Holding

Section 4 of the West Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act, 1972, imposing a uniform tax on air‑conditioned floor space, does not violate Article 14 and is a valid tax on the provision of luxury.

Summary

Spences Hotel Pvt. Ltd. and others, owners of an air‑conditioned hotel and restaurant, challenged the West Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act, 1972 which levied a flat luxury tax of Rs 100 per 10 sq m of air‑conditioned floor space. They argued that the tax violated Article 14 of the Constitution because it imposed a uniform rate without reasonable classification of hotels of differing size, locality, and amenities. The State contended that the legislature was entitled to select air‑conditioned establishments as a class and that the tax was a levy on the provision of luxury, not on property or income. The Supreme Court held that the tax was a valid tax on the mere provision of air‑conditioning, that the classification was reasonable, and that the uniform rate did not constitute discrimination under Article 14. Consequently, the appeal was dismissed with costs.

Issues considered

The validity of Section 4 of the West Bengal Luxury Tax Act, 1972, which imposes a flat tax per unit of air‑conditioned floor space, under Article 14 of the Constitution.
Whether the tax is a levy on the provision of luxury rather than on property or income, and the relevance of this characterization to the Article 14 analysis.
Whether the legislature has sufficient discretion to classify air‑conditioned hotels and restaurants without further differentiation.

Legislation cited

West Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act, 1972s. 4

Subjects

Article 14luxury taxtax classificationequality before lawair‑conditioninghotel taxationuniform tax ratediscrimination

Judgment

SPENCES HOTEL PVT. LTD. AND ANR.
v. A
STATE OF WEST BENGAL AND ORS.

FEBRUARY 15, 1991

[K.N. SAIKIA AND MADAN MOHAN PUNCHHI, JJ.J B

West Bengal Entertainments and Luxuries (Hotels and Restau-
-(. rants) Tax Act, 1972-Section 4-Luxury Tax-Imposition of fiat or
fixed rate on basis of air-conditioned floor space-Whether permissible,
valid and legal.

- 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 represen-
tation showing that the tax was discriminatory was rejected by the
D

Collector. There-upon, the appellants filed a petition in the High Com1.

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 E
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 discrimina-
tion under Art. 14 of the Constitution. F

-~ 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 classifica-
tion and failure to do so resulting in clubbing dissimilar hotels and
restaurants for the purpose of luxury tax amounted to an error by G
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 of Article 14 of the H
Constitution.
429
430 SUPREME COURT REPORTS [1991] 1 S.C.R.

On behalf of the respondents it was contended that the legislature
A 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
B 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 same class of property, similarly situated, is subjected to -
c unequaltaxation. [442G]

Kunnathat Thathunni Moopil Nair v. The State of Kerala, [1961]
3 SCR 77; /. T. 0. v. Lawrence Singh, AIR (1968) SC 658=(1968) 2 SCR
165; State of Andhra Pradesh v. Nalla Raja, AIR (1967) SC
D 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 discri-
minatory. [4470-F]

(3) Whether a particular tax is discriminatory or not must neces-
F sarily be considered in light of the nature and incidence of that particu- . ,...
Jar tax and cannot be judged by what has been held in the context of ._.,,r
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, a~ it is neither a property tax, nor an income tax but a tax on
G 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]

H (5) The ability or capacity to pay has no doubt been regarded as
I il,,

.J.

SPENCES HOTEL v, STATE OF WEST BENGAL 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, ~.cadily working. [444C]
A

(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 B
is to operate. [445F]
---.(_
(7) The equal protection of the law's provision in our Constitu-
tion 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
reqiring 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,
c
·--y namely, the owners of air-conditioned hotels and restaurants. [446G-H]

(8) Equality and uniform policy means uniform and. equal rates
of assessment and taxation which has been followed in this tax. The D
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. [4478]

·~ Express Hotels Private Ltd. v. State of Gujarat, [1989] 3 SCC 677;
New Manek Chowk Spinning and Weaving Mills Co Ltd v. Municipal E
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
Corpn. 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 F
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., [1964J 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 Kera/a, [1970] 3
SCR 383; Elel Hotels and Investments Ltd. & Ors v. Union of India, G
[1989] 3 SCC 698; Gopal v. State of U.P., [1964] 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.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 406 H
of 1976.
---4
432 SUPREME COURT REPORTS [1991] 1 S.C.R.

Appeal by Certificate from the Judgment and Order dated
.A 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
Appe1lant.

B 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 -!
c K.N. SAIKIA, J. This appeal by certificate is from the Judg-
ment of the Calcutta High Court dated 2.1.1975 dismising the appeal
· No. 137 of 1974.

