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TMI Blog1981 (9) TMI 267X X X X Extracts X X X X X X X X Extracts X X X X ..... tel-keeper in consideration of amenities and services to a resident or casual visitor and where no rent or other amount is charged it shall mean the amount at which such amenities and services can be ordinarily provided in the hotel". Every hotel-keeper who is liable to pay tax under the Act has to obtain a certificate of registration in accordance with the Rules made under the Act. He has to furnish quarterly returns of the tariff to the Taxation Officer, and every such return must accompany the proof of payment of the tax due on such return. Besides, he has to furnish annual return of tariff in respect of. every accounting year within sixty days from the expiry of such year. In case the Taxation Officer finds that a hotel-keeper has not furnished any such return, he shall issue a notice to him requiring him to furnish the same within fifteen days from the date of service of the notice. On the hotel-keeper's failure to furnish the return pursuant to the service of the said notice, the Taxation Officer may himself make ex parte assessment order after taking into account the material which is on the record or which he has gathered. This assessment he has to make in accordance with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en suitably amended and the Act enacted by the Government merely to circumvent certain decisions given by the Supreme Court excluding the imposition of sales tax on the food supplied by a hotel-keeper or other services and amenities provided by him to his customers. To levy such a tax was beyond the competence of the State Legislature, for it in fact is a tax on the gross receipts of a hotelkeeper and, therefore, a tax on his income, which Parliament alone could have imposed in terms of entry No. 82 of List I of the Seventh Schedule to the Constitution of India. The levy of the tax was also bad, in that, it amounted to double taxation as tax was being charged twice on the same subject-matter, i.e., once under the Jammu and Kashmir General Sales TaxAct, 1962, and again under the Act. It also affected the petitioners' fundamental right to carry on trade and business guaranteed to them under article 19(1)(g) of the Constitution, and the same not being a reasonable restriction imposed in the interests of the general public, was not saved under clause (6) thereof. Section 3, which is the charging section, is also violative of article 14 of the Constitution, inasmuch as, it subjects th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding and lodging houses run by educational, charitable and religious institutions, (ii) guest-houses belonging to the State Government or Central Government for the use of departmental officials only, (iii) guest-houses maintained by a nationalised or a scheduled bank, nationalised insurance company or a university or legislator's hostels." The principal contention raised on behalf of the petitioners is that the tax sought to be imposed being a tax on income, which Parliament alone is competent to impose by enacting a law in terms of entry No. 82 of List I of the Seventh Schedule, the Act was beyond the competence of the State Legislature. There can be no quarrel with the proposition. But, it is equally true that any other tax the power to impose whereof does not exclusively vest in Parliament, may be imposed by the State Legislature by enacting a law to that effect in exercise of its powers under section 5 of the Constitution of Jammu and Kashmir. Section 5 reads as under: "5. Extent of executive and legislative power of the State.-The executive and legislative power of the State extends to all matters except those with respect to which Parliament has power to make laws f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the limitations prescribed by article 246, clauses (2) and (3), and entry 54 of List II, and is plenary and absolute, subject only to such restrictions as are imposed by the Constitution, and there is none such which is material to the present question. It would therefore be competent to Parliament to impose tax on the supply of materials in building contracts and to impose it under the name of sales tax, as has been done by the Parliament of the Commonwealth of Australia or by the Legislatures of the American States. The decision in Civil Appeal No. 210 of 1956 [State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd.] [1958] 9 STC 353 (SC), which was given on a statute passed by the Provincial Legislature under the Government of India Act, 1935, has therefore no application to the present case." Article 246(4) which was relied upon by their Lordships is reproduced as below: "Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List." Section 5, it is manifest, is in pari materia with article 246(4). Power of the State to enact law i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the observations made in Province of Madras v. Boddu Paidanna and Sons [1942] 1 STC 104 (FC.). AIR 1942 FC 33, that sales tax was a tax on the occasion of sale, which could not be imposed with retrospective operation. It was also contended that sales tax being an indirect tax, its necessary characteristic was that it could be passed on by the seller to the purchaser. Since section 3 sought to impose tax on sales which had taken place more than two years back, affording no opportunity to the seller to pass on the burden of the tax to the purchaser, it lacked both the characteristics of a sales tax. The court rejected both the contentions and held that the words "on the occasion of sale" occurring in