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PETITIONER: FEDERATION OF HOTEL & RESTAURANT ASSOCIATIONOF INDIA, ETC.

       Vs.

RESPONDENT: UNION OF INDIA & ORS.

DATE OF JUDGMENT02/05/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) PATHAK, R.S. (CJ)

CITATION:  1988 AIR 1291            1988 SCR  (3) 998  1988 SCC  (3)  91        JT 1988 (2)   519  1988 SCALE  (1)1088  CITATOR INFO :  R          1989 SC  19  (29)  F          1989 SC  30  (3)  F          1989 SC1256  (8)  F          1989 SC1308  (11)  R          1990 SC1106  (43)  RF         1991 SC1173  (6)

ACT:     Hotel Expenditure Act, 1987: Sections 2-5, 6 and 24--Tax at  10%  ad  valorem on chargeable  expenditure  where  room charges in hotels were Rs.400 per day per individual--Valid- ity  of--Competence of Parliament to  impose--Classification of  hotel for tax purposes-Whether arbitrary,  violative  of Article 14--Whether violative of Article 19(1)(g).     Constitution of India, 1950: Articles 14 and 19(1)  (g), Articles 246 and 248, Entry 97 List I and Entries 54 and 62, List   11,   Seventh   Schedule--Hotel   Expenditure    Act, 1987---Legislative   competence  of  Parliament  to   impose tax--Classification of hotels based on room charges--Whether arbitrary--Whether  permissible--Whether  Act imposed unrea- sonable restriction on freedom of trade.     Uttar Pradesh Taxation And Land Revenue Laws Act,  1975/ Maharashtra Tax On Luxuries (Hotels And Lodging Houses)  Act 1987/  Kerala Tax On Luxuries In Hotels And  Lodging  Houses Act, 1976--Validity of.

HEADNOTE:     The Expenditure Tax Act, 1987, envisaged a tax at 10% ad valorem  on chargeable expenditure incurred in the class  of hotels  wherein  room charges for any  unit  of  residential accommodation were Rs.400 per day per individual. Section  5 of the Act defined chargeable expenditure to include expend- iture  incurred in or payments made in such class of  hotels in  connection  with  the provision  of  any  accommodation, residential,  or  otherwise,  food or drink  whether  at  or outside the hotel, or for any accommodation in such hotel on hire  or lease or any other services envisaged in that  Sec- tion.     The petitioners, who were engaged in, or associated with the hotel industry challenged the constitutional validity of the Act on grounds of

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919 lack of legislative competence and violation of Articles  14 and 19(1)(g) of the Constitution. It was contended that  the Act, in its true nature and character, was not one  imposing an  expenditure-tax,  as known to law, accepted  notions  of Public Finance, and to legislative practice but was, in pith and substance, either a tax on luxuries falling within Entry 62  of  List  II of the Seventh Schedule, or a  tax  on  the consideration paid for the purchase of goods constituting an impost  of the nature envisaged in entry 54 of List II,  and was clearly outside the legislative competence of the  Union Parliament; that the Act was violative of Article 14 as  the basis  on which the hotels were classified was arbitrary  an unintelligible,  having no rational-nexus with  the  taxing- policy under the Act, inasmuch as persons similarly  situat- ed, and who incurred the same extent and degree of  expendi- ture  on the same luxuries, were differentiated on the  sole basis  that  in one case the expenditure was incurred  in  a hotel where one of the rooms had a charge of Rs.400 per  day per  individual  marked for it, while in  the  other  though equally wasteful expenditure was incurred in a more  luxuri- ous restaurant, the latter expenditure was exempt, that even if  more  sophisticated and expensive food  and  drinks  and other services, envisaged in clauses (a) to (d) of Section 5 were  provided  in a hotel or catering  establishment  which fell outside the class, the expenditure incurred thereon  is unaffected  by the law, that the standards and measures  for the  computation of the chargeableexpenditure under the  Act was vague and arbitrary, that the expression ’other  similar services’  in clauses (d) of Section 5 was non-specific  and vague; and that the Act was violative of petitioners’ funda- mental right under Article 19(1)(g) as it imposed unreasona- ble onerous restrictions on their freedom of business.     The  respondent-Union  of India sought  to  sustain  the legislative competence of Parliament to enact the law  under Article  248  read with Entry 97 of List I  of  the  Seventh Schedule,  contending that the law, in pith  and  substance, was  not one ’with respect to luxuries under Entry 62,  List 1, and the tax on expenditure, as the legislative had chosen to conceive it, was referrable to residuary power, that  the economists’  concept of such an expenditure tax was at  best an  idea of the manner of effectuation of  fiscal  programme and  was  no limitation on the legislative power,  that  the legislative-power  recognised  the demarcation  of  distinct aspects of the same matter as distinct topics of legislation and that the challenge to legislative competence  overlooked the dichotomy of these distinct aspects, the line of  demar- cation,  though sometimes thin and subtle, being real,  that the  measure adopted for the levy of the tax did not  neces- sarily determine its essential character and that the object on which the expenditure was laid-out might or might not  be an item of 920 luxury, or the expenditure might constitute the price of the goods but, what was taxed was the expenditure aspect  which, in  itself,  was susceptible of recognition, as  a  distinct topic of legislation. Dismissing the Writ Petitions, this Court     HELD: (R.S. Pathak, CJ., Sabyasachi Mukharji, S. Natara- jan and M.N. Venkatachaliah--Per: Venkatachaliah, J.)     1.1  A law imposing the expenditure tax is  well  within the legislative competence of Union Parliament under Article 248 read with Entry 97 of List I. [940E-F]     1.2 The tax envisaged by the Expenditure Tax Act,  1987, is  essentially a tax on expenditure and not on luxuries  or