The second appellant is a share-holder and Director of the first
D 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-condi-
tioning plant which, acdording to appellants, would normally run bet-
E ween 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
F 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-conditioning. Again by
Memo No. 1161/A.T. dated 13.3.1973 the second respondent called
tl G upon the Company to expedite the submission of the blue print of the
space provided with means for air-conditioning, failing which appro-
priate legal action would be taken. The ~econd 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
H it.
J

·•

SPENCES HOTEL v. STATE OF WEST BENGAL [SAIKIA, J.] 433

The appellants in their writ petition under Article 226 of the
>-- Constitution of India in the High Court of Calcutta contended that the
A
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 8
the Act and the Rules framed thereunder be d,eclared 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 dismisssed the writ application by order c
dated March 6, 1974 but granted stay of operation of his order till
·--y 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, D
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 II of the Seventh schedule taxes could be. E
imposed only on luxuries i.e. objects 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 vfres the
-
-~
powers of the state legislature. The second contention was that Section F
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 classifica-·
tion of these different types or categories of hotels and restaurants, G
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 Ben_ch decision in Express
Hotels Private Ltd. v. State of Gujarat and Anr, [1989] 3 SCC 677, H
434 SUPREME COURT REPORTS [ 1991] 1 S.C.R. ...
'
before which Bench the West Bengal petition was also there, the
A 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 appel-
lants. Reiterating that contention counsel submits that the State has
levied luxury tax at a flat rate of an annual sum of Rs.100 for every 10
B 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, qua-
lity, 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 fai-
lure on the part of the state in not recognizing the inherent differences
in hotels and restaurants. Counsel produces a list of classified hotels
C which according to him, clearly shows vast differences between diffe-
rent 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 submit-
ted, show that the levy of tax on floor area has no nexus with the
D 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 Kun-
nathat 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 &
E 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
F 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 ceratin rate or rent or price than other hotels and restaurants of
different standards, although both are air-conditioned or air-cooled. It
G 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.
H "Because my hotel is situated outside the congested area and my space
SPENCES HOTEL v. STATE OF WEST BENGAL [SAIKIA, J.] 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
A

legislature while imposing a tax is bound under the Constitution to
make appropriate classification and failure to do so resulting in club-
bing dissimilar hotels and restaurants for the purpose of luxury tax
amounts to an error by inaction. · 8

-( 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 dis-
tributed 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 c
air-conditioned floor space of assumed homogeneity or uniformity that
suffers from the vice of non-classification causing inequality in inci-
',..,/ dence of the tax.

Mr. Tapas Ray, the learned counsel for the respondents, sub- D
mits, 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 ~nd
so long as luxury has been defined with reference to a named space, E
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.
F

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. G

The Act is one "to provide for the imposition of taxes on enter-
~ tainments 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 H
436 SUPREME COURT REPORTS [1991] 1 S.C.R.

hotel or restaurant. As defined in 2(ca) "hotel" means a building or
A
part of a building or any place where any activity or business is carried
on in providing lodging or boarding or any kind of accomodation, 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
B 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.
·f
c 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
D 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."

E 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-condi-
tioning 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:
-
F
"In view of the social and economic structure of our
country. there can be no do~bt that an air-conditioned
space whether in hotel or in a restaurant is a luxury by
itself. People enter into these spaces for enjoyment of a
luxury. . . . . . . . . . . . . . . . The comfort that a person
G derives in a hot summer day in an air-conditioned space is a
luxury particularly in the context of the con_g~tions 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.
·H case (supra). The submission that as Section 4 of the West Bengal Act
SPENCES HOTEL v. STATE OF WEST BENGAL [SAIKIA, J.] 437

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
A
the scope of the legislative entry was rejected observing that the con-
cept 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 B
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 c
actual utilisation or the actual consumption of the luxury and that a
luxury which can reasonably be said to be amenable to a potential
y consumer does provide the nexus for valid enactment. Mr. Salve cor-
rectly submitted that the charging event is· the provision for air-
conditioning in a hotel or restaurant as a luxury. Thus the taxing event D
is the provision for air-cohditioning 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. E
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 F
'_.,.,
:...r- 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 G
acre imposed very unreasonable restrictions on the right to hold pro-
perty. 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 H
438 SUPREME COURT REPORTS (1991] l S.C.R.

