1989 (5) TMI 51 - SC - Indian Laws

Constitutional validity of the Hotel Receipts Tax Act, 1980 challenged on grounds of lack of legislative competence and of violation of articles 14 and 19(1)(g) Held that - The expression income in entry 82, List 1, cannot, therefore, 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 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 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 1. Hotels in which room charges were ₹ 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 object 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 clientele. Having regard to the wide latitude available to the Legislature in fiscal adjustments, the classification was found not violative of article 14. 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. Appeal dismissed.

Summary

Issues Involved:
1. Legislative competence to enact the Hotel Receipts Tax Act, 1980.
2. Violation of Article 14 of the Constitution (Right to Equality).
3. Violation of Article 19(1)(g) of the Constitution (Right to Practice Any Profession or to Carry on Any Occupation, Trade, or Business).

Issue-wise Detailed Analysis:

1. Legislative Competence:
The petitioners, who are hoteliers, challenged the constitutional validity of the Hotel Receipts Tax Act, 1980, on the grounds of lack of legislative competence. They argued that the Act, which imposes a special tax on the gross receipts of certain categories of hotels, is essentially a tax on luxuries and thus falls under Entry 62, List II of the Seventh Schedule to the Constitution, which is within the States' power. The respondents, however, supported the legislation under Entry 82 of List I, i.e., taxes on income. The court held that the word "income" in Entry 82, List I, should be given its widest amplitude and comprehensiveness. The court cited previous judgments, including Navinchandra Mafatlal v. CIT and Bhagwan Dass Jain v. Union of India, to support the view that "income" includes any profit or gain, whether of a capital or revenue nature. The court concluded that the "chargeable receipts" as defined in the statute fall within the wider connotation of "income" in Entry 82, List I. Therefore, the legislative competence of the Union Parliament to enact the Hotel Receipts Tax Act, 1980, was upheld.

2. Violation of Article 14:
The petitioners argued that the Act violates Article 14 of the Constitution because the classification of hotels based on room charges of Rs. 75 or more per day per individual has no rational nexus with the object of the law, which is to impose a tax on income. They contended that this classification leaves out other hotels with much higher gross receipts, thus failing to include all similarly situated persons. The court referred to its judgment in the case dealing with the Expenditure-tax Act, 1987, where a similar classification was upheld. The court held that the classification of hotels with higher economic status, reflected in room charges, is intelligible and has a rational nexus to the object of the legislation. The presumption of constitutionality was not dislodged by the petitioners. Therefore, the challenge based on Article 14 was rejected.

3. Violation of Article 19(1)(g):
The petitioners also contended that the Act imposes an unreasonable burden on their freedom of business, violating Article 19(1)(g) of the Constitution. They argued that the tax adversely affects the tourism industry and the national economy. The court, however, reiterated its stance from the Expenditure-tax Act, 1987, case, stating that a wide latitude is available to the Legislature in the matter of classification for purposes of taxation. The court emphasized that taxation is not merely a source of raising revenue but also a fiscal tool to achieve social and economic objectives. The classification of hotels based on economic status was found to be reasonable and not violative of Article 19(1)(g). Therefore, this contention was also rejected.

Conclusion:
The court dismissed the writ petitions, upholding the constitutional validity of the Hotel Receipts Tax Act, 1980. The Act was found to be within the legislative competence of the Union Parliament, and the classification of hotels based on room charges was deemed reasonable and not violative of Articles 14 and 19(1)(g) of the Constitution. There was no order as to costs in these petitions.