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sale  of goods falling within the State power. The  distinct aspect,  namely, the expenditure aspect of  the  transaction failing  with the Union power must be distinguished and  the legislative  competence to impose a tax  thereon  sustained. [947D-E]     2.1 If a legislature with limited or qualified jurisdic- tion  transgresses  its powers, such  transgression  may  be open,  direct and overt, or disguised, indirect and  covert. The  latter kind of trespass is figuratively referred to  as "colourable legislation", connoting that although apparently the legislature purports to act within the limits of its own powers yet, in substance and in reality, it encroaches  upon a  field  prohibited to it, requiring an  examination,  with some strictness, the substance of the legislation for deter- mining as to what the legislature was really doing. [939E-F]     Prafulla  Kumar Mukherjee and Ors. v. Bank of  Commerce, [1945] FCR 179, referred to.     2.2 Wherever legislative powers are distributed  between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the  duty of the Courts, however difficult it may be, to ascertain  to what  degree and to what extent, the authority to deal  with matters  failing within these classes of subjects exists  in each  legislature  and  to define, in  the  particular  case before  them, the limits of the respective powers. It  could not  have been the intention that a conflict  should  exist; and,  in order to prevent such a result the  two  provisions must  be read together and the language of one  interpreted, and, where necessary modified by that of the other. [939F-G] 921     Union Colliery Co. of British Columbia v. Bryden, [1899] AC 580 at 587; Lefroy Canada’s Federal System., referred to.     2.3  The law ’with respect to’ a subject might  inciden- tally ’affect’ another subject in some way; but that is  not the same thing as the law being on the latter subject. There might  be overlapping; but the overlapping must be  in  law. The same transaction may involve two or more taxable  events in  its  different aspects. But the fact that  there  is  an overlapping does not detract from the distinctiveness of the aspects. [941E]     Governor  General  in  Council v.  Province  of  Madras, [1945]  FCR 179 (P.C.) at 193 and Laskin Canadian  Constitu- tional Law, referred to.     2.4 The consequences and effects of the legislation  are not the same thing as the legislative subject matter. It is the true nature and character of the legislation and not its ultimate economic results that matters. [944C]     2.5  The  scope  of the present  legislation  cannot  be considered  by  reference to  legislative  practice  because firstly,  the question of legislative-practice as to what  a particular  legislative-entry  could be held to  embrace  is inapposite  while dealing with a tax which is suigeneris  or non-descript imposed in exercise of the residuary powers  so long as such tax is not specifically enumerated in Lists  II JUDGMENT: ing that the appropriate legislature had limited the  notion of a tax of this kind within any confines. [944E-G]     Walace  Brothers  and Company Ltd.  v.  Commissioner  of Income Tax, Bombay City and Bombay Suburban District, [1948] LR  75,  IA 86; Navinchandra Mafatlal v. CIT,  Bombay  City, [1955]  1 SCR 829; Union of India v. H.S. Dhillon, [1972]  2 SCR  33  at 61; Attorney General for  Ontario  v.  Attorney- General  for Canada, [1912] AC 571 at 581; Croft v.  Dunphy, [1933] AC 156 and Azam Jha Bahadur v. Expenditure Tax  Offi- cer, [1972] 1 SCR 470 referred to.

