Holding

The licence fee is a regulatory‑cum‑compensatory fee, not a tax, and the increase is valid and not excessive.

Summary

The Secunderabad Hyderabad Hotel Owners Association challenged the increase in trade licence fees for lodging houses, hotels and related establishments imposed by the Hyderabad Municipal Corporation under Section 622 of the Hyderabad Municipal Corporation Act, 1955, through orders dated 6 April 1981 and 25 July 1992. The petitioners argued that the levy was a tax in disguise, lacked a quid pro quo, was excessive, and that the rent‑based grading of the fee was unreasonable, also contending that the corporation had not complied with the procedural requirements for imposing a tax under Sections 197 and 198 of the Act. The Supreme Court examined the nature of the licence, the regulatory and compensatory purposes of the fee, and the relevance of the rent‑based scale, holding that the levy is a regulatory‑cum‑compensatory fee, not a tax, and that the increase was not excessive. Consequently, the Court dismissed the appeals and the writ petition.

Issues considered

The increased licence fee is a tax or a fee.
Whether the fee is excessive or unreasonable.
Whether the procedure prescribed for imposing a tax under Sections 197 and 198 of the Hyderabad Municipal Corporation Act was required.
Whether a rent‑based grading of the licence fee has any nexus with the services rendered.

Legislation cited

Constitution of Indias. Article 14, s. Article 32

Subjects

licence feetax vs feeregulatory feemunicipal corporationHyderabad Municipal Corporation Acttrade licenceexcessive feerent based feeArticle 14Article 32municipal taxation

Judgment

+· SECUNDERABAD HYDERABAD HOTEL OWNERS A
ASSOCIATION AND ORS.
v.
HYDERABAD MUNICIPAL CORPORATION, HYDERABAD
ANDANR.

JANUARY 20, 1999
B

[MRS. SUJATA V. MANOHAR AND A.P. MISRA, JJ.]

Municipalities :

Hyderabad Municipal Corporation Act, 1955: Sections 169, 174, 197,
c
198, 230, 52l(l)(e) and 622.

Licence fee-Trade licence-For miming a lodging house, hote~ res-
taurant, coffee house, tea stall, eating house, soft drink stall, ca[eteria, tiffin
room etc.-lncrease of-By orders dated 6.4.1981and25.7.1992 issued under D
Ss. 521(1)(e) a11d 622:-Taxorfee--Municipal Co1poration required to inspect
the premises in question to ensure that co11ditions of licence were complied
with and supervising sale of foodstuff and to ensure cleanliness, garbage
removal and maintenance of hygiene in these premises-Licence fee was
credited to the common fund of the Corporation but the fees were eannarked E
for the purposes for which they were collected under R. 6 of Budget Estimates
Rules-lfeld, Under such circumstances, levy is a fee and not a tax-Intention
is to levy the fee for regulatory and compensatory purposes-Contention that
levy is a tax in the guise of fee, rejected-Further, contention that non-com-
p li an c e with Ss. 197 and 198 rendered the levy invalid, also
"' rejected-Co1poration's power to impose conse1vancy tax under S. 230 does F
~- not affect nature of the said fee-No quid pro quo is necessary for levying
such fee if the fee is charged for regulatilig such activity but it cannot be
excessiv~n facts, fee is not excessive.

Fee or tax-Determination of-Depends on the nature of licence G
granted--Regulatory fee-Creation of a separate fund-Not necessary--Ear-
marking the amount for its purposes is sufficient-Hyderabad Municipal
Corporation Estimate Rules, 1968, R. 6.

Lice11ce fee-For rnnning a lodging or eating houses etc.-Rate
of-Fixing of-On basis of rent of premises concemed-Validity of-Held, H
143
144 SUPREME COURT REPORTS [1999) 1 S.C.R.

A Rent does not have a nexus with se1vice rendered by Municipal Corpora-
tion-Hence classification of premises on basis of rent has connection with ·+
quantum offee charge~Also doubling offees after nine years, not exces-
sive-Constitution of India 1950, Art, 14.

The respondent-Corporation increased the licence fee for a trade
B licence for running a lodging house, hotel, restaurant, coffee house, tea
stall, eating house, soft drink stall, tiffin room etc. levied under Section ·~

622 of the Hyderabad Municipal Corporation Act, 1955 by orders dated
6.4.1981and25.7.1992 issued under Sections 521(1)(e) and 622 of the Act.
The petitioners had filec'. the present writ petition before this Court
C challenging the aforesaid increase in the licence fee.

