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TMI Blog1991 (2) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... and fiscal policy, of course within constitutional limitations. Thus the measure or unit and the rate of taxation are uniform for all within the group subjected to tax. Further classification within the group was not considered necessary by the legislature which had wide latitude in the matter of classification keeping in view the nature of the taxable event. We accordingly hold that the luxury tax charged under s. 4 of the Act could not be said to be discriminatory, and consequently, the impugned notices also could not be said to be illegal or void. Appeal dismissed. - Civil Appeal No. 406 of 1976 - - - Dated:- 15-2-1991 - SAIKIA, K.N. AND PUNCHHI, M.M. For the Appellant: G.L. Sanghi, Dhruv Mehta, Aman Vachhar and S.K. Mehta For the Respondent : Tapas Ray and G.S. Chatterjee, Harish N. Salve, Lalit Bhasin, Ms. Nina Gupta, Vibhu Bhakru, Pranab Mullick and Vineet Kumar JUDGMENT: K.N. SAIKIA, J. This appeal by certificate is from the Judgment of the Calcutta High Court dated 2.1.1975 dismissing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred therefrom the 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 11 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 vires 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 airconditioned floor space in hotels and restaurants which may be differently situated with reference to their localities, clientele, services and amenities rendered an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of air-conditioning and the provision for airconditioning 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 a certain 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usician or bandsman provided in any hotel or restaurant. As defined in 2(ca) "hotel" means a building or part of a building or any place where any activity or business is carried on in providing lodging or boarding or any kind of accommodation, with or without supply of food, drinks or refreshments, to the members of the public on payment or for any consideration with the object of making profit. As defined in clause (h) "restaurant" includes an eating-house. "Luxury" as defined in clause (d) means provision for air-conditioning through air-conditioner or central air-conditioning or any other mechanical means provided in any of the rooms, or in any part of a building which constitutes a hotel or restaurant; and "luxury tax" as defined in clause (e) means a tax levied under Section 4 of the Act. Section 4 is the charging Section dealing with liability for luxury tax. At the relevant time it said: "There shall be charged, levied and paid to the State Government a luxury tax by the proprietor of every hotel and restaurant (in which there is provision for luxury) and such tax shall be calculated at the rate of an annual sum of rupees one hundred for every ten square me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning in a hotel or restaurant as a luxury. Thus the taxing event is the provision for air-conditioning in hotels and restaurants, its mere existence, irrespective of the means of doing so and irrespective of its utilization or the income derived therefrom. The arguments regarding discrimination, therefore, must be relevant to this taxing event. We may now examine the cases relied on by the parties. Kunnathat Thathunni Moopil Nair v. The State of Kerala and Anr.(supra) is a case on land tax and not a tax on service or provision. By Section 4 of the Travancore Land Tax Act 1955 as amended by Act 10 of 1957 all lands in the State of whatever description and held under whatever tenure were to be charged and levied a uniform rate of tax to be called the basic tax. Section 7 gave power to the Government to exempt from the operation of the Act such lands or class of lands which the Government might by notification, decide. The appellants forest owners challenged the provisions of the Act on the ground of contravention, amongst others, of Article 14 of the Constitution in asmuch as the Act did not have any regard to the quality of the lands or its productive capacity and the levy of a ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having a floor area of one thousand square feet or more were subjected to tax on a graduated scale. The tax was levied on the basis of floor area only and no classification was attempted. It was held that in enacting the provision no attempt at any rational classification had been made by the Legislature and it had not taken into consideration the class to which a building belonged, the nature of construction, the purpose for which it was used, its situation, its capacity for profitable user and other relevant circumstances which had a bearing on the matters of taxation. Merely the floor area of the building was adopted as the basis of tax irrespective of all other considerations. This Court observed that the law by which a tax was levied must not be inconsistent with any provision of the Constitution and that the validity of the taxing statute was open to question on the ground that it infringed the fundamental rights. When objects persons and transactions essentially dissimilar were treated by the imposition of a uniform tax, discrimination might itself in some cases result in denial of equality. This Court further observed that in view of the inherent complexity of fiscal legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate payable by individuals as the system was prevailing historically. It was also held that in cases of fiscal legislation wide discretion was conferred on the legislature in the matter of classification and that the Court would ordinarily be slow in interfering with the statute on ground of discrimination if a set of facts justified the same. In Twyford Tea Co. Ltd. Anr. v. The State of Kerala Anr., [1970] 3 SCR 383 the Kerala Plantation (Additional Tax) Act, 1960 (Act 17 of 1960) and the Kerala Plantation (Additional Tax) Amendment Act, 1967 (Act 19 of 1967) were challenged. The Act of 1960 levied an additional tax on plantations. Plantations meant land used for growing Cocoanut, Arecanut, Rubber, Coffee, Tea, Cardamom and Pepper. Under Section 3 of the Act, for each financial year a plantation tax additional to the basic tax charged on land tax under the Land Tax Act, 1955 was payable at the rate mentioned in Schedule I of the Act, the rate being Rs.8 per acre. The