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   2.6  The subject of a tax is different from the  measure of the levy. The measure of the tax is not determinative  of its essential character or of the competence of the legisla- ture. [946F-G]     M/s.  Sainik Motors v. State of Rajasthan, [1962] 1  SCR 517  and Encyclopaedia Britannica on Luxury Tax, Vol. 14  p. 459, referred to. 922     3.1  Though  taxing  laws are not  outside  Article  14, however,  having regard to the wide variety of diverse  eco- nomic  criteria  that go into the formulation of  a  fiscal- policy, legislature enjoys a wide latitude in the matter  of selection  of  persons, subject-matter,  events,  etc.,  for taxation. A legislature does not, have to tax everything  in order to be able to tax something. if there is equality  and uniformity within each group, the law would not be discrimi- natory. The tests of the vice of discrimination in a  taxing law are, accordingly, less rigorous. [948G-H]     3.2 In examining the allegations of a hostile, discrimi- natory treatment what is looked into is not its phraseology, but  the real effect of its provisions.  The  classification must be rational and based on some qualities and  character- istics  which  are to be found in all  the  persons  grouped together  and  absent in the others left out of  the  class. Besides,  differentia must also have a rational  nexus  with the  object  sought to be achieved by the law.  However,  no precise  or  set formulae or doctrinaire  tests  or  precise scientific  principles of exclusion or inclusion are  to  be applied.  The test could only be one of palpable  arbitrari- ness  applied in the context of the felt needs of the  times and societal exigencies informed by experience. [949A, C-E]     3.3 Classification based on differences in the value  of articles  or  the  economic superiority of  the  persons  of incidence  are well-recognised. A reasonable  classification is  one  which includes all who are similarly  situated  and none who are not. In order to ascertain whether persons  are similarly  placed, one must look beyond  the  classification and to the purposes of the law. [949E-F]     Jaipur Hosiery Mills Ltd. v. State of Rajasthan,  [1970] 2 SCR 26; Hiralal v. State of U.P., [1973] 2 SCR 502;  State of Gujarat v. Sri Ambika Mills Ltd., [1974] 3 SCR 760;  G.K. Krishnan v. Tamil Nadu, [1975] 2 SCR 715; I.T.O. v. N. Takim Roy  Limbe,  [1976] 3 SCR 413; Secretary of  Agriculture  v. Central Roig Refining Co., [1949] 338 U.S. 604; M/s. Hoechst Pharmaceuticals Ltd. v. State of Bihar, AIR 1983 SC 1019 and Wallace Mendelson: Supreme Court Statecraft; The Rule of Law and Men, p. 4, referred to.     3.4  In  the present case, the bases  of  classification cannot  be  said to be arbitrary or  unintelligible  nor  as being without a rational nexus with the object of the law. A hotel where a unit of residential accommodation is priced at over  Rs.400 per day per individual is, in  the  legislative wisdom,  considered a class apart by virtue of the  economic superiority  of those who might enjoy its  custom,  comforts and services. 923 This legislative assumption cannot be condemned as irration- al.  Judicial  veto is to be exercised only  in  cases  that leave  no  room for reasonable doubt.  Constitutionality  is presumed. [952B-C]     3.5  The words "other similar services" in Section  5(d) were  intended  to embrace services like-but  not  identical with--those described in the preceding words. The content of the  expression  "other  similar  services"  following,  the preceding  expressions  "by way of  beauty  parfour,  health

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club,  swimming pool or  .....  "has a definite  connotation in  the interpretation of such words in such statutory  con- tents. The matter is one of construction whether any partic- ular service fails within the section and not one of consti- tutionality. [953E-F]     4. A taxing statute is not, per-se, a restriction of the freedom under Article 19(1)(g). The policy of a tax, in  its effectuation,  might, of course, bring in some  hardship  in some  individual cases. But that is inevitable, so  long  as law represents a process of abstraction from the  generality of  cases and reflects the highest common-factor.  The  mere excessiveness  of  a tax or even the circumstance  that  its imposition might tend towards the diminution of the earnings or profits of the persons of incidence does not, per-se, and without  more.  constitute, violation of  the  rights  under Article 19(1)(g). [954F-G] Per Ranganathan, J. (Concurring),     5.1 In the context of the social and economic conditions that  prevailed in India, it was a luxury for any person  to stay  in  hotels charging high rents and  providing  various types  of  facilities, amenities and  conveniences  such  as telephone, television, air-conditioner, etc. An  expenditure on  something  which is in excess of what  is  required  for economic  and  personal well-being would be  expenditure  on luxury although the expenditure may be of a nature which  is incurred  by  a large number of people including  those  not economically well off. [958G-H] Abdul  Kadir  & Sons v. State of Kerala, [1976] 2  SCR  690, relied on.     5.2 The legislature has, particularly in a taxing  stat- ute, a considerable amount of latitude and it cannot be held that,  in fixing the standards of indication of luxury,  the legislature, has not applied its mind. In fact, the  figures have  been amended from time to time and, it has to be  pre- sumed that the legislature had good reason for fixing  these standards.  From the scheme of the legislations,  the  state legislations fall 924 within  the  scope of Entry 62, List I and  are,  therefore, clearly within the competence of the State legislatures  and are not liable to be challenged. [959D; 957C]     6.1 In interpreting the scope of the legislative entries in the three lists, it has to be kept in mind that, while on the one hand, it is desirable that each entry in each of the lists  should  receive the broadest  interpretation,  it  is equally important, on the other, that the three lists should be read together and harmoniously. [959E-F]     6.2 The power of the State legislature to make laws with respect  to  any  of the matters enumerated in  List  II  is subject  to the exclusive power of Parliament to  make  laws with  respect  to any of the matters enumerated in  List  I. Hence, if a matter is covered by an entry in the Union List, no restrictions can be read into the power of Parliament  to make laws in regard thereto. [959G-H; 960A]     6.3  The  legislative entries are so arranged  that  the power to enact laws in general and the power to impose taxes are separately dealt with. Under Article 246(1), the Parlia- ment  has exclusive powers to make laws with respect to  any of the matters, including power to impose taxes,  enumerated in List I. [960B-C]     M.P.V.  Sundararamier & Co. v. The State of Andhra  Pra- desh Another, [1958] SCR 1422 at pp. 1479 and 1490, referred to.     7.  It cannot be held that the tax cannot be  considered to  be an expenditure tax because it is not  on  expenditure

