254 to 261 of 1981
Under Article 32 of the Constitution of India
NA Palkhiwala Soli J Sorabjee TR Andhyarujina HP Ranina section Ganesh JB Dadachanji Ravinder Narain Mrs AK Verma DN Misra section Sukumaran Lira Goswami Joel Pares Ms Rubia Anand RF Nariman PH Parekh Sanjay Bhartari MKS Menon RK Dhillon Ms Rohini Chhabra Sunita Sharma Ms Ayesha Misra A Subba Rao section Balakrishnan Harish N Salve SS Shroff Mrs PS Shroff Ms Malvika Rajkotia B Parthasarthi Vijay Kumar Verma Mukul Mudgal Suresh Verma Praveen Kumar and Vishnu Mathur for the Petitioners
K Parasaran B Datta V Jaganatha Rao K Sudhakaran Dr 883 V Gauri Shankar SK Dholakia PS Poti GA Shah Ms A Subhashini BB Ahuja HK Puri A Subba Rao KR Nambiar AS Bhasme and MN Shroff for the Respondents
The Judgment of the Court was delivered by VENKATACHALIAH J
In this batch of writ petitions under Article 32 of the Constitution of India petitioners who are hoteliers challenge on grounds of lack of legislative compe tence and of violation of Articles 14 and 191g the constitutional validity of the Hotel Receipts Tax Act 1980  Act  for short which imposes a special tax on the gross receipts of certain cetegory of hotels
Section 3 of the Act limits the application of the Act  to those hotels where the roomcharges for residential accommodation provided to any person during the previous year are Rs75 or more per day per individual
If a hotel is within this class then Section 5 brings to charge the Hotel s chargeable receipts  as defined under Sec
6 of the Act
The Act was passed on 4121980 and came into force on 9121980 when it received the assent of the President of India
The levy under the Act  commences from the assess ment year 1981 82 and brings to tax the chargeable receipts of the corresponding previous year
The rate of tax is a flat rate of 15 per cent of the chargeablereceipts defined in sec
6 as the total amount of all charges by whatever name called received by or accruing or arising to the assessee in the previous year in connection with the provi sion of residential accommodation food drink and other services in the course of carrying on the business of a hotel
But such charges received from persons within purview of Vienna Convention on Diplomatic Relations 1961 or Vienna Convention on Consular Relations are exempt from the tax
The machinery under the Income tax Act 1961 is en grafted for purposes of assessment levy and collection of tax under the Act
It is however relevant to note that though the Act  is put into force from the Asst
Year 1981 82 the levy was discontinued from 2721982
This batch of writ petitions were heard along with Writ Petition 1395 of 1987 and the connected writ petitions in which the constitutional validity of the Expenditure Tax Act 1987 was challenged on substantially similar grounds
In the present Act  the levy is on Chargeable Receipts  while in the Expenditure Tax Act 1987 it is on Charge able Expenditure which represents substantially the same items as to constitute Chargeable Receipts  under the present Act 
We have disposed WP 1395 of 1987 and the connected matters by a separate Judgment
884 3
Sections 3 5 6 of the Act have a bearing on the application of the contentions urged in support of the challenge to the constitutionality of the Act
Section 3 reads 31 Subject to the provisions of sub sec tion 2 and subsection 3 this Act shall apply in relation to every hotel wherein the room charges for residential accommodation provided to any person at any time during the previous year are seventy five rupees or more per day per individual
Explanation
Where the room charges are payable otherwise than on daily basis or per individual then the room charges shall be computed as for a day and per individual based on the period of occupation of the residential accommodation for which the charges are pay able and the number of individuals ordinarily permitted to occupy such accommodation accord ing to the rules and custom of the hotel
2 Where a composite charge is payable in respect of residential accommoda tion and food the room charges included therein shall be determined in the prescribed manner
3 Where i a composite charge is payable in respect of residential accommodation food drink and other services or any of them and the case is not covered by the provisions of sub section 2 or ii it appears to the Income tax Officer that the charges for residential accommodation food drink or other services are so arranged that the room charges are understated and the other charges are over stated the Income tax Officer shall for the purposes of subsection 1 determine the room charges on such reasonable basis as he may deem fit Section 51 provides 51 Subject to the provisions of this Act there shall be 885 charged on every person carrying on the business of a hotel in relation to which this Act applies for every assessment year com mencing on or after the 1st day of April 198 1 a tax in respect of his chargeable receipts of the previous year at the rate of fifteen per cent of such receipts Provided that Where such chargeable receipts include any charges received in foreign ex change then the tax payable by the assessee shall be reduced by an amount equal to five per cent of the charges exclusive of the amounts payable by way of sales tax enter tainment tax tax on luxuries or tax under this Act so received in foreign exchange
