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PETITIONER:

SPENCES HOTEL PVT. LTD. AND ANR.

Vs.

RESPONDENT:

STATE OF WEST BENGAL AND ORS.

DATE OF JUDGMENT15/02/1991

BENCH:

SAIKIA, K.N. (J)

BENCH:

SAIKIA, K.N. (J)

PUNCHHI, M.M.

CITATION:

1991 SCR (1) 429 1991 SCC (2) 154

JT 1991 (1) 479 1991 SCALE (1)225

ACT:

West Bengal Entertainments and Luxuries (Hotels and

Restaurants) Tax Act, 1972-Section 4-Luxury Tax-

Imposition of flat or fixed rate on basis of air-

conditioned floor space-Whether permissible, valid and

legal.

HEADNOTE:

The appellant company was carrying on the business of

running a hotel, bar and restaurant where it had provided

air-conditioning. The second respondent, Collector of

Calcutta, sought to levy luxury tax on the company under the

provisions of the West Bengal Entertainments and Luxuries

(Hotels and Restaurants) Tax Act, 1972 calculated at the

flat or fixed rate of an annual sum of Rs.100 for every 10

Sq. meters of the floor area provided with air-conditioning.

The appellant's representation showing that the tax was

discriminatory was rejected by the Collector. There-upon,

the appellants read a petition in the High Court.

The appellants in their writ petition inter alia

contended that the Act had imposed a flat rate on a

specified air-conditioned floor space in hotels and

restaurants which may be differently situated with reference

to their localities, clientele, services and amenities

rendered, the Act made no distinction on any of these bases,

as such it, did not even attempt a reasonable classification

of these different types or categories of hotels and

restaurants, hence it suffered from the vice of

discrimination under Art. 14 of the Constitution.

Before this Court, the appellants while reiterating the

contentions urged before the High Court, argued that the

legislature while imposing a tax was bound under the

Constitution to make appropriate classification and failure

to do so resulting in clubbing dissimilar hotels and

restaurants for the purpose of luxury tax amounted to an

error by inaction; where the incidence of a tax was

distributed in a manner which was irrational or arbitrary or

where lack of classification created inequality, the tax

would be violative of Article 14; and the provision for air-

conditioning had no direct nexus with the income earned by

the different hotels and restaurants, and on the same ground

section 4 of the luxury tax Act must be declared violative

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of Article 14 of the Constitution.

430

On behalf of the respondents it was contended that the

legislature had made the classification in selecting the

hotels and restaurants for the purposes of luxury tax in as

much as only the air-conditioned hotels and restaurants had

been subjected to tax; that the legislature had the widest

latitude in the matter of such classification. and that a

system of taxation need not be absolutely perfect and micro

division and mini classification may not always be made.

Dismissing the appeal this Court,

HELD: (1) A taxing statute will be struck down as

violative of Art. 14 if there is no reasonable basis behind

the classification made by it, or,if the game class of

property, similarly situated, is subjected to unequal

taxation. [442G]

Kunnathat Thathunni Moopil Nair v. The State of Kerala,

[1961] 3 SCR 77; I. T. O. v. Lawrence Singh, AIR (1968) SC

658=(1968) 2 SCR 165; State of Andhra Pradesh v. Nalla Raja,

AIR (1967) SC 1458 1967] 3 SCR 28, referred to.

(2) The luxury tax charged under section 4 of the Act

is a tax on the mere provision for luxury and not on the

hotel property or equipment. 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. The tax therefore

could not be said to be discriminatory. [447D-F]

(3) Whether a particular tax is discriminatory or not

must necessarily be considered in light of the nature and

incidence of that particular tax and cannot be judged by

what has been held in the context of other taxes except the

general propositions. The precedents relating to property

taxes such was as land tax, building tax, plantation tax,

and even income tax or a service tax will not be of direct

relevance to a luxury tax, as it is neither a property tax,

nor an income tax but a tax on the provision for luxury. In

case of tax on provision for luxury different aspects

peculiar to the tax have to be borne in mind. [443G]

(4) What exactly is meant by equality in taxation may,

have to be looked at from different angles in different

kinds of taxes. [444E]

(5) The ability or capacity to pay has no doubt been

regarded as

431

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. [444C]

(6) 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. [445F]

(7) The equal protection of the law's provision in our

Constitution prohibits a discrimination 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. [446G-H]

