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PETITIONER:

SECUNDERABAD HYDERABAD HOTEL OWNERS ASSOCIATION & ORS.

Vs.

RESPONDENT:

HYDERABAD MUNICIPAL CORPORATION, HYDERABAD & ANR.

DATE OF JUDGMENT: 20/01/1999

BENCH:

Sujata V. Manohar, A.P.Misra

JUDGMENT:

Mrs. Sujata V. Manohar,J.

In these proceedings the petitioners are challenging

an increase in the licence fee for a trade licence for

running a lodging house, hotel, restaurant, coffee house,

tea stall, eating house, soft drink stall, cafeteria, tiffin

room etc. levied under Section 622 of the Hyderabad

Municipal Corporations Act, 1955.

Under Section 521(1)(e)(ii) of the Hyderabad Municipal

Corporations Act of 1955, except under and in conformity

with the terms and conditions of a licence granted by the

Commissioner no person shall, inter alia, carry on, allow to

be carried on, in or upon any premises, any trade or

operation which in the opinion of the Commissioner, is

dangerous to life, health or property, or is likely to

create a nuisance either from its nature, or by reason of

the manner in which, or the conditions under which, the

same, is or is proposed to be carried on. By an order of

the Special Officer, Municipal Corporation of Hyderabad,

dated 15.4.1972 a list of trades, operations etc. covered

by Section 521(1)(e)(ii) was notified. The trades so

covered include eating houses, hotels, restaurants, Cafes,

bars, tea stalls, canteens, coffee houses, tiffin rooms,

cafeteria or any place where food is prepared and supplied

or sold for the purpose of gain. Lodging houses were also

covered.

Under Section 622 of the Hyderabad Municipal

Corporations Act, 1955 whenever it is provided under the Act

that a licence or a written permission may be given for any

purpose, such licence or written permission shall specify

the period for which and the restrictions and conditions

subject to which, the same is granted. Under Section 622

(2) for every such licence or written permission a fee may

be charged at such rate as shall from time to time be fixed

by the Commissioner, with the sanction of the Corporation.

Under the said order of 15.4.1972 the licence fees for the

said trades were specified/revised. Where the monthly rent

of an eating house etc. was up to Rs.50/- the rate of

licence fee was Rs.50/-. The licence fees were graded

depending upon the rent of the premises. The maximum

licence fee where rent was above Rs.1,000/- was Rs.1,000/-.

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The same was the position with regard to lodging houses

where the rates of licence fee varied from Rs.50/- to

Rs.1,000/- depending upon the monthly rent of the premises.

The rates so prescribed were higher than the rates in force

earlier. This increase was challenged, but was upheld by

the High Court.

Thereafter the Special Officer, Municipal Corporation

of Hyderabad, by his order dated 6.4.1981 revised these

licence fees. The said order, inter alia, stated that in

view of the increase of the service charges rendered by the

Municipal Corporation of Hyderabad, it was felt necessary to

revise the existing schedule of rates of licence fee fixed

under Section 622(2) of the Hyderabad Municipal Corporations

Act, 1955. As a result of this revision the licence fee

where the monthly rent was up to Rs.50/- was increased to

Rs.100/- and the maximum licence fee where the rent was

above 1,500/- but not more than Rs.2,000/- was increased to

Rs.2,000/-. In respect of lodging houses the maximum

licence fee where the rent was above Rs.4,000/- but not more

than Rs.5,000/- was fixed at Rs.5,000/-. The licence fee

was proportionately increased in respect of all categories

of lodging houses and eating houses by the said order.

The present petitioners filed Writ Petiton No.3055 of

1981 in the High Court of Andhra Pradesh challenging the

increase in the licence fee by the said order of 6.4.1981.

The Learned Single Judge upheld the levy and dismissed the

writ petition. An appeal before the Division Bench of the

High Court filed by the petitioners was also dismissed by

the Division Bench. The Division Bench held that since the

Corporation is providing services in the form of inspection

by the officials of the premises of the petitioners, and is

also providing general services like lifting of garbage in

the whole city for which staff is required, the Corporation

is providing services though general in nature, to the

persons or traders. The levy is not a tax. It upheld the

levy as a fee. Civil Appeal Nos. 1811 and 1812 of 1988 are

against the said judgment of the Division Bench of the High

Court.

