1989 (5) TMI 50 - SC - Income Tax

Constitutional validity of the Expenditure-tax Act, 1987 challenged on lack of legislative competence and of violation of the rights under articles 14 and 19(1)(g) - Held that - The submissions of the learned Attorney-General that the tax is essentially a tax on expenditure and not on luxuries or sale of goods failing within the State power, must, in our opinion, be accepted. As contended by the learned Attorney-General, the distinct aspect, namely, the expenditure aspect of the transaction falling within the Union power must be distinguished and the legislative competence to impose a tax thereon sustained. Contention (a) is, in our opinion, unsubstantial and, accordingly, fails. The content of the expression other similar services following, as it does, the preceding expressions by way of beauty parlour, health club, swimming pool or . . . has a definite connotation in the interpretation of such words in such statutory contexts. The matter is one of construction as to whether any particular service falls within the section and not one of constitutionality. A taxing statute is not, per se, a restriction of the freedom under article 19(1)(g). The policy of a tax, in its effectuation, might, of course, bring in some hardship in some individual cases. But that is inevitable, so long as law represents a process of abstraction from the generality of cases and reflects the highest common factor. Every cause, it is said, has its martyrs. Then again, the mere excessiveness of a tax or even the circumstance that its imposition might tend towards the diminution of the earnings or profits of the persons of incidence does not, per se, and without more, constitute violation of the rights under article 19(1)(g). Appeal dismissed.

Issues Involved:
1. Legislative Competence of the Expenditure-tax Act, 1987.
2. Violation of Article 14 (Right to Equality).
3. Violation of Article 19(1)(g) (Right to Practice Any Profession or to Carry on Any Occupation, Trade, or Business).

Issue-wise Detailed Analysis:

1. Legislative Competence of the Expenditure-tax Act, 1987:
The petitioners challenged the constitutional validity of the Expenditure-tax Act, 1987, on the grounds of lack of legislative competence, arguing that the Act, in its true nature and character, is either a tax on luxuries falling within Entry 62 of List II or a tax on the consideration paid for the purchase of goods constituting an impost of the nature envisaged in Entry 54 of List II. The Union of India contended that the legislative competence to enact the impugned law is under Article 248 read with Entry 97 of List I of the Seventh Schedule.

The court held that the tax envisaged by the impugned law is within the legislative competence of the Union Parliament. The court stated that the principal question is whether the tax is an "expenditure-tax" and whether "expenditure" laid out on luxuries or on the purchase of goods admits of being isolated and identified as a distinct aspect susceptible of recognition as a distinct field of tax legislation. The court concluded that the tax is essentially a tax on expenditure and not on luxuries or sale of goods falling within the State power. The distinct aspect, namely, "the expenditure" aspect of the transaction falling within the Union power, must be distinguished, and the legislative competence to impose a tax thereon sustained.

2. Violation of Article 14 (Right to Equality):
The petitioners argued that the application of the Act is confined to hotels where the "room charges" for any unit of residential accommodation are Rs. 400 or more per day per individual, while expenditure of greater magnitude and quantum incurred in other hotels is not exigible to the tax. This distinction, they argued, is violative of the constitutional pledge of equality.

The court held that though taxing laws are not outside Article 14, the Legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. The bases of classification cannot be said to be arbitrary or unintelligible nor as being without a rational nexus with the object of the law. A hotel where a unit of residential accommodation is priced at over Rs. 400 per day per individual is, in the legislative wisdom, considered a class apart by virtue of the economic superiority of those who might enjoy its custom, comforts, and services. This legislative assumption cannot be condemned as irrational.

3. Violation of Article 19(1)(g) (Right to Practice Any Profession or to Carry on Any Occupation, Trade, or Business):
The petitioners contended that the provisions of the Act impose an unreasonable restriction on their fundamental right under Article 19(1)(g). They argued that the various taxes to which the hotel industry is subject are extremely heavy and that the tourism industry is not in a position to sustain any additional burden.

The court held that a taxing statute is not, per se, a restriction of the freedom under Article 19(1)(g). The mere excessiveness of a tax or even the circumstance that its imposition might tend towards the diminution of the earnings or profits of the persons of incidence does not, per se, and without more, constitute a violation of the rights under Article 19(1)(g). The court concluded that the contention is insubstantial.

Separate Judgment by Ranganathan J.:
Ranganathan J. agreed with the conclusions of Venkatachaliah J. but added a few words primarily concerning the constitutional validity of the Expenditure-tax Act, 1987. He emphasized that the pith and substance of the 1987 Act is "expenditure" and not "luxuries." He also discussed the "aspect" rule, explaining that legislative competence varies with different aspects of a subject matter. He concluded that the validity of the three impugned enactments has to be upheld.

Conclusion:
The court dismissed the petitions, upholding the constitutional validity of the Expenditure-tax Act, 1987, and found no violation of Articles 14 and 19(1)(g).

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