plantations of 5 acres or below held by a person did not attract tax. For the purpose of finding out the extent of the plantation in acres held by a person a method of calculation was laid down in Schedule 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso held to be confiscatory since owners of unproductive land were liable to be eliminated by slow degrees unlike in Twyford case where tax was only levied in crop yielding land determining the extent of crop yielding plantation. It was observed that a uniform tax may fall more heavily on plantations than on others because the profits were widely discrepant but that by itself could not involve discrimination for then hardly any tax direct or indirect would escape the same censure. In Elel Hotels and Investments Ltd Ors. v. Union of India, [1989] 3 SCC 698, Venkatachaliah, J. speaking for the Constitution Bench held that classification of hotels on the basis of room charges for the purpose of levy of tax could not be said to be discriminatory as the legislature had wide discretion in taxing objects, persons and things. It was said at paragraph 20: "It is now well settled that a very wide latitude is available to the legislature in the matter of classification of objects, persons and things for purposes of taxation. It must need to be so, having regard to the complexities involved in the formulation of a taxation policy. Taxation is not now a mere source of raising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty, similarly situated, is subjected to unequal taxation as was held in L T. 0. v. Lawrence Singh, AIR 1968 SC 658 (661): 1968 2 SCR 165. If there is no reason for the classification then also the law will be struck down. However, as was held in Kunnathat v. State of Kerala, (supra) and State of Andhra Pradesh v. Nalla Raia, AIR 1967 SC 1458: [1967] 3 SCR 28, if the taxation imposes a similar burden on every one with reference to that particular kind and extent of property, on the same basis of taxation, the law shall not be open to attack on the ground that the result of the taxation is to impose unequal burdens on different persons. It was held in Steelworth of taxation of V. State of Assam, [1962] Supp. 2 SCR 589, that in law of taxaton of income it is competent for the legislature to graduate the rate of tax according to the ability to pay. In Gattga Sagar Corpse. v. State of U. P., AIR 1980 SC 286: [1980] 1 SCR 769 also it has been held that in the matter of taxation laws the court permits a greater latitude to the discretion of the legislature and in Khyerbari Tea Co. v. State of Assam, AIR 1964 SC 935 (94t) it has been held that in tax matters the State is allowed to pic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and methods hitherto untaxed property, income, service and provisions to taxation. With the change of scientific, commercial and economic conditions and ways of life new species of property, both tangible and intangible gaining enormous values have come into existence and new means of reaching and subjecting the same to contribute towards public finance are being developed, perfected and put into practical operation by the legislatures and courts of this country, of course within constitutional limitations. The ability or capacity to pay has no doubt been regarded as the test in determining the justness or equality of taxation. It is the goal towards which the system has been, as it must be, steadily working. The equality, justness and fairness of this ideal is realised when one reflects upon the vast wealth accumulated by the advantaged ones but not by people in general. The idea of distributive justice is more or less intuitive in this regard. This, however, has to harmonise well with a proportional system of taxation, that is to say, a tax at a fixed and uniform rate in proportion to the taxable event, a measure of providing air-conditioned space. In possible cases of simple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l persons and property similarly situated, or by proceedings for the assessment and collection of taxes which follows the course usually pursued in the State. It prohibits any person or class of persons from being singled out as special subject for discrimination and hostile legislation; but is does not require equal rates of taxation on different classes of property, nor does it prohibit unequal taxation so long as the inequality is not based upon arbitrary classification. Taxation will not be discriminatory if, within the sphere of its operation, it affects alike all persons similarly situated. It, however, does not prohibit special legislation, or legislation that is limited either in the objects to which it is directed, or by the territory within which it is to operate. In the words of Cooley: It merely requires that all persons subjected to such legislation shall be treated alike, under like circumstances and conditions, both in the privileges conferred and in the liabilities imposed. The rule of equality required no more than that the same means and methods be applied impartially to all the constituents of each class, so that the law shall operate equally and uniformly upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion by the State against its own citizens as well as to one in their favour in imposing the luxury tax. The provision requiring luxury tax to be equal and uniform has to be interpreted in light of its characteristics. The luxury tax is uniform as it is equal upon all persons belonging to the described class upon which it is imposed, namely, the owners of air-conditioned hotels and restaurants. The Act requires the luxury tax to be in proportion of or proportional the air-conditioned space and it requires the tax to be uniform upon the same class of owners of airconditioned hotels and restaurants which means that all similarly situated owners shall be treated alike. It does not suffer from lack of classificaion but instead impliedly authorises it by leaving out non-air-conditioned hotels and restaurants. Equality and uniform policy means uniform and equal rates of assessment and taxation which has been followed in this tax. The concept of equality and uniformity has to adjust from time to time to new and advancing social and economic conditions and needs of public finance and fiscal policy, of course within constitutional limitations. The submission that the incidents falls dif ..... 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