 Explanation omitted as unnecessary Section 52 omitted as unnecessary except explanation ii Explanation ii to Section 52 provides any food drink or other services shall be deemed to have been provided on the premises of a hotel if the same is or are provided in the hotel or any place appurtenant thereto and where the hotel is situate in a part of build ing in any other part of the building Section 6 provides 61 Subject to the provisions of this Act the chargeable receipts of any previous year of an assessee shall be the total amount of all charges by whatever name called received by or accruing or arising to the assessee in connection with the provision of residential accommodation food drink and other services or any of them including such charges from persons not provided with such accommodation in the course of carrying on the business of a hotel to which this Act applies and shall also include every amount collected by the assessee by way of tax under this Act sales tax entertainment tax and tax on luxuries 2 For the removal of doubts it is hereby declared that where any such charges have been included in the chargeable receipts of any previous year as charges accuring or arising to the assessee during that previous year 886 such charges shall not be included in the chargeable receipts of any subsequent previous year in which they are received by the asses see Other provisions are machinery provisions providing for the mode of assessment levy and collection of the tax for appeals for of fences penalties punishments etc
The challenge to the Act  is in the main lack of legislative competence on the part of the Union Parliament to enact the law
Respondent union seeks to support the legisla tion under and as referable to Entry 82 of List 1 ie Taxes on Income
The contentions raised in support of the petitions are these a That in pith and substance the law is one imposing a tax on luxuries provided in Hotels and therefore the law is one under Entry 62 List I of the 7th Schedule to the Constitution and outside the Union power b That at all events the Act is patently violative of Article 14 in that the basis of classification of hotels on the dividing line of room charges though in itself an intelligible one has however no nexus let alone any rational nexus with the object of the law viz to impose a tax on income While hotels which collect room charges of Rs75 per day from any individual in the previous year fail within the tax net other hotels which have much higher gross receipts are left out
The classification does not include all persons who from the point of view of the objects of the Act are similarly situated
c That the law imposes unreasona ble burden on the petitioners  freedom of business and constitutes a violation of Arti cle 191g of the Constitution
Re Contention a Shri Palkhivala contended that the impugned law which seeks to impose a tax on what is styled Chargeable re ceipts  which includes payments for residential accommoda tion food drink and other services at petitioners  hotels really brings to tax luxuries an impost under Entry 62 List I reserved to the States
Learned counsel submitted that the reliance by the Respondents on Entry 82 List I to support the impost as a tax on income is wholly misconceived 887 inasmuch as the concepts of income and tax on income have definite legal connotations crystallised by settled legislative practice and do not admit of gross receipts being treated as income for purposes of levy of tax under Entry 82 List I Learned counsel submitted that neither the nomenclature given to the tax nor the standard by which it is measured can determine its true nature and the legisla ture cannot enlarge its power by choosing an appropriate name to the tax
To show the essential characteristics of what is the concept of income  learned counsel referred to certain observations of the Supreme Court of the United Stated of America  it becomes essential to distinguish between what is and what is not income as the term is there used and to apply the distinction as cases arise according to truth and substance without regard to form
Congress cannot by any definition it may adopt conclude the matter since it cannot by legis lation alter the Constitution from which alone it derives its power to legislate and within whose limitations alone that power can be lawfully exercised
The fundamental relation of capital to income has been much discussed by econo mists the former being likened to the tree or the land the latter to the fruit or the crop the former depicted as a reservoir supplied from springs the latter as the outlet stream to be measured by its flow during a period of time
 See Eisner vs Macomber  at 528 Learned counsel also relied upon the following observations of Gajendragadkar J in Navnitlal vs KKSen  at 915 This doctrine does not however mean that     Parliament can choose to tax as income an item which in no rational sense can be regard ed as a citizen s income
The item taxed should rationally be capable of being consid ered as the income of a citizen    Learned counsel submitted that the grosS receipts of a hotel received from a customer towards room charges food drink and other services provided at the hotel cannot con stitute income  known as 888 such to law
The submission in substance are two fold first that while the Chargeable Receipts as conceived in the Act do not constitute income  for purposes and within the meaning of Entry 82 list I as the receipts cannot rationally be related to the concept of income  and secondly that in pith and substance the levy is one under Entry 62 list I within the States  power
Learned counsel inviting attention to the following observations of Lord Salmond s in Governor General in Council vs Province of Madras 191   
