1999 Supreme(SC) 53

1999(1) Supreme 136
Supreme Court of India
(Under Article 32 of Constitution of India)
Mrs. Sujata V. Manohar & A.P. Misra, JJ.
Secunderabad Hyderabad Hotel Owners Association & Ors. etc. -Petition­ers
versus
Hyderabad Municipal Corporation, Hyderabad & Anr. -Respondents
Writ Petition No. 238 of 1992 Etc.
Decided on 20-1-1999
Counsel for the Parties :
For the Petitioners : G.L. Sanghi, Sr. Advocate, S.K. Mehta, Ms. Shobha, Advocates.
For the Appellant in C.A. No. 546/91 : A. Subba Rao, Advocate.
For the Respondent No. 2 : Ms. K. Amareshwari, Sr. Advocate, A.K. Tandale, Advocate (G. Prabhakar), Advocate (NP).
For the Respondent No. 1 : P.P. Rao, Sr. Advocate, (Nikhil Nayyar), Advocate for T.V.S.N. Chari, Advocate.
For the Respondent : K. Ram Kumar, Ms. Asha G. Nair, Ms. Shanthi Narayanan, Advocates.

Important Points
1. Licence fee charged/collected under Hyderabad Municipal Corpora­tions Act, for running lodging houses and eating houses cannot be termed as tax.
2. Considering increase in cost of providing service whether regulato­ry or otherwise, increasing licence fee by Hyderabad Municipalities for running could not be said to be excessive.

Headnote:(i) Hyderabad Municipal Corpo­ration Act, 1955-Sections 521(1) (e)(ii) and 622-Licence fee for run­ning lodging houses and eating houses - Nature of charge -Whether tax-No-It is only a fee-Licence fee may be either regulatory or compensatory-Fee collec­ted to give various service like scauging etc.-Eliment of quid proquo present-Fee charged of regulating activity could validly be classi­fied as fee and not tax although no service is rendered.

       Held : The first question, therefore, which requires consideration is whether the increased licence fee under the orders of 1981 and 1992 is in the nature of a tax or a fee. In order to answer this question it is necessary to look at the nature of the licence which is granted. The hotel licence which is issued to each of the traders is subject to the conditions set forth in the bye-laws of the Municipal Corporation of Hyderabad relating to the regulation of eating houses or hotels mentioned in Section 521. These conditions are reproduced in the licence. These prescribe, inter alia, that (1) the building shall be situated at a suitable place and shall be spacious and have enough accommodation according to the requirements of business; (2) it shall be constructed of masonry and such other non-inflammable material as may be approved by the Commissioner; (3) a sign board of the hotel in English and at least one regional language shall be hung in front of the building; (4) the licensee shall put up a notice-board in a conspicuous part of the dinning hall stating whether the articles of food are made of beef, mutton, ghee or oil. There are several other conditions, e.g. the licensee shall make adequate provision for parking of cycles, motor cars or other vehicles of the persons visit­ing the hotel. The licensee shall provide suitable means of drainage, ventilation and lighting of such premises. The licensee shall provide in the kitchen suitable outlets for smoke. The licensee shall provide doors and windows with shutters fitted with wire gauge so as to make them proof against dust and flies. The licensee shall provide good supply of wholesome water. All cups, saucers etc. shall be rinsed in clear water. No vessels or utensils shall be used which are likely to get corroded or which would otherwise render obnoxious the article of food, and so on. There are a large number of conditions for the pur­pose of ensuring that the premises are safe and suitable, the food is wholesome and hygienic and there is adequate ventilation, drainage and so on. The respondent-Corporation is required to inspect the premises in question in order to ensure that the conditions are complied with. It also has the responsibility for inspecting and supervising the sale of foodstuff to ensure that all the conditions of licence pertaining to the preparation and sale of such food are complied with. The re­spondent is also required to ensure cleanliness, removal of garbage and maintenance of hygiene in these premises. Undoubtedly, the Corpo­ration has the general duty to provide scavenging and sanitation services including removal of garbage and maintaining hygienic condi­tions in the city for the benefit of all persons living in the city. Nevertheless, hotels and eating houses by reason of the nature of their occupation, do impose an additional burden on the municipal corporation in discharging its duties of lifting or garbage, maintenance of hygiene and sanitation since a large number of persons use the premises either for lodging or for eating; the food is pre­pared in large quantity unlike individual households and the resulting garbage is also much more than what would otherwise be in the case of individual households. In fact, under Section 230 of the said Act the respondent-Corporation has the power to fix special rates of conserv­ancy tax in respect of a hotel, club or other large premises. This, however, does not turn a licence fee into a tax. (Para 8)

       It is, by now, well settled that a licence fee may be either regu­larly or compensatory. When a fee is charged for rendering specific services a certain element of quid pro quo must be there between the service rendered and the fee charged so that the licence fee is commensurate with the cost of rendering the service although exact arithmetical equivalence is not expected. However, this is not the only kind of fee which can be charged. Licence fee can also be regula­tory when the activities for which a licence is given require to be regulated or controlled. The fee which is charged for regulation for such activity would be validly classifiable as a fee and not a tax although no service is rendered. An element of quid pro quo for the levy of such fees is not required although such fees cannot be exces­sive. (Para 9)