On behalf of the petitioners it was contended that there was no quid
pro quo between the licence fee charged by the respondent and the services
rendered to the traders in question; that the amount collected by way of
licence fee was credited to the common fund of the Municipal Corporation
D under Section 169 of the Act to be utilised for different purposes under
Section 174; and, therefore, without following the procedure laid down in
Sections 197 and 198 the increase in the licence fee was invalid; that even
if the levy was a fee the quantum of ree levied was excessive and that a
licence fee based on the rent payable in respect of the premises concerned
E was unreasonable as the rent had no nexus with the services rendered by
the Corporation.

Dismissing the petition, this Court

HELD : 1.1. The question, which requires consideration, is whether
p 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 relating to the regulation of eating houses
or hotels mentioned in Section 521 of the Hyderabad Municipal Corpora-
G tion Act, 1955. These conditions are reproduced in the licence. These
conditions also require the respondent- Corporation 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
H preparation and sale of such food are complied with. The respondent is
S.H.H.O. ASSOCIATION v. HYDERABAD M.C. HYDERABAD 145

also required to ensure cleanliness, removal of garbage and maintenance A
+-
of hygiene in these premises. In fact, under Section 230 of the 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. [151-E-F; 152-B-C; E]

1.2. It is well settled that a licence fee may be either regulatory or B
~· compensatory. When a fee is charged for rendering specific services a
·'.....--
certain element of quid pro quo must be there between the services
rendered and the fee charged so that 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 C
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 of 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. [152-F-H] D
,_
Commissioner, HRE, Madras v. Sri Laxshmindra Thirtha Swamiar of
Sri Shirpur Mutt, [1954) SCR 1005; Corporation of Calcutta v. Liberty
Cinema, [1965] 2 SCR 477; Indian Mica & Micanite Industries Ltd. v. State
of Bihar, [1971] Supp. SCR 319; Om Prakash Agarwal v. Giri Raj Kishori, E
[1986] 1 SCR 149; Municipal Council Madurai v. R. Narayanan, [1976] 1
SCR 333 and Krishi Upaj Mandi Samiti v. Orient Paper & Industries Ltd.,
[1995] 1 sec 655, relied on.

Matthews v. Chic01y Marketing Board, 60 CLR 263, 276, referred to.
F
2.1. 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 licensee to ensure
that they comply with terms and conditions of the licence. [154-D]

Varn Organic Chemicals Ltd. v. State of U.P., [1997] 2 SCC. 715; P. G
Kannadasan v. State of T.N., [1996] 5 SCC 670 and State of Tripura v. Sudhir
Ranjan Nath, [1997] 3 SCC 665, relied on.

2.2. A separate fund is not essential in the case of regulatory fees.
The fees, though credited in the common fund, are earmarked for the H
146 SUPREME COURT REPORTS [1999] 1 S.C.R.

A 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 is not sustainable. (155-F; 156-C]

Sirsilk Ltd. v. Textiles Committee, [1986) Supp. 880, relied on.
B
..-.
2.3. It is not necessary that a fee should only be in the form of a lump
sum fee. A fee can also be gradrd 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 connec-
c tion, does have a nexus with the area in the occupation of the lodging house
or eating-house. 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 connec-
D
tion with the quantum of fee charged. (156-E-G] .....
.>;

3.1. Looking to the fact that the licence fees collected form only a
very small part of the total expenditure incurred by the Municipal Cor-
poration, it is not possible to hold the level of these fees as excessive. The
E High Court has rightly considered that looking to the increase in the cost
of the various activities carried on by the 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
F excessive. But after representations were made to the respondent-Corpora- ~
tion by the various traders affected by the increase in the licence fees, the
Municipal Corporation reduced the increase and kept it twice the licence
....
fees charged in 1987. Aggrieved by the increase in licence fee, the traders -
\

formed a Twin Cities Traders' Joint Action Committee and made repre-
sentations at various levels. Joint meetings were held on 22.4.1992,
G 4.5.1992, 6.5.1992, 11.5.1992 and 12.5.1992 and after a great deal of ex-
of
change views, it was unanimously resolved to increase the trade licence
fee by 100% over the rates prevailing prior to the increase in October, 1991. 'y ~
Agreement was reached to this effect. These proposals were accepted by
the Standing Committee and the General Body of the Corporation. Accord-
H ingly, the revised rates were implemented. The petitioners contend that
(

S.H.H.0.ASSOCIATION v. HYDERABAD M.C. HYDERABAD [SUJATA V. MANOHAR,J.] 147
~··
their members did not agree to this increase. Nevertheless, the Traders' A
Joint Action Committee, which covered a number of other traders carrying
on the same trdde, 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. [158-A·H]

CIVIL ORIGINAL JURISDICTION: Writ Petition No. 238 of 1992 B
Etc.