In 1987 the respondent-Corporation again revised and

increased licence fees. The said increase is under

challenge before the High Court. Thereafter by an order

dated 12.10.1991 the respondent- Corporation again increased

the licence fees of eating houses and lodging houses. The

increase was four times the licence fee fixed in 1987.

However, on 25.7.1992 the respondents have reduced this

increase on the basis of a compromise arrived at between the

Corporation and several groups of affected traders. The

increased licence fee under the order of 25.7.1992 is twice

the licence fee charged under the order of 1987. The

petitioners were not parties to the compromise. They have

filed Writ Petition No. 238 of 1992 in this Court under

Article 32 challenging the increased licence fee under the

orders of 1992. Since common questions of law arise in all

these proceedings they have been heard together. A chart

showing the increase of licence fee for lodgings and eating

houses from time to time is set out below:-

I.......T.......T.......T.......T.......T.......T.......T..J

------------------------------------------------------------

Description Annual li Annual li- Annual li- Annual li-

of the trade& cence fee cence fee cence fee cencee fee

operation to prevaili- increased increased revised in

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be licensed ng prior in 1981 in 1987 impugned

to 1981 order

-------------------------------------------------------------

Rs. Rs. Rs. 1991 1992

Rs. Rs.

-------------------------------------------------------------

Lodging/Hotels

Whre monthly

rent is upto Rs.

50/- 50/- 100/- 300/- 1200/-600/-

-------------------------------------------------------------

Rent above 50/-

not more than

100/- 125/- 150/- 450/- 1800/-900/-

-------------------------------------------------------------

Rent above 100/-

but not more

than 200/- 200/- 250/- 750/- 3000/-1500/-

--------------------------------------------------------------

Rent above 200/-

but not more

than 400/- 300/- 400/- 1200/- 4800/-2400/-

---------------------------------------------------------------

Rent above 400/-

but not more

than 600/- 400/- 600/- 1800/- 7200/-3600/-

----------------------------------------------------------------

Rent above 600/-

but not more

than 800/- 500/- 800/- 2400/- 9600/-4800/-

----------------------------------------------------------------

Rent above 800/-

but not more

than 1000/- 600/- 1000/- 3000/- 12000/-6000/-

-----------------------------------------------------------------

Rent above 1000/-

but not more

than 1500/- 1000/- 1500/- 4000/- 16000/-8000/-

------------------------------------------------------------------

Rent above 1500/-

but not more

than 2000/- 1000/- 2000/- 6000/- 24000/-12000/

-------------------------------------------------------------------

Rent above 3000/-

but not more

than 4000/- 1000/- 4000/- 12000/- 48000/-24000/

--------------------------------------------------------------------

Rent above

4000/- 1000/- 5000/- 15000/- 60000/-30000/

--------------------------------------------------------------------

The petitioners contend that the increased licence

fees of 1981 and thereafter of 1992 are not in the nature of

fees since there is no quid pro quo between the fees charged

by the respondents and the services rendered by them to the

traders in question. These are taxes. The petitioners have

drawn our attention to Chapter VIII of the Hyderabad

Municipal Corporations Act, 1955 which deals with municipal

taxation. Under Section 197, (which is the first section

falling under Chapter III) for the purposes of this Act the

Corporation shall impose the taxes which are specified in

that section. Under sub-section(2) of Section 197 the

Corporation may impose any tax other than those specified

under sub-section(1) subject to the previous sanction of the

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Government. Under Section 198 before the Corporation passes

any resolution imposing a tax for the first time or at a new

rate it shall direct the Commissioner to publish a notice in

the Andhra Pradesh Gazette and in the local newspaper of its

intention to do so and fix a reasonable period not being

less than one month for submission of objections. The

Corporation may, after considering the objections, determine

by resolution to levy the tax. The Corporation is also

required to publish a notice specifying the date from which

and the rate at which such tax or increased tax is to be

levied. The petitioners contend that this procedure has not

been followed while increasing the licence fee which is in

the nature of a tax and not a fee and hence the levy is not

valid.