(8) Equality and uniform policy means uniform and equal

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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. [447B]

Express Hotels Private Ltd. v. State of Gujarat,

[1989]3 SCC 677; New Manek Chowk Spinning and Weaving Mills

Co Ltd v. Municipal Corporation of the City of Ahmedabad,

[1967] 2 SCR 679; Ram Prasad Narayan Sahi & Anr. v. The

State of Bihar, [1954] 4 SCR 1129; Steelworth v. State of

Assam, [1962] Supp. 2 SCR 589; Ganga Sagar Corpse. v. State

of U.P., AIR [1980] SC 286: [1980] 1 SCR 769; Khyerbari

Tea Co. v. State of Assam, AIR (1964) SC 935; State of

Kerala v. Haji K. Haji K. Kutty Naha, [1969] 1 SCR 645;

Spences Hotel Pvt. Ltd. v. State of West Bengal, [1975] Tax

L.R. 1890; East India Hotels Ltd. v. State of West Bengal,

AIR (1990) 6 SCR 2029; State of Rajasthan v. Mukachand and

Ors., [1964] 6 SCR 903; State Of Maharashtra & Ors. v.

Madhukar Balkrishna Badiya & Ors., [1988] 4 SCC 290; Twyford

Tea Co. Ltd. & Anr. v. The State of Kerala, [ 1970] 3 SCR

383; Elel Hotels and Investments Ltd. & Ors v. Union of

India, [1989] 3 SCC 698; Gopal v. State of U.P., [19641 4

SCR 869; Ravi Verma v. Union of India, AIR (1969) SC 1094;

(1969) 3 SCR 827; D.S. Nakara v. Union of India, [1983] 1

SCC 305 and Bank of Baroda v. Rednam Negachaya Devi, [1989]

4 SCC 470.

JUDGMENT:

CIVIL APPELLATE JURISDICTION CIVIL: Civil Appeal No. 406

of 1976.

432

Appeal by Certificate from the Judgment and Order dated

2.1-1975 of the Calcutta High Court in Appeal No. 137 of

1974.

G.L. Sanghi, Dhruv Mehta, Aman Vachhar and S.K. Mehta

for the Appellant.

Tapas Ray and G.S. Chatterjee for the Respondents.

Harish N. Salve, Lalit Bhasin, Ms. Nina Gupta, Vibhu

Bhakru, Pranab Mullick and Vineet Kumar for the Intervener.

The Judgment of the Court was delivered by

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 as 'the Company' having its

registered office, and carrying on the business of running a

hotel, bar and restaurant, at No. 4 Wellesley Place

Calcutta. The said hotel, bar and restaurant have been

provided by the Company with air-conditioning through a

central air-conditioning plant which, according to

appellants, would normally run between months of March and

October each year remaining unused for the rest of the

year.

The second respondent, Collector of Calcutta by his

Memo No. 4600(86) A.T. dated November 9, 1972 directed the

company to make ad hoc payment of tax under the provisions

of the West Bengal Entertainments and Luxuries (Hotels and

Restaurants) Tax Act, 1972 (W. B. Act XXI of 1972)

hereinafter referred to as 'the Act', calculated at the flat

or fixed rate of an annual sum of Rs. 100 for every 10 sq.

metres or part thereof in respect of so much of the floor

area of the hotel which was provided with luxury i.e. air-

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conditioning. Again by Memo No. 1161/A.T. dated 13.3.1973

the second respondent called upon the Company to expedite

the submission of the blue print of the space provided with

means for air-conditioning, failing which appropriate legal

action would be taken. The second appellant submitted a

representation showing that the tax was discriminatory and,

therefore, illegal and void, but the second respondent by

his Memo No. 5166/ A.T. dated 22.12.1972 replied that there

was nothing discriminatory in it.

433

The appellants in their writ petition under Article 226

of the Constitution of India in the High Court of Calcutta

contended that the provisions of the Act and the Rules

framed thereunder, enabling the respondents to levy luxury

tax, were unconstitutional and void, and consequently the

notices and memos issued to the appellants were without

jurisdiction and amounted to colourable exercise of

power practising fraud on legislative powers; and it was

prayed inter alia that the Act and the Rules framed

thereunder be declared illegal and void being ultra vires

the constitution of India; that a writ of mandamus or any

other appropriate writ be issued commanding the respondents

and each of them not to give any or any further effect to

the Act, Rules, and the notices.