Under Article 32 of the Constitution of India.

G.L. Sanghi, S.K. Mehta and Ms. Shobha for the Petitioners.
c
A Subba Rao for the appellant in CA. No. 546/91.

Ms. K. Amareshwari, A.K. Tandale and G. Prabhakar (NP) for the
Respondent No. 2.

P.P. Rao, Nikhil Nayyar for T.V.S.N. Chari for the Respondent D
.... No.1.

K. Ram Kumar, Ms. Asha, G. Nair, Ms. Shanthi Narayanan for the
the Respondent.

The Judgment of the Court was delivered by E

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 F
of the Hyderabad Munidpal Corporations Act, 1955.

Under Section 521(1)(e)(ii) of the Hyderabad Municipal Corpora·
tions 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 G
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 H
148 SUPREME COURT REPORTS (1999] 1 S.C.R.

A trades, operations etc. covered by Section 52l(l)(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.
B 'f
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 permis-
sion 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
c 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
D
· were graded depending upon the rent of the premises. The maximum ,_
licence fee where rent was above Rs. 1,000 was Rs. 1,000. 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.
E
Thereafter the Special Officer, Municipal Corporation of
Hyderabad, by his order dtd. 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
F 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
G above Rs. 4,000 but 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 petition No. 3055 of 1981 in the
H High Court of Andhra Pradesh Challenging the increase in the licence fee
S.H.H.O. ASSOCIATION v. HYDERABAD M.C. HYDERABAD ISUJATA V. MANO HAR, J.) 149

by the said order of 6.4.1981. The Learned Single Judge upheld the levy A
and dismissed the writ petition. An appeal before the Division Bench of
the High Collit filed by the peiitioners 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
B
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 C
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 in-
crease 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. D
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. 238of1992 in this Court
under Article 32 challenging the increased licence fee under the orders of
1992. Since common questio11s of law arises in all these proceedings they E
have been heard together. A chart showing the increase of licence fee
lodgings and eating houses from time to time is set out below :

Description of Annual Annual Annual Annual
the trade & licence fee licence fee licence licence fee
operation to be prevailing increased fee revised in F
licensed. prior to in 1981 increased impugned
1981 in 1987 order

1991 1992
Rs. Rs. Rs. Rs. Rs. G
Lodging/Hotels
Where monthly 50/- 100/- 300/- 1200/- 600/-
rent is upto Rs.
50
H
150 SUPREME COURT REPORTS (1999] 1 S.C.R.

A Rent above 50 125 150 450 1800 900
but not more
than 100
Rent above 100 200 250 750 3000 1500
but not more
B than 200
Rent above 200 300 400 1200 4800 2400
but not more
than 400
Rent above 400 400 600 1800 . 7200 3600
c but not more
than 600
Rent above 600 500 800 2400 9600 4800
but not more
than 800
D Rent· above 800 600 1000 3000 12000 6000
but not more
than 1000
Rent above 1000 1000 1500 4000 16000 8000
but not more
E than 1500
Rent above 1500 1000 2000 6000 2400012000
but not more
than 2000
Rent above 2000 1000 3000 9000 36000 18000
F
but not more
than 3000
Rent above 3000 1000 4000 12000 4800024000
but not more
than 4000
G
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 fee since there is no quid pro
quo between the fees charged by the respondents and the services rendered
H
I'-
!

S.H.H.0.ASSOCIATION v. HYDERABAD M.C. HYDERABAD (SUJATA V. MANOHAR,J.) 151
by them to the traders in question. These are taxes. The petitioners have A
f•
drawn our attention to Chapter VIII of the Hyderabad Municipal Corpora-
:=-
tions 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
B
,....,.. previous sanction of the Government. Under Section 198 before the Cor-
poration 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 c
objections. The Corporation may, after considering 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 procedure has
not been followed while increasing the licence fee which is in the nature
D
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
is
of a tax or a fee. In order to answer this question it necessary to look at
the nature of the licence which is granted. The hotel licence which is issued E
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 F
~ 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, m11tton, G
ghee or oil. There are several other conditions. e.g. the licensee shall make
.:I 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 H
152' SUPREME COURT REPORTS (1999] 1 S.C.R.