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generally  but is restricted to specific types  of  expendi- ture. There is no legal, judicial, economic or other concept of  expenditure tax that would justify any such  restrictive meaning.  If,  conceptually, the expenditure incurred  by  a person can be a subject-matter with reference to which a tax can  be  levied,  such taxation can be  restricted  only  to certain  items  or categories of expenditure, and  its  base need not necessarily be so wide as to cover all  expenditure incurred  by an assessable entity. Selection of objects  and goods for taxation is the essence of any tax legislation and any limitation is an unlimited curtailment of this selective power of taxation of Parliament. [960H; 961A-B, F]     8.1  There  is not much of  legislative  practice  which would  justify importing any limitation on the concept of  a tax  on  expenditure under entry 97 of List I.  Once  it  is granted that the tax need not exhaust the entire universe of the subject-matter, the extent of the subject matter 925 that  should be covered or selected for imposing tax  should be entirely left to Parliament subject only to any  criteria of  discrimination or unreasonableness that may attract  the provisions of Part 1II of the Constitution. [962D-E, F-G]     State of Madras v. Gannon Dunkerley Co., [1959] SCR 379; Navinchanda  Mafat Lal v. CIT. [1955] 1 SCR 829; Naynit  Lal v.  AAC,  [1965] 1 SCR 909; Harikrishna Bhargava  v.  Union, [1966]  2  SCR  22 and Bhagwandas Jain v.  Union  of  India, [1981] 2 SCR 808, referred to.     8.2  Legislative  lists  cannot be  interpreted  on  the assumption  that there is a deemed entry "Taxes on  Expendi- ture"  added to List I as a result of the decision  in  Azam Jha’s case, [1972] 1 SCR 470. Entries cannot be added to the legislative  Lists on the basis of decisions of this  Court. In  Azam Jha’s case, the pith and substance of the Act  con- sidered did not fail under any of the entries in List II  or III.  However, in the instant case, the legislation  coveres only  certain  types of expenditure. The  decision  in  Azam Jha’s  case cannot help in determining whether the  Expendi- ture Act 1987 should be construed as imposing tax on expend- iture or and on luxuries. [964A-C]     Azam  Jha Bahadur v. Expenditure Tax Officer,  [1972]  1 SCR 470 distinguished.     9. Merely because the 1987 Act as well as the State Acts levy  taxes which have ultimate impact on persons who  enjoy certain  luxuries, the pith and substance of both cannot  be considered to be the same. The object of a tax on luxury  is to  impose a tax on the enjoyment of certain types of  bene- fits,  facilities  and advantages on which  the  legislature wishes to impose a curb. The idea is to encourage society to cater  better to the needs of those who cannot afford  them. Such  a tax may be on the person offering the luxury or  the person  enjoying  it. It may be levied on the basis  of  the amount  received  for providing, or the amount paid  for  or expended for enjoying, the luxury. Conceivably, it could  be on different bases altogether. The object of an  expenditure tax  is  to  discourage expenditure  which  the  legislature considers  lavish or Ostentatious. The object of  the  first would be to discourage certain types of living or  enjoyment while that of the second would be to discourage people  from incurring  expenditure in unproductive or undesirable  chan- nels.  If a general Expenditure Tax Act, like that of  1957, had  been enacted, no challenge to its validity  could  have been  raised because it incidentally levied the tax  on  ex- penditure incurred on luxuries. The fact that there will  be some  overlapping then or that here there is a good deal  of such

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926 overlapping, because the States have chosen to tax only some types  of  luxuries and the Centre to tax, atleast  for  the time being, only expenditure which results in such luxuries, should  not  be  allowed to draw a curtain  over  the  basic difference  between the two categories of imposts.  [968E-H; 969A-B]     This  distinction is not obliterated merely  because  of the  circumstances  that both legislatures  have  chosen  to attack  the same area of vulnerability, one with a  view  to keep a check on ’luxuries’ and the other with a view to curb undesirable ’expenditure’. [969C]     Kerala State Electricity Board v. Indian Aluminium  Co., [1976] 1 SCR 562; In the Central Provinces & Berar Sales  of Motor  Spirit and Lubricants Taxation Act, 1938, [1939]  FCR 18; Province of Madras v. Boddu Paidanna & Sons, [1942]  FCR 90;  G.G.-in-Council v. Province of Madras, [1945] FCR  179; Ralla Ram v. East Punjab, [1948] FCR 207; Bhagwan Dass  Jain v.  Union, [1981] 2 SCR 808; Hingir-Rampur Coal Co. Ltd.  v. State of Orissa, [1961] 2 SCR 537 and Sainik Motors v. State of Rajasthan, [1962] 1 SCR 517, referred to.     A.H.F. Lefroy: Canadian Constitution and Laskin: Canadi- an Constitutional Law, referred to.