The first question, therefore, which requires

consideration is whether the increased licence fee under the

orders of 1981 and 1992 is in the nature of a tax or a fee.

In order to answer this question it is necessary to look at

the nature of the licence which is granted. The hotel

licence which is issued to each of the traders is subject to

the conditions set forth in the bye-laws of the Municipal

Corporation of Hyderabad relating to the regulation of

eating houses or hotels mentioned in Section 521. These

conditions are reproduced in the licence. These prescribe,

inter alia, that (1) the building shall be situated at a

suitable place and shall be spacious and have enough

accommodation according to the requirements of business;

(2) it shall be constructed of masonry and such other

non-inflammable material as may be approved by the

Commissioner; (3) a sign board of the hotel in English and

at least one regional language shall be hung in front of the

building; (4) the licensee shall put up a notice-board in a

conspicuous part of the dining hall stating whether the

articles of food are made of beef, mutton, ghee or oil.

There are several other conditions. e.g. the licensee

shall make adequate provision for parking of cycles, motor

cars or other vehicles of the persons visiting the hotel.

The licensee shall provide suitable means of drainage,

ventilation and lighting of such premises. The licensee

shall provide in the kitchen suitable outlets for smoke.

The licensee shall provide doors and windows with shutters

fitted with wire gauge so as to make them proof against dust

and flies. The licensee shall provide good supply of

wholesome water. All cups, saucers etc. shall be rinsed in

clear water. No vessels or utensils shall be used which are

likely to get corroded or which would otherwise render

obnoxious the article of food, and so on. There are a large

number of conditions for the purpose of ensuring that the

premises are safe and suitable, the food is wholesome and

hygienic and there is adequate ventilation, drainage and so

on. The respondent-Corporation is required to inspect the

premises in question in order to ensure that the conditions

are complied with. It also has the responsibility for

inspecting and supervising the sale of foodstuff to ensure

that all the conditions of licence pertaining to the

preparation and sale of such food are complied with. The

respondent is also required to ensure cleanliness, removal

of garbage and maintenance of hygiene in these premises.

Undoubtedly, the Corporation has the general duty to provide

scavenging and sanitation services including removal of

garbage and maintaining hygienic conditions in the city for

the benefit of all persons living in the city.

Nevertheless, hotels and eating houses by reason of the

nature of their occupation, do impose an additional burden

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on the municipal corporation in discharging its duties of

lifting of garbage, maintenance of hygiene and sanitation

since a large number of persons use the premises either for

lodging or for eating; the food is prepared in large

quantity unlike individual households and the resulting

garbage is also much more than what would otherwise be in

the case of individual households. In fact, under Section

230 of the said Act the respondent-Corporation has the power

to fix special rates of conservancy tax in respect of a

hotel, club or other large premises. This, however, does

not turn a licence fee into a tax.

It is, by now, well settled that a licence fee may be

either regulatory or compensatory. When a fee is charged

for rendering specific services a certain element of quid

pro quo must be there between the service rendered and the

fee charged so that the licence fee is commensurate with the

cost of rendering the service although exact arithmetical

equivalence is not expected. However, this is not the only

kind of fee which can be charged. Licence fees can also be

regulatory when the activities for which a licence is given

require to be regulated or controlled. The fee which is

charged for regulation for such activity would be validly

classifiable as a fee and not a tax although no service is

rendered. An element of quid pro quo for the levy of such

fees is not required although such fees cannot be excessive.