A learned Single Judge dismissed the writ application

by order dated March 6, 1974 but granted stay of operation

of his order till April 30, 1974 on which date the

appellants preferred 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. obj-

ects 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 air-

conditioned floor space in hotels and restaurants which may

be differently situated with reference to their localities,

clientele, services and amenities rendered and the Act makes

no distinction on any of these bases and as such it did not

even attempt a reasonable classification of these different

types or categories of hotels and restaurants, and,

therefore, it suffered from the vice of discrimination under

Art. 14 of the constitution.

Mr. G. L. Sanghi, the learned counsel for the

appellants, fairly submits that in view of the Constitution

Bench decision in Express Hotels Private Ltd. v. State of

Gujarat and Anr, [1989] 3 SCC 677,

434

before which Bench the West Bengal petition was also there,

the above first contention stands concluded against the

appellants. The second contention, however, according to

counsel, was not urged before the Constitution Bench and as

such is still open to the appellants. Reiterating that

contention counsel submits that the State has levied luxury

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tax at a flat rate of an annual sum of Rs. 100 for every 10

square metres, or part thereof in respect of so much of the

floor area of a hotel which is provided with luxury

irrespective of the locality, quality, standard or size of

the hotels and restaurants; there is no attempt whatsoever

by the State to classify and in fact the tax is sought to be

imposed indiscriminately without discernment; and there is

total failure on the part of the state in not recognizing

the inherent differences in hotels and restaurants. Counsel

produces a list of classified hotels which according to him,

clearly shows vast differences between different hotels and

this is magnified not only by the fact of different rates

charged but also different kinds of services/facilities

provided. The appellants also refer to criteria for one star

hotels, which, it is submitted, show that the levy of tax on

floor area has no nexus with the subject of tax, namely,

luxuries. Regarding the flat rate it is submitted that this

Court has in more than one case deprecated the practice of

imposition of tax at flat rate and he relies on the

decisions in Kunnathat Thathunni Moopil Nair v. The State of

Kerala and Anr., [ 1961] 3 SCR 77 (90-92); New Manek Chowk

Spinning and Weaving Mills Co. Ltd. & Ors., v. Municipal

Corporation of the City of Ahmedabad & Ors., [ 1967] 2 SCR

679 (692) and State of Kerala v. Haji K. Haji K. Kutty Naha

& Ors., [ 1969] 1 SCR 645 (649). Counsel further submits

that there is no nexus or co-relation between floor and

space of a hotel and the extent of luxury provided on

account of air-conditioning and the provision for air-

conditioning 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

435

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 hotels

whose earnings and rates are much higher than those of

mine?" According to counsel the legislature while imposing a

tax is bound under the Constitution to make appropriate

classification and failure to do so resulting in clubbing

dissimilar hotels and restaurants for the purpose of luxury

tax amounts to an error by inaction.

Mr. H.N. Salve, the learned counsel for the intervener

M/s East India Hotel Ltd., submits that where the incidence

of a tax is distributed in a manner which is irrational or

arbitrary or where lack of classification creates

inequality, the tax would be violative of Article 14 of the

Constitution of India. In the instant case, according to

counsel, neither the charge, nor the rate, but the

'measure', that is the air-conditioned floor space of

assumed homogeneity or uniformity that suffers from the vice

of non-classification causing inequality in incidence of the

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tax.

Mr. Tapas Ray, the learned counsel for the respondents,

submits, inter alia, that the Legislature made the

classification in selecting the hotels and restaurants for

the purpose of luxury tax inasmuch as only the air-

conditioning hotels and restaurants have been subjected to

tax and non-air-conditioned ones left out. The Legislature,

counsel submits, has the widest latitude in the matter of

such classification and so long as luxury has been defined

with reference to a named space, namely, air-conditioned

hotels and restaurants, there could be no question of

infringement of Article 14. The prescribing of a flat or a

fixed rate for a certain measure of air-conditioned space

would also not amount to discrimination all such air-

conditioned space being treated equally. A system of

taxation, it is submitted, need not be absolutely perfect

and micro division and mini classification may not always be

made.