& ORIGINAL JURISDICTION: Writ Petition No. 1395 of 1987. etc. (Under Article 32 of the Constitution of India).     N.A. Palkhiwala, T.R. Andhyarujina, Soli J. Sorabjee, R. Dada, S. Ganesh, J.R. Gagrat, R.B. Aggarwala, P.G.  Gokhale, V.B.  Aggarwala,  R.J.  Gagrat,  R.B.  Hathikhanawala,  R.F. Nariman,  P.H.  Parekh, Sanjay Bhartari,  M.K.  Menon,  R.K. Dhillon,  Ms.  Rohini  Chhabra, Ms. Sunita  Sharma  and  Ms. Ayesha Misra for the Petitioners.     K. Parasaran, Attorney General, B. Datta, Addl.  Solici- tor General, Dr. V. Gauri Shankar, S.K. Dholakia, P.S. Poti, G.A.  Shah, V. Jaganatha Rao, K. Sudhakaran, Ms.  A.  Subha- shini, B.B. Ahuja, H.K. Puri, A Subba Rao, A.S.Bhasme,  K.R. Nambiar, M.N. Shroff, M. Veerappa, R. Mohan, R. Ayyamperumal and J.P. Mishra for the Respondents. The following judgments of the Court were delivered: 927     VENKATACHALIAH, J. In these writ-petitions under Article 32 of the Constitution of India, petitioners who are engaged in,  or associated with, the Hotel Industry in  India  chal- lenge  the  constitutional validity of  the  Expenditure-Tax Act, 1987 (Central Act 35 of 1987). The Act envisages a  tax at  10 per cent ad valorem on  ’chargeable-expenditure’  in- curred in the class of Hotels wherein "room-charges" for any unit  of residential accommodation are Rupees  Four  Hundred per  day  per individual.  The  ’Chargeable-expenditure’  as defined in Section 5 of the Act include expenditure incurred in  or payments made in such class of hotels  in  connection with  the  provision of any  accommodation,  residential  or otherwise, food or drink whether at or outside the hotel; or for any accommodation in such hotel on hire or lease; or any other  services  envisaged  in that  Section.  However,  any expenditure incurred in or paid for in "foreign exchange" or by  persons  who  enjoy certain  diplomatic  privileges  and immunities are exempt.     The challenge to the vires of the ’Act’ is on grounds of lack  of  legislative-competence  and of  violation  of  the rights  under Article 14 and 19(1)(g). Union of India  seeks

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to sustain the legislative competence to enact the  impugned law  under Article 248 read with Entry 97 of List I  of  the Seventh Schedule.     2. Writ Petition No. 1395 of 1987 is quite comprehensive as to the array of parties and may generally be regarded  as representative  of the contentions urged in support  of  the challenge.  The first petitioner therein is "The  Federation of  Hotel & Restaurant Association of India"--which is  said to be a representative body of over 1,000 member-petitioners in  India.  Petitioners 2 to 5 are said to be  the  Regional Associations  of the Federation and Petitioners 6 and 7  are two  Hotel  companies  which own several  hotels  in  India. Petitioners  8 and 9 are Indian citizens who are the  direc- tors  and shareholders of petitioners 6 and 7  respectively. Petitioner  10,  is a  practising  chartered-accountant  who claims  to use the services in the several Hotels  in  India owned  by the members of the Federation. The array of  peti- tioners  is quite comprehensive so as to include all  inter- ests affected so as to satisfy the requisite standing to sue from all points of view.     3.  The Expenditure Tax Bill No. 90 of  1987,  preceding the impugned Act was introduced in the Union Legislature  on 21.8.1987. It became an Act on 14.9.1987. It extends to  the whole  of India except the State of Jammu and  Kashmir.  The requisite  notification  under Section 1(3) of the  Act  was issued on 14.10.1987 appointing 1.11.1987 928 as the date on which the Act shall come into force.      The  Expenditure  Tax Bill No. 90 of  1987  states  the following as its objects and reasons: "The  Bill seeks to impose a tax on expenditure incurred  in hotels  were  the room charges for any Unit  of  residential accommodation  are four hundred rupees or more per  day  per individual.  This tax will be levied at the rate of ten  per cent  of the expenditure incurred in connection with  provi- sion  of any accommodation, food, drinks, and certain  other categories of services. This tax will not apply to  expendi- ture  incurred in foreign exchange or in the case of  person enjoying diplomatic privileges."                                       (Emphasis supplied)      4.  A  brief  survey of the provisions of  the  Act  is perhaps  necessary  to apprehend and assess the  grounds  of challenge in their true perspective. Section 4 is the charg- ing section which says: "Subject  to  the  provisions of this Act,  there  shall  be charged  on and from the commencement of this Act, a tax  at the rate of ten per cent of the chargeable expenditure." The   expression  ’chargeable-expenditure’  is  defined   in clauses (a), (b), (c) and (d) of Section 5, which read:            "For the purposes of this Act, chargeable expend- iture  means any expenditure incurred in, or  payments  made to,  a hotel to which this Act applies, in  connection  with the provision of,--            (a) any accommodation, residential or  otherwise; or            (b)  food or drink by the hotel, whether  at  the hotel or outside, or by any other person at the hotel; or            (c)  any accommodation in such hotel on  hire  or lease; or          (d) any other services at the hotel, either by  the hotel  or  by any other person, by way  of  beauty  parlour, health 929 club, swimming pool or other similar services."           (Rest  of the provisions of Section 5 are  omitted

