SPENCES HOTEL PVT. LTD. AND ANR. v. STATE OF WEST BENGAL AND ORS

Citation: [1991] 1 S.C.R. 429

Court: Supreme Court of India

Bench: K.N. SAIKIA, M.M. PUNCHHI

Case summary

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.

Judgment text

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 dismising 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, acdording 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 tl 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 ~econd 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.

·• 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 8 the Act and the Rules framed thereunder be d,eclared 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 dismisssed 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 ·--y 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 II of the Seventh schedule taxes could be. imposed only on luxuries i. e.

objects 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 vfres 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 classifica-· tion 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 Ben_ch decision in Express Hotels Private Ltd. v. State of Gujarat and Anr, [1989] 3 SCC 677, ... ' 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 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 ofKerala 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 ceratin 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 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. · 8 -( 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 inci- ',.. ,/ dence 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 ~nd 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 enter- ~ tainments 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