The precise question, therefore, is whether Section 4

of the Act can be held to be ultra vires the Article 14 of

the Constitution of India for failure to make required

classification and for imposition of luxury tax on flat or

fixed rate only on the basis of air-conditioned floor space.

The Act is one "to provide for the imposition of taxes

on entertainments and luxuries in hotels and restaurants".

As defined in Section 2(b) "entertainment" means any

exhibition, performance, amusement, game, sport, cabaret,

dance or floor show and includes performance by any singer,

musician or bandsman provided in any

436

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 metres or part

thereof in respect of so much of the floor area of

the hotel which is provided with luxury."

For appreciation of the rival arguments it is necessary

first to ascertain the taxable event in the above provision.

The question is whether the taxable event is the existence

or provision for air-conditioning or its use or income

derived from it. In Spences Hotel Pvt. Ltd. v. State of West

Bengal, reported in 1975 Tax L.R. 1890 (1892) the Calcutta

High Court took the view:

"In view of the social and economic structure of

our country there can be no doubt that an air-

conditioned space whether in hotel or in a

restaurant is a luxury by itself. People enter into

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these spaces for enjoyment of a

luxury...................... The comfort that a

person derives in a hot summer day in an air-

conditioned space is a luxury particularly in the

context of the conditions in which the masses live

in India today. In our opinion, the State

legislature is competent to impose a tax on this

luxury."

This Court approved the above view in Express

Hotels Pvt. Ltd. case (supra). The submission that as

Section 4 of the West Bengal Act

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envisaged a tax on the mere existence for the provision of

the luxury even if luxury was not utilized by any person and

hence it was beyond the scope of the legislative entry was

rejected observing that the concept of luxuries in the

legislative entry took within it everything that could

fairly and reasonably be said to be comprehended in it. On a

perusal of Section 4 of the Act there arises no doubt that

it is the provision for air-conditioning to the measure of

space which is the taxable event and not the articles or

properties through or by which it is provided nor the income

derived therefrom. As has been observed in East India Hotels

Ltd. v. State of West Bengal and Ors., AIR 1990 SC 2029, the

submission that there must be both giving and receiving of

luxury and that a tax on the mere existence of luxury would

be insufficient to support a law imposing the tax was not

accepted and it was held by this Court that taxable event

need not necessarily be the actual utilisation or the actual

consumption of the luxury and that a luxury which can

reasonably be said to be amenable to a potential consumer

does provide the nexus for valid enactment. Mr. Salve

correctly submitted that the charging event is the provision

for air-conditioning 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 utilisation

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 tax at a flat rate of Rs.2 per acre imposed very

unreasonable restrictions on the right to hold property. A

Constitution Bench of this Court held that a taxing statute

was not wholly immune from attack on the ground that it

infringed the equality clause in Article 14, though the

courts were not concerned with the policy underlying a

taxing statute or whether a particular tax could not have

been imposed in a different way or in a way that the

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court might think more just and equitable. Examining the

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provisions this Court observed that the Act had no reference

to income, either actual or potential, from the property

sought to be taxed. It obliged every person who held land

to pay the tax at a flat rate prescribed, whether or not he

made any income out of the property, or whether or not the

property was capable of yielding any income. It was also

observed that ordinarily a tax on land or land revenue was

assessed on the actual or potential productivity of the land

sought to be taxed and the tax had reference to the income

actually made, or which had been made with due diligence,

and, therefore, tax was levied with due regard to the

incidence of the taxation. Under the provisions of the Act

as some persons owning and possessing the same area of land,

but earning no income, the land being arid desert, others

earning only some income by raising possible crops

making heavy investments, and others earning income

sufficient to pay the tax only, while still others

earning sufficient income out of the fertile land, the

tax would affect the pockets of the different owners

differently. This Court accordingly held that inequality

was writ large on the Act and was inherent in the

very provisions of the taxing section and that there

was no attempted classification and nothing more need

be said as to what could have been the basis for the

valid classification. It is accordingly argued both by

Mr. Singhvi and Mr. Salve that in the instant case the

provision for air-conditioning has no direct nexus

with the incomes earned by the different hotels and

restaurants and on the same ground Section 4 of the

Act must be declared violative of Article 14 of the

Constitution.

