Judgment Case ID: 6078

Judgment:
254 to 261 of 1981. Under Article 32 of the Constitution of India. N.A. Palkhiwala	 Soli J. Sorabjee	 T.R. Andhyarujina	 H.P. Ranina	 section Ganesh	 J.B. Dadachanji	 Ravinder Narain	 Mrs. A.K. Verma	 D.N. Misra	 section Sukumaran	 Lira Goswami	 Joel Pares	 Ms. Rubia Anand	 R.F. Nariman	 P.H. Parekh	 Sanjay Bhartari	 M.K.S	 Menon	 R.K. Dhillon	 Ms. Rohini Chhabra	 Sunita Sharma	 Ms. Ayesha Misra	 A. Subba Rao	 section Balakrishnan	 Harish N. Salve	 S.S. Shroff	 Mrs. P.S. 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	 S.K. Dholakia	 P.S. Poti	 G.A. Shah	 Ms. A. Subhashini	 B.B. Ahuja	 H.K. Puri	 A. Subba Rao	 K.R. Nambiar	 A.S. Bhasme and M.N. 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 19(1)(g) 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 Rs.75 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 4.12.1980 and came into force on 9.12.1980 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 27.2.1982. 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: "3.(1) 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 5(1) provides: "5.(1) 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 5(2) omitted as unnecessary except explanation (ii) Explanation (ii) to Section 5(2) 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: "6(1) 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 i.e.	 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 Rs.75 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 19(1)(g) 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 K.K.Sen	 ; 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 12(b) 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 19(1)(g). There	 hotels in which room charges were Rs.400 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 W.P. 1395/87 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. G.N. Petitions dismissed.

Summary:
The Hotel Receipts Tax Act	 1980 came into force on 9.12.1980. The Act imposed a special tax of 15% on the gross receipts of certain hotels	 where the room charges for residential accommodation provided to any person during the previous year were Rs.75 or more per day per individual. The levy commenced from the assessment year 1981 82 but was discontinued from 27.2.1982. Charges received from persons within the purview of certain Vienna Conventions were exempt from the tax. The constitutional validity of the said Act was chal lenged in these writ petitions	 on grounds of lack of legis lative competence and of violation of Articles 14 and 19(1)(g). It was contended on behalf of the petitioners that the reliance on Entry 82	 List I in support of the tax was wholly misconceived and the tax in pith and substance was an impost under Entry 62	 List II reserved to the States. It was also contended that the Act is patently violative of Article 14 since the basis of classification has no nexus with the object of the tax	 in that other hotels which have much higher gross receipts are left out. It was contended by the petitioners that the law imposed unreasonable burden on their freedom of business and constituted a violation of Article 19(1)(g) of the Constitution. 881 On behalf of the Respondent it was contended that the said tax fails under Entry 82	 List I and the word 'income ' should not be read in a narrow and pedantic sense	 but must be given its widest amplitude. The challenge to the Act on the ground that it was violative of Articles 14 and 19(1)(g)	 was also resisted by the Respondent. Dismissing the writ petitions	 HELD: 1.1. The word 'income ' is of elastic import. In interpreting expressions in the legislative lists a very 'wide meaning should be given to the entries. In understand ing the scope and amplitude of the expression 'income ' in Entry 82	 List 1	 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 restricted 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 construc tion	 according to the ordinary meaning of the words in the entry	 must be put upon them. Reference to legislative practice maybe admissible in reconciling two conflicting provisions in rival legislative lists. In construing the words in a constitutional document confering legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude. The expression 'income ' in Entry 82	 List I	 cannot 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 stat ute. 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 fail outside such a 'wider connotation ' of 'income ' in the wider constitutional meaning and sense of the term as understood in Entry 82	 List I. Navinchandra Mafatlal vs CIT	 Bombay City	 [1955] 1 SCR 829 and Bhagwandas Jain vs Union of India	 AIR 1981 S.C. 907	 relied on. Navnitlal vs K.K. Sen	 ; ; Governor Gener al in Council vs Province of Madras	 and Kamakshya 882 Narain Singh vs CIT	 	 referred to. It is now well settled that a very wide latitude is available to the legislature in the matter of classification of objects	 for purposes of taxation. It must needs to be so	 having regard to the complexities involved in the formu lation of a taxation policy. Taxation is not now a mere source of raising money to defray expenses of Government. It is a recognised fiscal tool to achieve fiscal and social objectives. 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 econom ic superiority of hotels to which the Act is applied is erroneous or irrelevant. As regards reasonableness of classification and restriction on the petitioners ' freedom of trade and busi ness	 similar contentions were raised in a connected case. As has been held in that case and for the reasons given therein	 the challenge to constitutionality of the provi sions of the Act	 based on Articles 14 and 19(1)(g) is rejected. Federation of Hotel & Restaurant Association of India etc. vs Union of India	 	 followed.