Their Lordships do not doubt that the effect of these words is that if the legislative powers of the Federal and Provin cial legislatures which are enumerated in List I and List II of the seventh schedule cannot fairly be reconciled the latter must give way to the former
But it appears to them that it is right first to consider whether a fair reconciliation cannot be effected by giving to the language of the Federal Legisla tive List a meaning which if less wide than it might in another context bear is yet one that can properly be given to it and equally giving to the language of the Provincial Legislative List a meaning which it can prop erly bear submitted that Entry 62 list II and Entry 82 list I would require to be reconciled accordingly
Learned Attorney General appearing for the Union of India sought to support the impost as a tax on income under Entry 82 of list I It was urged that the word income  in that entry broadly indicates the topic or field of legisla tion and that it should not be read in a narrow and pedantic sense but must be given its widest amplitude and should not be limited by any particular definition which a legislature might have chosen for the limited purposes of that legisla tion
The Statutory definitions of and meanings given to income  are matters of legislative policy and do not ex haust the content of the legislative entry by the particular manner in which and the extent to which the statute has chosen to define that expression
On a consideration of the matter we arc of the opinion that the submission of the learned Attorney General as to the source of the legislative power to enact a law of the kind in question require to be accepted
The Word i ncome  is of elastic import
In interpreting expressions in the legislative lists a very wide meaning should be given to the entries
In understanding the scope and amplitude of the expres 889 sion income  in Entry 82 list I any meaning which fails to accord with the plenitude of the concept of income  in all its width and comprehensiveness should be avoided
The cardinal rule of interpretation is that the entries in the legislative lists are not to be read in a narrow or re stricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it
The widest possible construction according to the ordinary meaning of the words in the entry must be put upon them
Reference to legislative practice may be admissible in reconciling two conflicting provisions in rival legislative lists
In construing the words in a constitutional document conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude
In Navinchandra Mafatlal vs CIT Bombay City 1955 1 SCR 829 the question was whether the provisions of section 12b of the Indian Income tax Act 1922 imposing a tax on capital gains was ultra vires the powers of the federal legislature under Government of India Act 1935
It was contended that taxes on income under Entry 54 list I of the Government of India Act 1935 did not embrace within its scope a tax on capital gains
This contention was re jected
This Court after referring to the following observa tions of the judicial committee in Kamakshya Narain Singh vs CIT 13 PC income it is true is a word difficult and perhaps impossible to define in any precise general formula
It is a word of the broadest connotation proceeded to observe What then is the ordinary natural and grammatical meaning of the word income According to the dictionary it means a thing that comes in
See Oxford Dictionary Vol
V page 162 Stroud Vol
II pages 14 16
In the United States of America and in Australia both of which also are English speaking coun tries the word income is understood in a wide sense so as to include a capital gain Reference may be made to Eisner vs Macomber Merchants  Loan  Trust Co vs Smietunka and United States vs Stewart and Resch vs Federal Commissioner of Taxation
In each of these cases very wide meaning was ascribed to the word income as its natural meaning
The relevant observations of learned 890 Judges deciding those cases which have been quoted in the judgment of Tendolkar J quite clearly indicate that such wide meaning was put upon the word income not because of any particular legislative practice either in the United States or in the Commonwealth of Aus tralia but because such was the normal concept and connotation of the ordinary English word income
Its natural meaning embraces any profit or gain which is actually received
This is in consonance with the observations of Lord Wright to which reference has already been made Emphasis Supplied Indeed Navneet Lal s case relied upon by Shri Palkhiwala would itself conclude the point In dealing with this point it is necessary to consider what exactly is the denotation of the word income used in the relevant Entry
It is hardly necessary to emphasise that the entries in the Lists cannot be read in a narrow or restricted sense But in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not it would be inappropriate to apply the tests tradition ally prescribed by the Income tax Act as such In Bhagwandas Jain vs Union of India  the question of includibility for purposes of income tax of the assessee s notional income from a house property in the personal residential occupation of the asses see was assailed on the ground that it did not constitute income  for the purposes and within the meaning of Entry 82 of List I The amplitude of the expression income  in Entry 82 of List I came in for consideration
