securities and Exchange Board ofIndia and Others, [2001] 3 SCC 482, after considering a large number of authorities, has held that much ice has melted in Himalayas after the rendering of the earlier judgments as there. was a sea change in the judicial thinking as to the difference between a tax and a fee since then. Placing reliance on the following judgments of this Court in the last 20 years, namely, Sreenivasa General Traders v. State ofAndhra Pradesh, (supra); City Corporation of Calicut v. Thachambalath Sadasivan, (1985] 2 sec 112; Sirsilk Ltd. v. Textiles Committee, (1989] Supp. l SCC 168; Commissioner & Secretary to Government Commercial Taxes & Religious Endowments Department v. Sree Murugan Financing Corporation Coimbatore, (1992] 3 SCC 488; Secretary to Government of Madras v. P. R.

Sriramulu, [1996] l SCC 345; Vam Organic Chemicals Ltd. v. State of U. P. , (1997] 2 SCC 715; Research Foundation for Science, Technology & Ecology v. Ministry ofAgriculture, (1999] 1 SCC 655 and Secunderabad Hyderabad Hotel Owners' Association v. Hyderabad Municipal Corporation, Hyderabad, [1999] 2 SCC 274, it was held that the traditional concept ofquidpro quo in a fee has undergone considerable transformation. So far as the regulatory fee is concerned, the service to be rendered is not a condition precedent and the same does not loose the character of a fee provided the fee so charged is not excessive. It was not necessary that service to be rendered by the collecting authority should be confined to the contributories alone.

The levy does not cease to be a fee merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have a direct relation to the actual service rendered by the authority to each individual who obtains the benefit ofthe service. The quidpro quo in the strict sence was not always a sine qua non for a fee. All that is necessary is that there should be a reasonable relationship between the levy of fee and the services rendered. It was observed that it was not necessary to establish that those ~ho pay the fee must receive direct or special benefit or advantage of the services rendered for which the fee was being paid. It was held that if one who is liable to pay, receives general benefit from the authority levying the fee, the element of service required for collecting fee is satisfied.

We need not refer to the law laid down by this Court in each of the judgments which have been cited as the same have been analysed and discussed at length by this Court in B. S. E. Brokers' Forum, Bombay and Others case (supra).. The Bombay Money-Lenders Act, 1946 was enacted during pre-independence period by the elected Government to control and regulate money lending. Money lenders were fleecing the poor peasants, tenants, agricultural labourers and salaried workers who were unable to repay loans. The agricultural debtors were losing their lands, crops or other securities to the money lenders. To arrest this exploitation, the Money-Lenders Act was enacted to improve the economic conditions of the bulk of the rural population and the poorer sections of the population in towns and cities. Under the Act it was made mandatory first to take a licence to do the business of money lending on payment of a licence fee of Rs. 200.

Inspection fee is levied for renewal of licence and for that purpose it is necessary that the records maintained by the money lenders should be thoroughly examined in order to satisfy whether all the registers are maintained properly in accordance with the rules and it is only after the satisfying that no irregularities are committed, the money lender becomes entitled to get the renewal of his licence. 'Inspection fee' has been defined in Section 2(5-A) of the Bombay Money-Lenders Act, 1946 to mean the fee leviable under Section 9A in respect of inspection of books of account ofa money-lender. Section 2(7) defines the 'licence' to mean licence granted under this Act and according to Section 2(8) 'licence fee' means fee payable in respect of licence. Renewal of licence is not automatic and can be refused on the grounds specified in Section 8.

In order to ensure that the money lenders comply with the provisions of the Act and the Rules on which renewal of the licence can be refused under clauses (b) and (c) of Section 8, inspection of the records maintained by the money lenders is absolutely necessary and must. Rule 11 provides th&t on receipt of any application for renewal of a licence, the Assistant Registrar, to whom the application has been made, shall call upon the applicant to produce his accounts for inspection. He shall then assess the inspection fee payable under Section 9A in respect of inspection ·of books of accounts and call upon the applicant to pay the inspection fee in the manner prescribed in Rule 10. Under Section 18, every money lender is required to keep and maintain a cash book and a ledger in such form and in such manner as may be prescribed.