State of Kerala v. Haji K. Haji K. Kutty Naha &

Ors. (supra) was a case challenging Section 4 of the

Kerala Buildings Tax Act, 1961. Under that section

buildings constructed after the coming into force of

the Act and 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

439

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 legislation a larger

discretion was available to the Legislation in the matter of

classification, so long as it adhered to the fundamental

principles underlying the doctrine of equality. Though the

Legislature had wide range of flexibility in the matter of

classification there must not be denial of equality in the

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matter of taxation, and the High Court was accordingly held

to have been justified in holding that the charging section

of the Act was violative of the equality clause of the

Constitution.

In State of Rajasthan v. Mukachand and Ors., [ 1964] 6

SCR 903, the validity of Sections 2(e) and 7(2) of

Jagirdar's Debt Reduction Act (Rajasthan Act 9 of 1937) was

challenged. Section 2(e) defined 'debt' to mean an advance

in cash or in kind including any transaction which is in

substance a debt but not including an advance as aforesaid

made on or after impugned part of Section 2(e).

In New Manek Chowk Spinning and Weaving Mills

Co. Ltd. and Ors. v. Municipal Corporation of the

City of Ahmedabad and Ors. (supra) the question

was whether under the Bombay Provincial Municipal

Corporation Act (49 of 1949) levy of property tax

on textile factories at flat rate per 100 sq. ft. of floor

area was violative of Article 14 of the Constitution. A

Constitution Bench of this Court held that the method

of levy of tax on the basis of floor area was

against the provision of the Act and the Rules made

thereunder and that the rateable value of the

property must be assessed after determining the

rack rent or the annual rental value in respect of

each premises which was to be computed on the basis

of the annual rent for which the property might

reasonably be expected to be let from year to year.

The method of taxation on the basis of floor area, it

had been observed, was sure to give rise to inequalities

as there had been no classification of factories on any

rational basis.

In State of Maharashtra & Ors. v. Madhukar

Balkrishna Badiya

440

& Ors., [ 19881 4 SCC 290, the validity of the Bombay Motor

Vehicles Tax Act, 1958 (65 of 958) sections 3(1-C) and 9(6)

(as amended by Maharashtra Acts 14 of 1987, 33 of 1987

and 9 of 1988) which levied `one time tax' at 15 times

the annual rate on motor cycles and tricycles, was

challenged. It was held by this Court that the Act did

not suffer from any vice of discrimination on the

ground that the company-owned vehicles were taxed at

three times the 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

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Schedule 11. The 1960 Act was amended by the 1967

Amendment Act. By the Amending Act the word

'additional' was removed from all places and it was declared

that the tax was additional to the land revenue or any

tax in lieu thereof, if any, payable in respect of such

land. The unit of assessment was changed from acre to

hectare and the rate of tax in Schedule I was raised to

Rs.50 per hectare. The tax was payable in respect of 2

hectares of plantations or more with an exemption for

the first hectare. According to the new Schedule 11

the extent of plantation for the purpose of tax in the

case of Cocoanut, Arecanut, Rubber, Coffee and

Pepper plantations was arrived at by dividing the total

number of trees, plants or vines standing thereon by

a number specified in each case. Twyford Tea Co.

challenged the Act after amendment mainly on the

ground of violation of Article 14 urging that there were

differences of fertility and rainfall in the different

areas where the plantations were situated and figures

compiled by the Tea Board were placed to show the

differences in yield between different estates, and

Moopil Nair's case (supra) was relied on to argue

that the uniform tax on unequals resulted in dis-

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crimination (a) as between the tea plantations themselves

and (b) as between different kinds of plantations. The

legislative competency was also challenged.

Hidayatullah, C.J. speaking for the Constitution

Bench while dismissing the petitions held that the

legislature had a wide range of selection and freedom

in appraisal not only in tile objects of taxation and

the manner of taxation but also in the determination of

the rate or rates applicable. If production were always

to be taken into account there would have to be a

settlement for every year and the tax would become a

kind of income-tax. The burden of proving

discrimination was always heavy and heavier still was

the proving in taxing statute. The burden was on the

person complaining of discrimination to prove not

possible inequality but hostile unequal treatment, more so

when uniform taxes were levied. The State could not

be asked to demonstrate equality. The petitioners in

that case could not single out any particular plantations

for hostile or unequal treatment.It was observed that

in Moopil Nair's case the tax was held to be

discriminatory because it paid no heed to quality or

productive capacity of land and the tax was also 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

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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 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 hotel with higher

economic

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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 economic superiority of

hotels to which the Act is applied is erroneous

or irrelevant.