In that context this Court said Even in its ordinary economic sense the expression income  includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself
That which can be converted into income can be reasonably regarded as giving rise to income
The tax levied under the Act is on the income though computed in an artificial way from house property in the above sense and not on house property 891 The expression income  in Entry 82 List I cannot therefore be subjected by implication to any restriction by the way in which that term might have been deplayed 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 par ticular statute
But 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 I Contention a therefore fails
Re Contention b and c We had an occasion to deal with a similar argument in the other batch of cases dealing with the constitutionality of the Expenditure Tax Act 1987 where the chargeable expenditure  incurred in a particular class of hotels alone was brought to tax leaving the other hotels out
We have rejected the challenge to the constitutionality of the provisions of that Act based on Article 14 and 191g
There hotels in which room charges were Rs400 or more per day per person were alone brought under the Act
The differ entia was held to be both intelligible and endowed with a rational nexus to the objects 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 clientale
Having regard to the wide latitude available to the Legislature in fiscal adjustments the classification was found not violative of Article 14 8
Similar contentions as to the unreasonableness of the restrictions which the imposition of the impugned tax was said to bring about on the petitioners  freedom of trade and business and the adverse affect of this tax on a significant area of national economy generally and the Tourism Industry in particular have been considered in the petitions assail ing the vires of the Expenditure Tax Act 1987
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 needs to be so having regard to the complexities involved in the formulation of a taxation policy
Taxation is not now a 892 mere source of raising money to defray expenses of Govern ment
It is a recognised fiscal tool to chief fiscal and social objectives
The defferentia of classification presup poses 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 econom ic superiority of hotels to which the Act is applied is erroneous or irrelevant
For the reasons stated in and following our Judgment in the said WP 139587 and connected cases contentions b and c are also held and answered against the petitioners
In the result for the foregoing reasons these petitions are dismissed
There will however be no order as to costs in these petitions
GN Petitions dismissed


Summary:
The respondent company a manufacturer of electric lamps fluorescent lamps and miniature lamps sold its entire products to five customer companies namely a Bajaj Elec tricals Ltd b Philips India Ltd c Crompton Greaves Ltd d General Electric Co of India Ltd and e Mazda Lamps Co Ltd after putting the brand names of the said Customer companies as per their directions
The customer companies in turn sold these lamps under their respective names to wholesale dealers and others at prices higher than the prices charged to them by the Respondent Company
Excise duty on electric lamps at first was a specific duty but later it was changed to ad valorem duty
After such change there was a controversy between the Respondent Compa ny and the Central Excise authorities as to whether the prices charged by the Respondent Company to its customer companies or the prices charged by the customer companies when they in turn sold to wholesale dealers and others should be the basis for determination of the value for levy of excise duty
As the Department insisted that latter shall be the value for levy of excise duty the Respondent Company moved a Writ Petition in the High Court of Allahabad
The High Court by its order dated 14574 allowed the Writ Petition holding that the prices at which the Respondent Company sold its products to the Customer companies should be the value for levy of excise duty and not the prices at which the customer companies sold these to wholesale dealers and others
Hence this appeal by the Excise authorities
874 Dismissing the appeal this Court HELD The first part of Section 44c refers to a person who is so associated with the assessee that each had interest directly or indirectly in the business of the other and the second part of that definition refers to a holding company a subsidiary company a relative and a distributor of the assessee and any sub distributor of such distributor
The sale by the assessee company was on princi pal to principal basis and the share holding company Bajaj Electrical Ltd and so called to associate companies of the foreign share holding companies
Goods were supplied to the Customer companies in their brand names as in the case of Atic Industries case
In Atic Industries case there was no allegation of extra commercial consideration and in the instant case also there was no such allegation
In Atic Industries case same prices were charged from all the customers similar is the position in the instant case
876G H 877H 878A B In view of the ratio of the decision of this Court in Atic Industries case the Judgment and order of the High Court is upheld and the appeal preferred by the Revenue dismissed
879E Union of India vs Bombay Tyre International Ltd   AK Roy vs Voltas Ltd  and Union of India vs Atic Industries Ltd   referred to