In the case of The Commissioner, Hindu Religious

Endowments, Madras v. Sri Laxshmindra Thirtha Swamiar of

Sri Shirpur Mutt (1954 SCR 1005) one of the earliest cases

dealing with the question whether the levy is a fee or a

tax, this Court held that the Constitution and in particular

the legislative entries in Schedule VII of the Constitution

make a clear distinction between a tax and a fee. The High

Court reproduced the definition of what "tax" means, given

by Latham C.J. of the High Court of Australia in Matthews

v. Chicory Marketing Board (60 C.L.R. 263, 276) (see at

page 1040). "A tax" according to the learned Chief Justice,

"is a compulsory exaction of money by public authority for

public purposes enforceable by law and is not payment for

services rendered". A fee on the other hand is generally

defined to be a charge for a special service rendered to

individuals by some governmental agency. The amount of fee

levied is supposed to be based on the expenses incurred by

the Government in rendering the service though in many cases

the costs are arbitrarily assessed. Ordinarily, the fees

are uniform and no account is taken of the varying abilities

of different recipients to pay. These are undoubtedly some

of the general characteristics, as far may be, of various

kinds of fees. It is not possible to formulate a definition

that would be applicable to all cases. The Court then

observed (at page 1042), "The distinction between a tax and

a fee lies primarily in the fact that a tax is levied as a

part of the common burden, while a fee is a payment for a

special benefit or privilege. Fees confer a special

capacity, although the special advantage, as for example, in

the case of registration fees for documents or marriage

licences, is secondary to the primary motive of regulation

in the public interest". There is really no generic

difference between tax and fee and as said by Seligman, the

taxing power of a State may manifest itself in three

different forms known respectively a special assessments,

fees and taxes. Our Constitution has, for legislative

purposes, made a distinction between a tax and a fee.

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In the case of Corporation of Calcutta and Another v.

Liberty Cinema ([1965] 2 SCR 477 at page 483), this Court

after referring to the constitutional provisions making a

distinction between a fee and a tax, also went on to say

that in our Constitution fees for licence and fees for

services rendered are contemplated as different kinds of

levy. The former is not intended to be a fee for services

rendered. This is apparent from a consideration of Article

110(2) and Article 199(2) where both the expressions are

used indicating thereby that they are not the same. In

other words, a distinction was made between fees for

services rendered and fees which are regulatory. In Indian

Mica & Micanite Industries Ltd. v. State of Bihar & Ors.

(1971 Supp. SCR 319 at page 324), Om Parkash Agarwal etc.

v. Giri Raj Kishori & Ors. etc. ([1986] 1 SCR 149) and

The Municipal Council, Madurai v. R. Narayanan etc.

([1976] 1 SCR 333 at pages 339 to 400) the Court had

considered a fee which was charged for services rendered.

In all these cases the Court observed that when a fee is

charged for services rendered an element of quid pro quo is

necessary and there has to be a co-relationship of a general

character between the cost of rendering such service and the

fee charged. A number of other decisions were also cited in

this connection. The position in respect of fees for

services rendered is summed up in the case of Krishi Upaj

Mandi Samiti and Ors. v. Orient Paper & Industries

Ltd.([1995] 1 SCC 655 in paragraph 21).

In the present case, however, the fees charged are not

just for services rendered but they also have a large

element of a regulatory fee levied for the purpose of

monitoring the activity of the licensees to ensure that they

comply with the terms and conditions of the licence.

Dealing with such regulatory fees, this Court in Vam Organic

Chemicals Ltd. & Anr. etc. v. State of U.P. & Ors.

etc. ([1997] 2 SCC 715 at page 726) observed that in the

case of a regulatory fee no quid pro quo was necessary but

such fee should not be excessive. The same distinction

between regulatory and compensatory fees has been made in

the case of P. Kannadasan & Ors. v. State of T.N. & Ors.

([1996] 5 SCC 670 in paragraph 36) as well as State of

Tripura & Ors. v. Sudhir Ranjan Nath ([1997] 3 SCC 665 at

673).

The petitioners, however, submitted that the fee

charged was, in fact, a tax in the guise of a fee. Because

apart from the fact that there was no element of quid pro

quo present in this case, the amount collected by way of

fees was credited to the common fund of the municipal

corporation. Under Section 169 of the Hyderabad Municipal

Corporations Act, 1955 a municipal fund is constituted and

under the said section it is provided as follows:-

"169. Constitution of Municipal Fund :- (1)Subject to

the provisions of this Act and the rules and the bye-laws -

(a) all moneys received by or on behalf of the

Corporation under the provisions of this Act or any other

law for the time being in force, or under any contract,

(b) .............

(c) .............

(d) all moneys raised by any tax levied for the

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purposes of this Act,

(e) all fees and fines payable and levied under this

Act or under any rule, bye-law or standing order in force

thereunder,

(f) .............