A 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, ;md so on. There are
a large number of conditions for the purpose of ensuring that the premises
B 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
C 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
D 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 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
E 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 conser-
vancy tax in respect of a hotel, club or other large premises. This, however,
does not turn a licence fee into a tax.
F
It is, by now, well settled that a licence fee may be either regulatory 6"-
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
G 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
H levy of · such fee is not required although such fees cannot be excessive.
S.H.H.O. ASSOCIATION>. HYDERABAD M.C. HYDERABAD (SUJATA V. MANOHAR, J.] 153

In the case of The Commissioner, Hindu Religious Endowments, A
_,,.... Madras v. Sri La.xshmindra 171irtha 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 distinc-

- 't .
"'
tion 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
B

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 in- c
dividuals 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 as-
sessed. Ordinarily, the fees are uniform and no account is taken of the
varying abilities of different recipients to pay. These are undoubtedly some
D
_,, 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 E
example, in the case of registration fees for documents or marriage licen-
ces, 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 Con-
F
• stitution has, for legislative purposes, made a distinction between a tax and
a fee.
+·

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 constitu-
tional provisions making a distinction between a fee and a tax, also went G
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 expres-
sions are used indicating thereby that they are not the same. In other words, H
154 SUPREME COURT REPORTS [1999) 1 S.C.R.
A distinction was made between fees for services rendered and fees which
are regulatory. In Indian Mica & Micanite lndustlies Ltd. v. State of Bihar
& Ors., [1971) Supp. SCR 319 at page 324; Om Prakash Agarwal Etc. v. Gili
...
Raj Kish01i & Ors. Etc., [1986] 1 SCR 149 and 171e Municipal Council,
Madurai v. R. Narayanan Etc;., [1976) 1 SCR 333 at pages 339 to 400 the
B 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
C summed up in the case of loishi Upaj Mandi Samiti and Ors. v. Olient 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
D 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
E 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
F 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 :
G "169. Constitution of Municipal Fund: (1) Subject to the provisions
of this Act and the rules and the bye-laws -
.)..- J
(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
H force, or under any contract,
:,,H.H.O. ASSOCIATION v. HYDERABAD M.C. HYDERABAD (SUJATA V. MANOHAR,J.J 155

(b) ··················································· A
(c) .................................................. .

(d) all moneys raised by any tax levied for the purposes of this Act,

(e) all fees and fines payable and levied under this Act or under B
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
c
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. D
(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 E
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. p
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 Es-
timate Rules, 1968 under Rule 6 provide as follows :
G
"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 modifica-
tion, as it may deem necessary :

(a) .................................................. . H
156 SUPREME COURT REPORTS (1999] 1 S.C.R.

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
·1
for purposes other than those for which the fees and rents are
collected. Any amount remaining surplus or unexpended shall be
B invested in a reserve fund."
1;
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
c 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 be sustainable.

It is, however, contended by the petitioners that if 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
D 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.
E
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
F ,,.
of the lodging house or eating house. In the case of activities carried on by
any these lodging houses and eating houses, the ·area in their possession -j

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
G 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.

H • Jt is also contended that the fees charged are excessive. The. respon-
S.H.H.0. ASSOCIATION v. HYDERABAD M.C HYDERABAD [SUJATA V. MANOHAR, J.] 157

dents in their counter affidavit filed in the writ petition have given general A
-r. 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 B
...er·· 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
c
is under challenge took place, the income from licences on the basis of the
rates as enhanced in ~981, 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
D
bill in the year 1981 for the staff in various sections of the municipal
>~
corporation dealing with licences was Rs. 40,45,585. The 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 E
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 F
... services, sanitation, licencing section and so on. In the budget estimates for
i- 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 es-
timates under sanitary, conservancy and scavenging section including es-
tablishment expenses, salaries and allowances are to the tune of Rs. G
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, H
158 SUPREME COURT REPORTS [1999] 1 S.C.R.
A to individuals and organisations and all other members of the public who
benefit from such services rendered by the municipal corporation. Never- ·-t-
theless, 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
B 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
c 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
D trade organisations connected with the conducting of eating houses and
~~
lodging houses. The respondents have annexed the minutes of the proceed-
.:>:-
ings 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
E 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 Commit-
tee and made representations at various levels. Joint meetings were held on
F 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. --
-t·

Agreement was reached to this effect. These proposals were accepted by
the Standing Committee and the General Body of the Corporation. Accord-
G ingly, 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 incr¢ase as reasonable. It would not, therefore,
be proper to term this agreed mcrease as excessive or as indicating that it
H was a taxing measure rather than a fee.
S.H.H.O.ASSOCIATION v. HYDERABAD M.C. HYDERABAD (SUJATA V. MANOHAR,J.] 159

The petitioners had also contended that if this increased levy is A
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 to a conclusion that the licence fee which is charged is a
regulatory-cum-compensatory fee, and it is not a tax, we an~ not examining
this question since it is not necessary to view this levy as a tax.
~ . B
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.

v.s.s. Petition and Appeals dismissed.

+