       In the present case, however, the fees charged are not just for services rendered but they also have a large element of a regulatory fee levied for the purpose of monitoring the activity of the licensees to ensure that they comply with the terms and conditions of the li­cence. (Para 12)

       The fees, though credited in the common fund, are earmarked for the purposes for which they are collected. Clearly, therefore, the inten­tion is to levy a fee which would be utilised for regulatory and compensatory purposes in the present case. The contention of the petitioners that this is a tax of the guise of a fee does not appears to be sustainable. (Para 14)

       (ii) Hyderabad Municipal Corpo­rations Act, 1955-Section 622-Licence fee for lodging and eating houses - Licence fee based on quantum of “rent payable in” respect of premise-Whether proper -Held, yes-Area in possession of lodging and eating houses has direct nexus with extent of business activities-Need for clearliners and hygiene, generation of garbage and extent of regulation that may be required depend upon size of premises-Licence fee increased at doubled rate after nine years-Cannot be said to be excessive considering increase in cost of providing services, whether regulatory or otherwise.

       Held : The petitioners contend that a licence fee based on the rent payable in respect of the premises in which the activities of an eating house or a lodging house are carried on is not a proper basis for charging a fee because the rent charged for the premises has no nexus with the services rendered by the Corpo­ration. In the first place it is not necessary that a fee should only be in the form of a lump sum fee. A fee can also be graded as in the present case. The Corporation has chosen the quantum of rent paid as the criterion for the quantum of fee to be charged. The rent under the relevant provisions of law in that connection, does have a nexus with the area in the occupation of the lodging house or eating house. In the case of activities carried on by these lodging houses and eating houses, the area in their possession has a direct nexus with the extent of business activities. The need for cleanliness and hygiene, the generation of garbage and the extent of regulation that may be required depend upon the size of the premises which in turn control the extent of activity. Undoubtedly in a given case if the premises are old, the rent may be less but that does not mean that classifying premises on the basis of the rent paid has no connection with the quantum of fee charged. (Paras 15 & 16)

       The expenditure under various heads be­tween 1981 and 1992 had more than doubled. Therefore, the increase in the licence fee which was made in 1981 for the first time after 1972, as also the increase made in the licence fee in 1992 were co-related with the increase in the cost of providing services-whether regulato­ry or otherwise, to the trades in question. The respondents in their affidavit have also annexed budget estimates for the year 1989-90 in order to show that the licence fees collected are far less than the requirements of the municipal corporation for dealing with health services, sanitation, licencing section and so on. In the budget estimates for 1988-89 the licence fees from hotels, for example, are estimated at Rs. 25,00,000/-. Revenue expenditure for the year 1988-89 as per budget estimates under sanitary, conservancy and scavenging section including establishment expenses, salaries and allowances are to be tune of Rs. 10,14,61,100/-; while under the health office sec­tion, these are to the tune of Rs. 31,30,400/-. Under prevention of food adulteration and municipal laboratory section, the estimated expenditure is to the tune of Rs. 7,66,200/-. Undoubtedly, this ex­penditure covers not just the services rendered to the trades in question. It also covers services rendered to various other trades, to individuals and organisations and all other members of the public who benefit from such services rendered by the municipal corporation. Nevertheless, looking to the fact that the licence fees collected form only a very small part of the total expenditure incurred by the municipal corporation, we are not inclined to hold the levy of these fees as excessive. It is also necessary to note that the impugned increase in 1981 was the first increase after 1972. The High Court has rightly considering that looking to the increase in the cost of the various activities carried on by the Hyderabad Municipal Corporation, doubling of licence fees after nine years can not be considered as an excessive increase. In respect of the increase from the 1987 level of licence fees to the 1992 level of licence fees, the initial increase could have been viewed as excessive. But after the representations were made to the respondent-Corporation by the various traders affect­ed by the increase in the licence fees, the municipal corporation reduced the increase and kept it at twice the licence fees charged in 1987. The respondents in this connection had meetings and detailed negotiations with the various trade organisations connected with the conducting of eating houses and lodging houses. The respondents have annexed the minutes of the proceedings before the Commissioner, Munic­ipal Corporation of Hyderabad, dated 25.7.1992. The meeting of 25.7.1992 dealt with enhancement of licence fee of certain trades and operations. These cover the present trades and occupations. The proceedings record that the traders viewed the increase from the existing rates as on the high side and the increase in many cases was four to five times the existing rates. Aggrieved by the increase in the licence fee, the traders formed a Twin Cities Traders Joint Action Committee and made representations at various levels, Joint meetings were held on 22nd April, 4th, 6th, 11th and 12th of May, 1992 and after a great deal of exchange of views, it was unanimously resolved to increase the trade licence fee by 100 over the rates prevailing prior to the increase in October, 1991. Agreement was reached to this effect. These proposals were accepted by the Standing Committee and the General Body of the Corporation. Accordingly, the revised rates were implemented. The petitioners contend that their members did not agree to this increase. Nevertheless, the Traders Joint Action Commit­tee which covered a number of other traders carrying on the same trade did agree to this increase as reasonable. It would not, therefore, be proper to term this agreed increase as excessive or as indicating that it was a taxing measure rather than a fee. (Para 17)