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as unnecessary for the present)     The  expression ’Assessee’, ’Hotel’, ’Room-charges’  are some of the material expressions defined in the  interpreta- tion clause.           2(1)  "assessee"  means a person  responsible  for collecting the expenditure-tax payable under the  provisions of this Act.           2(6)  "Hotel"  includes a building or  part  of  a building  where  residential  accommodation is,  by  way  of business, provided for a monetary consideration.           2(10) "room charges" means the charges for a  unit of  residential  accommodation in a hotel and  includes  the charges for--           (a)   furniture,  air-conditioner,   refrigerator, radio, music, telephone, television, and           (b)  such other services as are normally  included by a hotel in room rent,           but does not include charges for food, drinks  and any services other than those referred to in sub-clauses (a) and (b). Section 3 is the crucial provision which lays  down the differentia for the classification of the Hotel to which the ’Act’ applies. Section  3  is  the crucial provision which  lays  down  the differentia for the classification of the Hotel to which the ’Act’  applies. That section provides that the  ’Act’  shall apply  in relation to any ’chargeableexpenditure’,  incurred in a hotel wherein the "room-charges" for any unit of  resi- dential  accommodation  at  the time of  incurring  of  such expenditure  are Rs.400 or more per day per individual.  The levy of tax is confined to such class of Hotels which satis- fy   that  statutory-standard.  Where,  however,   composite charges are payable in respect of both residential  accommo- dation  and  food, then the "room charges" for  purposes  of determination of the criteria attracting the Act shall  have to be apportioned in the manner to be prescribed. Section 3 930 enables  the  assessing-officer  to  determine  the   ’room- charges’ on such reasonable basis as he may deem fit where: .lm60        "(i)  a  composite charge is payable  in  respect  of residential accommodation, food, drinks and other  services, or  any of them, and the case is not covered by  the  provi- sions of sub-section (2), or        (ii)  it appears to the Income-tax Officer  that  the charges for residential accommodation, food, drinks or other services  are so arranged that the room charges  are  under- stated and other charges are overstated,"     Sections 6 and 24 envisage and provide for the  authori- ties to administer Act and engrafts the machinery and proce- dure of the Income-tax Act. Section 6(1) says: "Every  Director of Inspection, Commissioner  of  Incometax, Commissioner  of Income-tax (Appeals), Inspecting  Assistant Commissioner of Income-tax, Income-tax Officer and Inspector of  Income-tax  shall have the like powers and  perform  the like  functions under this Act as he has and performs  under the  Income-tax Act, and for the exercise of his  power  and the  performance  of his functions, his  jurisdiction  under this  Act shall be the same as he has under  the  Income-tax Act." Section 24 provides:           "The  provisions  of the  following  sections  and Schedules of the Income-tax Act the Income-tax  (Certificate Proceedings)  Rules,  1962, as in force from time  to  time, shall  apply  with necessary modifications as  if  the  said provisions and the rules referred to expenditure-tax instead

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of to income-tax:           2(43B) and (44), 118, 125, 125A, 128 to 136  (both inclusive),  138,  140, 144A, 159 to 163  (both  inclusive), 166,  167, 170, 171, 173 to 179 (both inclusive), 187,  188, 189, 220 to 227 (both inclusive), 229, 231, 232, 237 to  245 (both inclusive), 254 to 262 (both inclusive) 265, 266, 268, 269, 278B, 278C, 278D, 278E, 281, 281B, 282, 283, 284,  287, 288, 288A, 288B, 289 to 293 (both inclusive), the Second 931 Schedule and the Third Schedule:           Provided  that references in the  said  provisions and rules to the "assessee" shall be construed as references to an assessee as defined in this Act."     Section 8(1) provides that every "person responsible for collecting" the tax as defined in Section 2(8) shall, before the expiry of four months from the 31st day of March in each year  furnish  or caused to be furnished to  the  Income-tax Officer,  in  the prescribed form and varified in  the  pre- scribed  manner a return in respect of the immediately  pre- ceding  financial  year  showing (a) the  aggregate  of  the payments  received in respect  of  "chargeable-expenditure"; (b)  the amount of the tax collected; (c) the amount of  the tax  paid to the credit of the Central Government;  and  (d) such other particulars as may be prescribed.     The incidence of the tax is on the persons who incur the "chargeable-expenditure" in the class of hotels to which the Act applies. Section 7 enjoins upon the "person  responsible for  collecting" the duty to collect the taxes and  pay  the same  to  the credit of the Central Government.  The  "room- charges"  of  Rs.400 per day per  individual  stipulated  in Section 3 is the differentium which keeps apart the class of hotels  to which the Act applies. Petitioners say that  Sec- tion  3  merely defines the place, viz., the Hotel  where  a room carries a charge of Rs.400 per day marked on it and the rest of the incidents and consequences of the provisions  of the  ’Act’  envisage  the levy of a tax  on  the  ’luxuries’ provided  at such a place. The legislation, it is urged,  is squarely within Entry 62 of List II within the  State-power. The  Act, it is contended, does not impose  an  "Expenditure Tax"  but taxes ’Luxuries’. Even if the legislation  has  an "expenditure  dampening" objective and seeks to inhibit,  by creation of disincentives, ostentatious and wasteful expend- iture,  the  classification,  it is said,  has  no  rational basis.  Persons  similarly situated and who incur  the  same extent  and degree of expenditure on the same  luxuries  are differentiated  on the sole basis that in one case  the  ex- penditure is incurred in a Hotel where one of the rooms  has a  charge  of Rs.400 per day per individual marked  for  it, while  in the other though equally wasteful  expenditure  is incurred in a more luxurious Restaurant, the latter expendi- ture is exempt. It is urged that even if more  sophisticated and expensive food and drinks and other services,  envisaged in clauses (a) to (d) of Section 5, are provided in a  hotel or  catering establishment which falls out-side  the  class, the expenditure incurred thereon is unaffected by the law. 932 This aspect of under-inclusiveness is assailed as  violative of Article 14.     5.  Petitioners further contend that the several  provi- sions of the Act which impose certain  statutory-obligations of  an onerous nature, the breach of which are visited  with penal consequences, render the law an unreasonable  restric- tion  on the petitioners’ fundamental rights  under  Article 19(1)(g).     The contentions urged in support of the petitions  admit