Province of Madras v. Boddu Paidanna and Sons [1942] 1 STC 104 (FC); AIR 1942 FC 33 in the context the same were used, referred to its character and not to the point of time of the transaction, and in case the transaction was a sale then the legislature had ample powers to levy the tax even retrospectively. Whether the incidence of the tax in such an event should fall on the seller, or on the buyer, was a matter of policy, which did not affect the competence of the legislature to enact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty guaranteed by clauses (f) and (g) of article 19(1) of the Constitution; and thirdly, that the Act was also violative of article 14, as it fixed two different rates for realisation of the tax from the dealers similarly situated. The Act sought to impose additional sales tax at the rate of 5 per cent from dealers whose turnover for a year exceeded ten lakhs of rupees. There was also a provision in the Act that forbade. the dealer from charging the additional tax from the purchaser. Repelling the contention that the tax was in effect a tax on income, their Lordships held: "As regards the contention that the State Legislature has no power to pass the measure, we are of the view that the additional tax is really a tax on the sale of goods. The object of the Act, as is clear from its provisions, is to increase the tax on the sale or purchase of goods imposed by the Tamil Nadu General Sales Tax Act, 1959, and the fact that the quantum of the additional tax is determined with reference to the sales tax imposed would not alter its character. It may be noted that the additional tax is to be imposed only if the turnover of a dealer exceeds Rs. 10 lakhs. It is in reality a tax on the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral Sales Tax Act. 1959, falls squarely on the dealer. It may be that he can add the tax to the price of the goods sold and thus pass it on to the purchaser. But it is not necessary that the dealer should be enabled to pass on the incidence of the tax on sale to the purchaser in order that it might be a tax on sales of goods. In J.K. Jute Mills Co. v. State of U.P. [1961] 12 STC 429 at 438 (SC); AIR 1961 SC 1534 at 1539; [1962] 2 SCR I at 13, this court said, although it is true that sales tax is, according to accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation, it is not an essential characteristic of a sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. As we said, the additional tax is a tax upon sales of goods and not upon the income of a dealer and so long as it is not made out that the tax is confiscatory, it is not possible to accept the contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 3 is quite distinct and unambiguous which does not admit of any equivocation. There is nothing in the Constitution of India, or for that matter in the Constitution of the, State of Jammu and Kashmir, which detracts from or otherwise limits the powers of the State Legislature to enact a law imposing such a tax in exercise of its powers under section 5 of the Constitution of Jammu and Kashmir. The impugned tax would not have lost its true character and become a tax on income, even if there were to be no provision in the Act authorising a hotel-keeper to recover the same from his customers, for in that event it would have in their Lordships' words been a matter of sheer policy not affecting the competence of the State Legislature to enact the Act. The State Legislature acting within its own legislative field had undoubtedly the power of a Sovereign Legislature to enact the Act forbidding the hotel-keeper to pass on the incidence of the tax to his customer. I am, therefore, clearly of the opinion that the impugned tax is not a tax on income, but is on the other hand a tax on the amenities and services, which a hotel-keeper provides to his customer, and the State Legislature w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in out the constitutional vice called double taxation. (Bad economics may be good law and vice versa). Dealing with a somewhat similar argument, the Bombay High Court gave short shrift to it in Western India Theatres AIR 1954 Bom 261. Some undeserving contentions die hard, rather survive after death. The only eiptaph we may inscribe is: Rest in peace and don't be reborn If on the same subject-matter the legislature chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure save where other prohibitions exist." This brings me to the last contention relating to the discriminatory character of the Act. Even though class legislation does not, yet reasonable classification does survive the attack of article 14. It is well-settled that like any other law a taxing law also cannot claim immunity from the equality class of the Constitution. But, it is equally well-settled that as compared to other laws, the discretionary powers of the legislature to make classifications in laws dealing with taxation matters is much wider. While dealing with the question of the application of article 14 to taxation laws, their Lordships in Khandige Sham Bhat v. Agricultural Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, legislators and banks, of which sub-section (2) of section 3 speaks, constitute a distinct class in themselves. Their classification is based on a differentia reasonably related to the object of the Act, viz., to tax those who run or make use of hotels, which are run on commercial basis to earn profit. This classification manifestly advances the aforesaid object of the Act and is quite reasonable. Those whose activity is not aimed at earning any profit can be reasonably placed in a class, distinct from those whose