court might think more just and equitable. Examining the provisions
A
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
B 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 re-
gard to the incidenc:e of the taxation. Under the provisions of the Act
as some persons owning and _possessing the same area of land, but
c 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
D 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 oil the same ground Section 4 of
E 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 considera-
tion the class to which a building belonged, the nature of construction,
the purpose for which it was used, its situation, its.capacity for profit-
G able 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 inconsis-
tent 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
H fundamental rights. When objects persons and transactions essentially
SPENCES HOTEL v. STATE OF WEST BENGAL [SAIKIA, J.) . 439

dissimilar were treated by the imposition of a uniform tax, discrimina-
>- tion might itself in some cases result in denial of equality. This Court
further observed that in view of the inherent complexity of fiscal legis-
A

lation a larger discretion was available to the Legislation in the matter
of classification, so long as it adhered to the fundamental priciples
underlying the doctrine of equality. Though the Legislature had wide
range of flexibility in the matter of classification there must not be B
denial of equality in the matter of taxation, and the High Court was
..( accordingly held to have been justified in holding that the charging
section of the Act was viblative 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 c
(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 the first day of January, 1947 or a debt due to the Central
Government or Government of any State; a local authority; a D
scheduled bank; a cooperative society; and a waqf; trust or endow-
ment for a charitable or religious purpose only or a person, where the
debt was advanced on his behalf by the Court of Wards. This provison
was held to have infringed Article 14 on the ground that no reason-
~ able classification was disclosed for the purpose of sustaining the
impugned part of Section 2( e). 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 Muni-
cipal 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 Artide F
-~ 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 G
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 H
440 SUPREME COURT REPORTS [1991] 1 S.C.R.

& Ors., [1988] 4 SCC 290, the validity of the Bombay Motor Vehicles
A 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 challeng.ed. It was held by this Court that the Act did not suffer
from any vice of discrimination on the ground that the company-
B owned vehicles were taxed at three times the rate payable by indivi-
duals as the system was prevailing historically. It was also held that in
cases of fiscal legislation wide discretion was conferred on the legisla-
ture 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.
~
c In Twyford Tea Co. Ltd. & Anr. v. The State of Kera/a & Anr.,
[ 1970] 3 SCR 383 the Kerala Plantation (Additional Tax) Act, 1960
(Act 17 of 1960) and the Kerala Plantation (Additional Tax) Amend-
ment Act, 1967 (Act 19 of 1967) were challenged. The Act of 1960 y
levied an additional tax on plantations. Plantations meant land used
D 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

E
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 Schedule II. The 1960 Act was amended
by the 1967 Amendment Act. By the Amending Act the .word 'addi-
tional' 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, pay-
able in respect of such land. The unit of assessment was changed from
F acre to hectare and the rate of tax in Schedule I was raised to Rs.SO per
hectare. The tax was payable in respect of 2 hectares of plantations or i---
-~

more with an exemption for the first hectare. According to the new
Schedule II 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 stand-
G ing 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
H relied on to argue that the uniform tax on unequals resulted in dis-
SPENCES HOTEL v. STATE OF WEST BENGAL [SAIKIA, J.] 441

crimination (a) as between the tea plantations themselves and (b) as
A
between different kinds of plantations. The legislative competency was
also challenged. Hidayatullah, C.J. speaking for the Constitution
!3ench while dismissing the petitions held that the legisiature had a
wide range of selection and freedom in appraisal not only in the
objects of taxation and the manner of taxation but also in the determi-
nation of the rate or rates applicable. If production were always to be B
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 prov-
.. ing discrimination was always heavy and heavier still was the proving
in taxing statute. The burden was ori the person complaining of dis-
crimination to prove not possible inequality but hostile unequal treat-
ment, more so when uniform taxes were levied. The State could not be
asked to demonstrate equality. The petitioners in that case could not c
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 capac-
ity 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 D
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. E

- In Elel Hotels and Investments Ltd & Ors. v. Union of India,
[1989] 3 SCC 698, Venkatachaliah, J. speaking for the Constitution
Bench he!d 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 F
was said at paragr.aph 20:

"It is now well settled that a very wide latitude is available
to the legislature in the matter of classification of objects,
persons and things for purposes of taxation. It must need to
be so, having regard to the complexities involved in the G
formulation of a taxation policy. Taxation is not now a
mere source of raising money to defray expenses of govern-
ment. 'It is a recognised fiscal tool to achieve fiscal and
social objectives. ,The differentia of classification presup-
poses and proceeds on the premise that it distinguishes and
keeps apart as a distinct class hotels with higher economic H
442 SUPREME COURT REPORTS [1991] 1 S.C.R.

status reflected in one of the indicia of such economic
A 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 theAct is applied is
B 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 chal-
lenged on the ground of discrimination. Mukherjee, J. speaking for ..._
the Court observed that the equal protection clause in Article 14 of the
c Constitution aimed at striking down hostile discrimination and applied
to all persons similarly situated, but it was certainly open to the legisla-
ture to classify particular legislative objects; however, such selection 'y
or differentiation must not be arbitrary and should rest upon rational
basis having regard to the object which the legislature had~ view.
D
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 Maharash-
>-
E
tra Act 14 of 1987). In para 14 of the report it was said:

"About discrimination it is well to remember that a taxa-
tion law cannot claim immunity from the equality clause in
Art. 14 of the Constitution but in view of the intrinsic
-
F complexity of fiscal adjustments of diverse elements, a con- t--
siderably wide discretion and latitude in Jhe matter of clas- --,,,,i
sification 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 ,,
G 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 I. T. 0. v. Lawrence Singh, AIR 1968 ~-
SC 658 (661): 1968 2 SCR 165. If there is no reason for the classifica-
tion then also the law will be struck down. However, as was held in
Kunnathat v. State of Kera/a, (supra) and State of Andhra Pradesh v.
H Na/la Raja, AIR 1967 SC 1458: [1967] 3 SCR 2a, if the taxation imposes
.,. SPENCES HOTEL v. STATE OF WEST BENGAL [SAIKIA, J.] 443

a similar burden on every one with reference to that particular kind
A
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
v. State of Assam, [1962] Supp. 2 SCR 589, that in law of taxation
I
of
income it is competent for the legislature to graduate the raite of tax
according to the ability to pay, In Ganga Sagar Corpn. v. State of U. P., B
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 (941) 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 Kera/a, (supra) it has been observed that when a statute C
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 D
special treatment. It has repeatedly been held, for example, in
Khyerbari Tea Co. (supra), Gopal v. State of U.P., 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 · E
tax certain articles and not others. In D.S. Nakara & Ors. v. Union of
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 F
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 prop- G
erty 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 H
444 SUPREME COURT REPORTS (1991) 1 S.C.R.

thereafter. The history of taxation is one of evolution as is the case in
A all human affairs. Its progress is one of constant growth and develop-
ment in keeping with the advancing economic and social conditions;
and the fiscal intelligence of the State has been advancing concomi-
tantly, subjecting by new means and methods hitherto un-taxed pro-
perty, income-, service and provisions to taxation. With the change of
B scientific, commercial and economic conditions and ways of life new
species of property, both tangible and intangible gaining enormous
values have come into existence and new means of reachin_g 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 limita-
tions. The ability or capacity to pay has no doubt been regarded as the
c test in determining the justness or equality of taxation. It is the goal
to\\lards 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
D 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
unifrom rate in proporion 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
E 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,
F others that they have such insight into truth of the proposi-
"
'- tion 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
G 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
H observe that along with the insight into a particular truth or an
SPENCES HOTEL v. STATE OF WEST BENGAL [SAIKIA. J.] 445

aesthetic value, the expediency and practicability of a particular taxa-
tion has also to be borne in mind. As was pointed out by Gustav A
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 diffe- B
rent, 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 c
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 of law and the purpose of the state
are inseparable." D

What then 'equal protection of laws' means as applied to taxa-
tion? 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 E
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 opera-
tion, it affects alike all persons similarly situated. It, however, does F
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 circumst-
ances and conditions, both in the privileges conferred and in the
liabilities imposed. The rule of equality required no more than that the G
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 pre-
clude 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 H
446 SUPREME COURT REPORTS [1991) 1 S.C.R.

prevent a State from adjusting its system of taxation in all proper and ......ii.
A reasonable ways. It may, if it choses, exempt certain classes of pro- · '--
perty 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:
B
"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 impos-
sibility of fulfilling it. The most casual attention to the
c 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."

D (Cooley on Taxation, 4th Edn. Vol.I.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 )t-- '
E 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 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
F 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 uni-
formity and perfect equality of taxation', in all the aspects in which the .
human mind can view it, is a baseless dream.

G The equal protection of the law's provision in our Constitution
prohibits a discnmination 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
H imposed, namely, the owners of air-conditioned hotels and restau-
SPENCES HOTEL v. STATE OF WEST BENGAL [SAIKIA, J.l 447

rants. The Act requires the luxury tax to be in proportion of or propor- A
tional the air-conditioned space and it requires the tax to be uniform
upon the same class of owners of air-conditioned hotels and restau-
rants which means that all similarly situated owners shall be treated
alike. It does not suffer from lack of classification but instead impliedly
authorises it by leaving out non-air-conditioned hotels and restaurants.
B
Equality and uniform policy means uniform and equal rates of assess-
ment 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 c
classes of hotel owner is not tenable inasmuch as the impact is the
result of having different measures of air-conditioned space by deffe-
rent owner<;. 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 D
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 E
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 ch~rged 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.
F
.~ · 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.