(g) ............., and

(h) all interest and profits arising from any

investment of, or from any transaction in connection with

any money belonging to the Corporation shall be credited to

a fund which shall be called 'the Municipal Fund' and which

shall be held by the Corporation in trust for the purposes

of this Act, subject to the provisions herein contained.

(2)..........."

Section 174 describes the purpose for which the

municipal fund is to be applied. It is, therefore,

submitted that since all the fees form a part of the common

municipal fund, and this fund is to be deployed for various

purposes of the municipal corporation, there is no provision

by which the fee collected is used for regulatory purposes.

This Court, however, in the case of Sirsilk Ltd. & Anr. v.

Textiles Committee & Ors. ([1988] Supp.(2) SCR 880 at pages

910, 912) has pointed out that a separate fund is not

essential in the case of regulatory fees. In the present

case the Budget Estimate Rules are relied upon by the

respondents in order to show that the fees are being

utilised for regulatory services. The Hyderabad Municipal

Corporation Budget Estimate Rules, 1968 under Rule 6 provide

as follows:-

"6. Sanctioning of the Budget:- The council shall,

after satisfying itself on the following points, sanction

the budget ordinarily not later than the twentieth of

February, each year with such modifications, as it may deem

necessary:

(a)............

Provided that no part of the receipts under any fee or

charge collected or recovered for performance of services

such as Slaughter House fee, Market fees and rents,

buildings permit fees, layout fees, licence fee and the like

shall be utilised or expended for purposes other than those

for which the fees and rents are collected. Any amount

remaining surplus or unexpended shall be invested in a

reserve fund."

The fees, though credited in the common fund, are

earmarked for the purposes for which they are collected.

Clearly, therefore, the intention is to levy a fee which

would be utilised for regulatory and compensatory purposes

in the present case. The contention of the petitioners that

this is a tax in the guise of a fee does not appears to

besustainable.

It is, however, contended by the petitioners that if

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this is a fee, the quantum of fee levied is excessive. It

is also unreasonable because the manner in which the fee is

levied bears no nexus to the purpose for which the fee is

levied. The petitioners contend that a licence fee based on

the rent payable in respect of the premises in which the

activities of an eating house or a lodging house are carried

on is not a proper basis for charging a fee because the rent

charged for the premises has no nexus with the services

rendered by the Corporation.

In the first place it is not necessary that a fee

should only be in the form of a lump sum fee. A fee can

also be graded as in the present case. The Corporation has

chosen the quantum of rent paid as the criterion for the

quantum of fee to be charged. The rent under the relevant

provisions of law in that connection, does have a nexus with

the area in the occupation of the lodging house or eating

house. In the case of activities carried on by these

lodging houses and eating houses, the area in their

possession has a direct nexus with the extent of business

activities. The need for cleanliness and hygiene, the

generation of garbage and the extent of regulation that may

be required depend upon the size of the premises which in

turn control the extent of activity. Undoubtedly in a given

case if the premises are old, the rent may be less but that

does not mean that classifying premises on the basis of the

rent paid has no connection with the quantum of fee charged.