Under sub-section (2) every money lender has to deliver or cause to be delivered to the debtor within 30 days from the date on which a loan is made, a statement in any recognised language saying in clear and distinct terms the amount and date of loan and its maturity, the nature of the security, if any, for the loan, the name and address of the debtor and of the money lender and the rate of interest charged. Clause (b) ofthis sub-section provides that upon repayment o(loan in full, the money lender is required to mark indelibly every paper signed by the debtor with words indicating payment or cancellation and discharge every mortgage, restore every pledge, return every note and cancel or reassign every assignment given by the debtor as security for the loan. Sub-section (3) provides that no money lender shall receive any payment from a debtor on account"of any loan without giving him a plain and complete receipt for the payment.

Money lender under sub-section (4) is debarred from accepting from a debtor any article as a pawn, pledge or security for ~ loan without giving him a plain signed receipt for the same with its description, estimated value, the amount of loan advanced against it and such other particulars as may be prescribed. Under Section 19, every money lender is required to deliver or cause to be delivered in every year to each of his debtors a legible statement of such debtor's accounts signed by the money lender or his agent of any amount that may be outstanding against such debtor. Rule 16 provide! : for the forms of cash book, ledger and ofstatement and receipt under Section 18. Rule 17 provides for opening of a capital account in Form 11 for the purposes of Section 9A. The inspection of records, thus by itself, provides for service rendered by the State to the money lenders which is done in connection with their request to renew the licences.

It is necessary to find out before granting renewal of the licence that the applicant has complied with the provisions of the Act and the Rules and that he has not made any wilful default in complying with . H or knowingly acted in contravention of any requirements of the Act. This is the direct service rendered to the money lenders as the renewal of licence depends upon the inspection of their accounts which is required to be <. -arried out under the Act. This apart the fee charged is regulatory in nature to control and supervise the functioning of the money lending business to protect the debtors the vast majority of which are poor peasants, tenants, agricultural labourers and salaried workers who are unable to repay their loans. The object of the Act is to control the money lending business and protect the debtors from the malpractices in the business by detecting illegal money lending.

This exercise is a must to carry out the object of the Act for which lot of infrastructure is required. The duty of the staff and the officers of the Department is to visit the places of money lending business, inspect the accounts and other matters relating to the business, to find out illegal money lending, carry out raids in suspicious cases and do regular inspection as provided in the Act. The Act serves a larger public interest. Respondent State in its counter affidavit has stated that the strength of the staff looking after money lending work has been considerably and significantly increased in the recent past. The total receipts from inspection fees and licence fees under the Act are very meagre in the range of 25 to 30 lakhs every year. Receipts from inspection fees and licence fees under the Act form a very small part of the total receipts of the Co-operative Department which are to the tune of Rs. 21 crores.

The licence fees and inspection fee under the Act are not even sufficient to meet out the expenses incurred on the staff looking after the money lending business. Since the Act is a social legislation with the intention to protect the debtors from the malpractices in the business the State is performing its duties even though the revenue under the Act is not even sufficient to meet the expenditure on the staff performing duties under the Act. In view of these submissions it cannot be held that the fees are either arbitrary or excessive. Contention raised by Shri G. L. Sanghi, senior counsel for the appellants that the fees have to be uniform has no merit in view of the judgment of this Court in ~ecunderabad Hyderabad Hotel Owners' Association v. Hyderabad Municipal Corporation, Hyderabad, (supra) and State of Maharashtra v. The Salvation Army, Western India Territory, [1975] 1 SCC 509.

It has been held in these judgments that fees are ordinarily uniform but absence of uniformity is not the sole criterion on which it can be said that the levy is in the nature of tax. Mr. Sanghi has also urged that the impugned fee has been imposed on the basis of the annual turnover of the money lenders. It is contended that assuming that the respondent had the authority in law to levy the fee under challenge, the same could not be levied on the basis of the annual turnover ofthe money lenders because such levy would amount to a tax on turnover. We do not find any force in this submission as well. This Court in B. S. E. Brokers' Forum, Bombay and Others v. Securities and Exchange Board of India and Others, (supra) held that annual turnover of a broker was not the subject-matter of the levy but was only a measure of the levy. In this case as well the annual turnover is not the subject matter offee but only a measure of levy.

Relying upon the judgment of this Court in Sreenivasa General Traders v. State ofAndhra Pradesh, [1983] 4 SCC 353, it was held that merely because the fees were taken to the Consolidated Fund of the State and not separately appropriated towards the expenditure for rendering the service by itself was not decisive to determine as to whether it was a fee or a tax. It was also held that fees are ordinarily uniform but absence of uniformity by itself was not a criterion on which alone it could be said that the levy was in the nature of tax. For the reasons stated above, we do not find any merit in this appeal and the same is dismissed with no order as to costs. N. J. Appeal dismissed.