In Ram Prasad Narayan Sahi & Anr. v. The State

of Bihar and Ors., [1953] 4 SCR 1129 wherein the

Sathi Lands (Restoration) Act, 1950 declaring settlement

of land with particular individual was challenged on

the ground of discrimination. Mukherjee, J. speaking

for the Court observed that the equal protection clause in

Article 14 of the Constitution aimed at striking down

hostile discrimination and applied to all persons

similarly situated, but it was certainly open to the

legislature to classify particular legislative objects;

however, such selection or differentiation must not be

arbitrary and should rest upon rational basis having

regard to the object which the legislature had in view.

The intrinsic complexity of fiscal adjustments of

diverse elements and wide discretion and latitude of

the legislature in the matter of classification for

taxation purposes was emphasised by Sabyasachi

Mukharji, J. as he then was, in State of

Maharashtra & Ors. v. Madhukar Balakrishna Badiya &

Ors., (supra) which was a case under the Bombay

Motor Vehicles Tax Act, 1958 (as amended by

Maharashtra Act 14 of 1987). In para 14 of the report it was

said:

"About discrimination it is well to remember that

a taxation law cannot claim immunity from the

equality clause in Art. 14 of the Constitution

but in view of the intrinsic complexity of fiscal

adjustments of diverse elements, a

considerably wide discretion and latitude in the

matter of classification for taxation purpose is

permissible."

From the propositions of law enunciated in the above cases

by this Court, it is well settled that a taxation will be

struck down as violative of Art. 14 if there is no

reasonable basis behind the classification made by it, or,

if the same class of property, 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

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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

pick and choose districts, objects, persons, methods

and even rates for taxation if it does so reasonably.

In Twyford Tea Co. v. State of Kerala, (supra) it has been

observed that when a statute divides the objects of tax

into groups or categories, so long as there is equality

and uniformity within each group, the tax cannot be

attacked as violative of Art. 14, although due to

fortuitous circumstances or a particular situation some

included within a group may get some advantage

over others, provided of course they are not sought

out for special treatment. It has repeatedly been

held, for example, in Khyerbari Tea Co - (supra),

Gopal v. State of U. P. I AIR 1964 SC - 370 (375):

(1964) 4 SCR 869 and Steelworth v. State of Assam,

(supra) and Ravi Varma v. Union of India, AIR 1969

SC 1094: (1969) 3 SCR 827, that as to what articles

should be taxed is a question of policy and there cannot

be any complaint merely because the legislature has

decided to Nakara & Ors. v. Union of tax certain

articles and not others. In D.S India, [ 1983] 1 SCC 305,

Desai, J. even expressed that too microscopic a

classification may also be violative of Art. 14. It was

reiterated in Bank of Baroda v.-Rednam Nagachaya

Devi, [1989]4 SCC 470 that the burden is always on the

person alleging the violation of Art. 14 of the

Constitution of India to raise specific pleas and

grounds and to prove it.

Whether a particular tax is discriminatory or not

must necessarily be considered in light of the nature and

incidence of that particular tax and cannot be judged

by what has been held in the context of other taxes

except the general propositions. The precedents relating

to property taxes such as land tax, building tax,

plantation tax, and even income tax or a service tax will

not be of direct relevance to a luxury tax, as it is

neither a property tax, nor an income tax but a tax on

the provision for luxury. In case of tax on provision

for luxury different aspects peculiar to the tax have

to be borne in mind. The system of taxation has

changed a great deal from Kautilya to kaldor and even

444

thereafter. The history of taxation is one of evolution as

is the case in all human affairs. Its progress is one of

constant growth and development in keeping with the

advancing economic and social conditions; and the fiscal

intelligence of the State has been advancing concomitantly,

subjecting by new means and methods hitherto untaxed

property, income, service and provisions to taxation. With

the change of scientific, commercial and economic conditions

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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 legisla-

tures 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 space taxation or pollution taxation courts

may be a little embarrassed in attempting to apply the

principle of ability or capacity to pay. What, exactly is

meant by equality in taxation may, therefore, have to be

looked at from different angles in different kinds of taxes.

This reminds us what John Stuart Mill said in Chapter V of

Utilitarianism.