It is also contended that the fees charged are

excessive. The respondents in their counter affidavit filed

in the writ petition have given general figures to show that

the total income from trade licence fees on the basis of the

1987 rates was Rs.1,08,25,588/- as per the revised

estimates. With the increase in the licence fees in 1992

the income would be doubled to Rs.2,16,51,176/-. This would

not be sufficient for the sanitary and public health

services including lifting of garbage, cleaning of roads,

sanitation, medical centres, salaries of the staff employed

and so on. The public health budget for the relevant period

of the Corporation is to the tune of nearly

Rs.13,95,40,000/-. Of course, these figures do not indicate

separately the extent of fees collected from eating and

lodging houses or the amount expended for regulating the

activities of eating and lodging houses and rendering them

services. In respect of the year 1981-82, when the first

increase which is under challenge took place, the income

from licences on the basis of the rates as enhanced in 1981,

was to the tune of Rs.37,89,627/- while the expenditure on

license section and sanitary section of the Corporation was

Rs.3,85,11.961/-. The Corporation also pointed out that the

annual salary bill in the year 1981 for the staff in various

sections of the municipal corporation dealing with licences

was Rs.40,45,585/-. The annual salary of the same staff in

1992 was Rs.1,75,31,943/-. The attempt of the Corporation

is to show that the expenditure under various heads between

1981 and 1992 had more than doubled. Therefore, the

increase in the licence fee which was made in 1981 for the

first time after 1972, as also the increase made in the

licence fee in 1992 were co-related with the increase in the

cost of providing services ? whether regulatory or

otherwise, to the trades in question. The respondents in

their affidavit have also annexed budget estimates for the

year 1989-90 in order to show that the licence fees

collected are far less than the requirements of the

municipal corporation for dealing with health services,

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sanitation, licencing section and so on. In the budget

estimates for 1988-89 the licence fees from hotels, for

example, are estimated at Rs.25,00,000/-. Revenue

expenditure for the year 1988-89 as per budget estimates

under sanitary, conservancy and scavenging section including

establishment expenses, salaries and allowances are to the

tune of Rs.10,14,61,100/-; while under the health office

section, these are to the tune of Rs.31,30,400/-. Under

prevention of food adulteration and municipal laboratory

section, the estimated expenditure is to the tune of

Rs.7,66,200/-. Undoubtedly, this expenditure covers not

just the services rendered to the trades in question. It

also covers services rendered to various other trades, to

individuals and organisations and all other members of the

public who benefit from such services rendered by the

municipal corporation. Nevertheless, looking to the fact

that the licence fees collected form only a very small part

of the total expenditure incurred by the municipal

corporation, we are not inclined to hold the levy of these

fees as excessive. It is also necessary to note that the

impugned increase in 1981 was the first increase after 1972.

The High Court has rightly considered that looking to the

increase in the cost of the various activities carried on by

the Hyderabad Municipal Corporation, doubling of licence

fees after nine years can not be considered as an excessive

increase. In respect of the increase from the 1987 level of

licence fees to the 1992 level of licence fees, the initial

increase could have been viewed as excessive. But after the

representations were made to the respondent-Corporation by

the various traders affected by the increase in the licence

fees, the municipal corporation reduced the increase and

kept it at twice the licence fees charged in 1987. The

respondents in this connection had meetings and detailed

negotiations with the various trade organisations connected

with the conducting of eating houses and lodging houses.

The respondents have annexed the minutes of the proceedings

before the Commissioner, Municipal Corporation of Hyderabad,

dated 25.7.1992. The meeting of 25.7.1992 dealt with

enhancement of licence fee of certain trades and operations.

These cover the present trades and occupations. The

proceedings record that the traders viewed the increase from

the existing rates as on the high side and the increase in

many cases was four to five times the existing rates.

Aggrieved by the increase in the licence fee, the traders

formed a Twin Cities Traders Joint Action Committee and made

representations at various levels. Joint meetings were held

on 22nd April, 4th, 6th, 11th and 12th of May, 1992 and

after a great deal of exchange of views, it was unanimously

resolved to increase the trade licence fee by 100% over the

rates prevailing prior to the increase in October, 1991.

Agreement was reached to this effect. These proposals were

accepted by the Standing Committee and the General Body of

the Corporation. Accordingly, the revised rates were

implemented. The petitioners contend that their members did

not agree to this increase. Nevertheless, the Traders Joint

Action Committee which covered a number of other traders

carrying on the same trade did agree to this increase as

reasonable. It would not, therefore, be proper to term this

agreed increase as excessive or as indicating that it was a

taxing measure rather than a fee.

The petitioners had also contended that if this

increased levy is viewed as a tax then the provisions for

imposing a tax under the Hyderabad Municipal Corporations

Act, 1955 have not been complied with. Since we have come

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to a conclusion that the licence fee which is charged is a

regulatory-cum- compensatory fee, and it is not a tax, we

are not examining this question since it is not necessary to

view this levy as a tax.

We, therefore, agree with the conclusions reached by

the High Court. The appeals as well as the writ petition

are, therefore, dismissed. There will, however, be no order

as to costs.