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of being noticed and formulated in the following terms: (a) The ’Act’, in its true nature and character, is not  one imposing  an  ’Expenditure-Tax’, as known to  Law,  accepted notions  of Public Finance, and to legislative practice  but is, in pith and substance, either a tax on Luxuries  falling within Entry 62 of List II of the Seventh Schedule; or a tax on the consideration paid for the purchase of goods  consti- tuting an impost of the nature envisaged in entry 54 of List II,  and clearly outside the legislative competence  of  the Union Parliament; (b) that even if the ’Act’ is held to impose a tax which  is "sui-generis" or a "non-discript", tax with respect to which the Union Parliament is competent to make a law under  Arti- cle  248  and Entry 97 of List I, then, at all  events,  the ’Act’ is violative of Article 14 in as much as the differen- tium  on  which the Hotels are classified is  arbitrary  and unintelligible has no rational-nexus with the  taxing-policy under the ’Act’. (c)   that   the   ’Act’  is   violative   of   Petitioners’ fundamental-right  under  Article  19(1)(g)  as  it  imposes unreasonable onerous restrictions on their freedom of  busi- ness. 6. Re.’ Contention (a):     Sri Palkhivala, learned Senior Counsel for the petition- ers,  contended  that the appellation of  ’Expenditure  Tax’ given to the impost is a misnomer as the concept of "Expend- i- ture-Tax" as known to law and recognised by the theorists of public finance is not a tax on a few stray items of expendi- ture  but  is a term of Art which has acquired  a  technical import as ’nomen-juris’ and that the import envisaged by the Act,  in  its true nature and character, is no more  and  no less  than a tax on Luxuries under Entry 62 list  II  within the State’s exclusive power. Learned Counsel urged that  the delicate balance in the demarcation in 933 a federal polity of legislative powers between the Union and the States would impose on the Union, the repository of  the residuary power, the sensitive task of recognising both  the line   of   demarcation  as  well  as   the   constitutional mandate--and a disciplined reluctance--not to cross it.  The contention  as to lack of legislative-competence  emphasises two  aspects--one with a negative implication and the  other of  a  positive  import. Negatively, it is  urged  that  the impost  is  not,  and does not satisfy  the  concept  of  an "Expenditure tax" which has a technical connotation both  in law  and in public finance. A tax on certain stray items  of expenditure is not, it is contended, a general  "expenditure tax".  The  nomenclature of the levy is really a  mere  iII- fitting  legal mask for what is really a tax under Entry  62 list I. The nomenclature of the tax, it is urged, is irrele- vant  in deciding its true nature and character. It  belongs to  the rudiments of the subject, says the learned  counsel, that a constitutional-grantee of a power cannot enlarge  its own  by choosing for the legislation enacted in exertion  of that power, a nomenclature that corresponds to and  semanti- cally  subsumes  with the grant. Shri  Palkhivala  submitted that  the true nature and concept of "expenditure  tax",  as known to the theories of public finance has a specific, well accepted legal connotation and is a tax levied on income  or capital spent or "consumed" in distinguishment of income  or capital "saved". It is this concept of ’expenditure tax’, as a fiscal tool, which has certain social and economic  objec- tives  informing  its  policy. The present  impost  and  its incidents, it is urged, have no rational connection with the