activity is aimed at earning profit. I am supported in taking this view from a Bench decision of the Allahabad High Court in Firm Jaswant Rai jai Narain v. Sales Tax Officer [1955] 6 STC 386; AIR 1955 All 585, wherein the departments of the State and Central Governments and two more specified institutions carrying on industrial activity on no-profit basis were. exempted from payment of sales tax, and the exemption was held to have been based upon reasonable classification and, therefore, not violative of article 14. The following observations made by the court are pertinent: "In our opinion, the State in carrying on a commercial or industrial activity, not from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per in consideration of amenities and services to a resident or casual visitor and where no rent or other amount is charged it shall mean. the amount at which such amenities and services can be ordinarily provided in the hotel. Section 3 is the charging section providing as under: "3. Charge of tax.-(1) In accordance with and subject to the provisions of this Act, every hotel-keeper shall pay each accounting year tax on amenities and services provided to resident or casual visitors on the basis of tariff at the rates specified in the schedule annexed to this Act. (2) Notwithstanding anything contained in sub-section (1), nothing in this Act shall apply to the following classes of hotels: (i) boarding and lodging houses run by educational, charitable and religious institutions, (ii) guest-houses belonging to the State Government or Central Government for the use of departmental officials only, (iii) guest-houses maintained by a nationalised or a scheduled bank, nationalised insurance company or a university or legislator's hostels." It has been urged before us by Mr. Chitaley that the impugned levy is outside the legislative competence of the Jammu and Kashmir State Legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, the total turnover of his business or avocation may therefore be legitimately taken into consideration. It may be, and is often so, that the tax on circumstances and property is levied on the basis of income which the assessee receives from his profession, trade, calling or property. That is, however, not conclusive on the nature of the tax. It is only as a matter of convenience that income is adopted as-a yardstick or measure for assessing the tax the measure of the tax is not a true test of the nature of the tax. Therefore, while determining the nature of a tax, though the standard on which the tax is levied may be a relevant consideration, it is not a conclusive consideration. One must have regard in such matters ... not to the name of the tax but to its real nature, its pith and substance, which must determine into what category it falls. Applying these tests, the tax on 'circumstances' will fall in the category of a tax on 'a man's financial position, his status taken as a whole and includes what may not properly be comprised under the term "property" and at the same time ought not to escape assessment the tax on circumstances and property is fundamentally dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n innkeeper, that is to say, in the present days a hotel proprietor in his capacity as an innkeeper is, on the other hand, bound by the common law or the custom of the realm to receive and lodge in his inn all comers who are travellers and to entertain them at reasonable prices without any special or previous contract unless he has some reasonable ground of refusal (Halsburys' Laws of England, 3rd Edn., Vol. 21, pages 445-446). The rights and obligations of hotel proprietors are governed by statute which has more or less incorporated the common law. The contract between such a hotel proprietor and a traveller presenting himself to him for lodging is one which is essentially a contract of service and facilities provided at reasonable price." Adverting to this case, in the later case of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386 (SC); AIR 1978 SC 1591 the court has again observed as under: "In the case of an hotelier this court proceeded on the footing that his position in law was assimilable to that of an innkeeper. At common law an innkeeper was a person who received travellers and provided lodging and necessaries for them and their attendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company owned the Karnani Mansion consisting of numerous residential flats and over a dozen shops. All these were let out to tenants who made monthly payments which included charges for electric current, for the use of lifts, for the supply of hot and cold water, for the arrangement for scavenging, for providing watch and ward facilities as well as other amenities. It purchased high voltage current in bulk, converted the same into low voltage current in its own power house within the premises and supplied the power to the tenants. It also maintained a separate water pumphouse and a boiler for the supply of hot and cold water to the tenants. The company provided electric lifts for the benefit of the tenants. For all these purposes the assessee maintained a large number of permanent staff. The company claimed that the entire receipts from the tenants should be treated as income from business as it had been formed for carrying on the business of letting out flats and shops. The Income-tax Officer rejected its claim but split the receipts into two parts, one part being treated as rent and the other as "income from other sources" taxable under section 12 of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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