- (1.) 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 competence 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 category of hotels. Section 3 of the Act limits the application of the 'Act' to those hotels where the "room-charges" 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 assessment-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 percent of the "chargeable-receipts" defined in See. 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 provision 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 engrafted 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.
(2.) This batch of writ petitions were heard along with writ petition No. 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 "Chargeable - Expenditure" which represents substantially the same items as to constitute 'Chargeable-Receipts under the present 'Act'. We have disposed WP No. 1395 of 1987 and the connected matters by a separate Judgment.
(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-section (2) and sub-section (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 payable and the number of individuals ordinarily permitted to occupy such accommodation according to the rules and custom of the hotel. (2) Where a composite charge is payable in respect of residential accommodation 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 overstated, the Income-tax Officer shall, for the purposes of sub-section (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 charged on every person carrying on the business of a hotel in relation to which this Act applies, for every assessment year commencing on or after the 1st day of April, 1981, 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 exchange, 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, entertainment tax, tax on luxuries or tax under this Act) so received in foreign exchange." Explanation - omitted as unnecessary Section 5(2) - Omitted as unneceessary 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 building, 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 accruing or arising to the assessee during that previous year, such charges shall not be included in the chargeable receipts of any subsequent previous year in which they are received by the assessee." Other provisions are machinery-provisions, providing for the mode of assessment, levy and collection of the tax; for appeals, for offences, 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 legislation under and as referable to Entry 82 of List I 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 II 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 objects 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 fall 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 unreasonable burden on the petitioners' freedom of business and constitutes a violation of Article 19(1)(g) of the Constitution.;