"Some people may think that they have rational

insight into the truth of the proposition that men

ought to be taxed equally, others that they have

such insight into truth of the proposition that men

ought to be taxed in proportion to what they earn,

others that they have rational insight into the

truth of the proposition that men ought to be taxed

more than in proportion to what they earn. Can

they be sure that in thinking this, they are not

simply, being influenced by the imaginative and

quasi-aesthetic appeal of making the amount of

payments proportionate to the number of people, or

making it proportionate to their incomes?"

It may be, that this truth is simply that our

imagination disposes us to think in terms of distributive

justice. It is, therefore, pertinent to observe that along

with the insight into a particular truth or an

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aesthetic value, the expediency and practicability of a

particular taxation has also to be borne in mind.

As was pointed out by Gustav Radbruch in his Legal

Philosophy (P. 90):

"Justice demands that equals be treated equally,

different ones differently according to their

differences; but it leaves open the two

questions, whom to consider equal or

different, and how to treat them. Justice

determines only the form of law. In order to get

the content of the law, a second idea must

be added, viz. expediency. The question

of justice has been raised and answered

independently of questions of expediency or

suitability for any purpose, including the

purpose of the state. But within the frame-

work of the question of the purpose of law, the

state for the first time enters the scope of

our investigation. Since law, or an essential

part of it, is the will of the state, and the

state, or an essential part of it, is an

institution of law, the questions of the purpose

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of law and the purpose of the state are

inseparable."

What then 'equal protection of laws' means as

applied to taxation? Equal protection cannot be said

to be denied by a statute which operates alike on all

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 all persons in similar

circumstances. Nor does this requirement preclude the

classification of property, trades, profession and

events for taxation-subjecting one kind to one rate of

taxation, and another to a different rate. "The rule

of equality of taxation is not intended to

446

prevent a State from adjusting its system of taxation in all

proper and reasonable ways. It may, if it choses, exempt

certain classes of property from any taxation at all, may

impose different specific taxes upon different trades and

professions." "It cannot be said that it is intended to

compel the State to adopt an iron rule of equal taxation."

In the words of Cooley:

"Absolute equality impossible. Inequality of

taxes means substantial differences. Practical

equality is constitutional equality. There is

no imperative requirement that taxation shall

be absolutely equal. If there were, the

operations of government must come to a stop,

from the absolute impossibility of fulfilling

it. The most casual attention to the nature

and operation of taxes will put this beyond

question. No single tax can be

apportioned so as to be exactly just and any

combination of taxes is likely in individual

cases to increase instead of diminish the

inequality."

(Cooley on Taxation, 4th Edn. Vol.l.p. 558)

"Perfect equality intaxation has been said time

and again, to be impossible and unattainable.

Approximation to it is all that can be had. Under

any system of taxation, however, wisely and

carefully framed, a disproportionate share of the

public burdens would be thrown on certain kinds of

property, because they are visible and tangible,

while others are of a nature to elude vigilance. It

is only where statutes are passed which impose

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taxes on false and unjust principle, or operate

to produce gross inequality, so that they cannot be

deemed in any just sense proportional in their

effect on those who are to bear the public charges

that courts can interpose and arrest the course of

legislation by declaring such enactments void."

"Perfectly equal taxation", it has been said, "will

remain an unattainable good as long as laws and

government and man are imperfect." 'Perfect

uniformity and perfect equality of taxation', in all the

aspects in which the

human mind can view it, is a baseless dream.

The equal protection of the law's provision in our

Constitution prohibits a discrimination 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 restau-

447

rants. 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 air-

conditioned 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

differently on different classes of hotel owner is

not tenable inasmuch as the impact is the result of

having different measures of air-conditioned space by

different owners. This luxury tax having not been

based on income earned therefrom the classification of

the owners on basis of income or stars is irrelevant.

The question that different proportions of air-

conditioned spaces are used in different hotels and

restaurants earning different proportions of income is

also not relevent as the tax is not based on use of

the space. The kinds of air-conditioning or the

implements used are also not relevant. It is a tax on

the mere provision for luxury and not on the hotel

property or equipment, as we have already said.

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.

The result is that this appeal fails and it is

dismissed with costs quantified at Rs.5,000 (Rupees Five

Thousand only).

R. S. S. Appeal dismissed.

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