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concept  of "expenditure tax" known to and accepted  by  the principles  of public finance and recognised by  established Legislative practice.     7. Referring to the economists’ concept of  "expenditure tax", learned counsel referred us to the report of the Study Group  "On  taxation of Expenditure" (Government  of  India, Ministry of Finance, April 1987)                        "An  expenditure  tax  is   generally               taken  to mean a direct tax  on personal  con-               sumption,  i.e.,  the total annual consumption               (minus an exemption, if any) of an  individual               tax payer or family. This implies that the tax               will be payable in the year in which  consump-               tion takes place. One can conceive of the  tax               base being computed by adding up all items  of               expenditure,  which  are  by  law  defined as               consumption               e               x               p               e               nditure,  ....................................                ................    or,   alternatively,   by               summing  up all the receipts and  substracting               therefrom expenses of earning               934               income  as  well as outflows in  the  form  of               savings (going into different types of invest-               ments, including repayment of past loans).  In               practice, the latter method would be  prefera-               ble."                                                   (Emphasis               Supplied)               "India  has the distinction, shared  with  Sri               Lanka, of having actually experimented with  a               direct  tax on consumption expenditure  though               the idea itself had caught the imagination  of               many  tax  theorists in  developed  countries,               some  of whom had developed practical  systems               for  implementation.  In both  India  and  Sri               Lanka, the tax was introduced on the basis  of               the recommendations of Prof. Nicholas  Kaldor.               Prof. Kaldor had been invited to come to India               by the Indian Statistical Institute to make an               investigation of the Indian tax system in  the               light  of  the  revenue  requirements  of  the               Second  Five  Year  Plan. In  his  report,  he               recommended  the introduction of a direct  tax               on personal consumption expenditure as a  limb               of  a comprehensive and self  checking  system               comprising the income tax, (which was  already               in operation in India), a tax on capital gains               (which  had  been tried for two years  in  the               post-war period and then withdrawn), an annual               tax  on net wealth, a general gift tax  and  a               tax on personal expenditure. He envisaged that               these five levies would be assessed simultane-               ously  on the basis of a single  comprehensive               return,  .....  "                                                   (Emphasis               Supplied)                        "Under  the  scheme  of   expenditure               taxation suggested by Prof. Kaldor, a taxpayer               would  not  be required to give  any  detailed               account of his outlays on consumption but only

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             a  statement of his total outlay as part of  a               comprehensive  tax  return  showing  all   his               receipts, investments, etc., and all the items               for which he claimed exemption  ....  "                        "In India too, although the  expendi-               ture  tax  was tried twice and was  given  up,               there has been a revival of interest in making               expenditure the base for personal taxation. In               particular, it has been maintained that  India               should  seriously  consider moving  towards  a               progressive  expenditure tax for three  impor-               tant reasons:               935                       (a) it will promote savings;                       (b)  it would be, on the  whole,  more               equitable than the present or any  practicable               form of income tax; and                       (c)  it will significantly reduce  the               inducement for direct tax evasion."                   In Musgrave on ’Public Finance’, referring               to the concept of Personal Expenditure Tax, it               is stated:                 "  ....  In analogy to the income  tax,  the               taxpayer would determine his total consumption               for  the  year,  subtract  whatever   personal               exemptions  or  deductions were  allowed,  and               apply  a  progressive  rate  schedule  to  the               remaining amount of taxable consumption".                                                     (Emphasis               Supplied) Sri Palkhivala also referred to certain passages of Nicholas Kaldor "On Expenditure Tax" and the same eminent  economists report  on "Indian Tax Reform", to reinforce the  submission that the conceptualisation of ’Expenditure-Tax’, as a fiscal tool  for economic regulation, has a specific  and  definite connotation  and the "Tax" so conceptualised by  experts  on public  finance  is  an entirely  different  idea  from  the one--built into the present legislation. The very concept of ’Expenditure Tax’ envisaged in the impunged legislation,  it is  urged, is unknown to accepted principles of  public  fi- nance  and is the result of a grave misconception as to  the essential  nature and incidents of what in law and  legisla- tive practice is recognised as ’Expenditure Tax’. The  whole exercise,  learned counsel said, is a draft  on  credibility and that the Finance Minister’s speech on the Bill leaves no doubt  that  what  the Government wanted from  the  law  was really a tax on "Luxuries". The impost, it is urged, is  not susceptible of any other legitimate understanding than  that it  is in substance and effect, a tax on  "Luxuries"  within the  States’ power. Sri Palkhivala emphasised the  relevance of  what was implicit in the observations of this  court  in Azam  Jha Bahadur v. Expenditure Tax Officer, [1972]  1  SCR 470  made while upholding the legislative competence of  the Union  Parliament to enact the Expenditure Tax Act 1957,  as referable to the residuary Entry 97 of List I. The  implica- tion  of the observations of this Court at page 479  of  the report,  according to learned counsel, is that what  distin- guished 936 an "expenditure-tax" from a levy under Entry 62 of List  II, was that the scheme of taxation took into account the total- ity  of  expenditure over a unit of time, as  distinct  from sums laid out on stray purchases of luxuries.     8.  Shri Palkhivala, then, submitted that the notion  of expenditure tax, as recognised by legislative-practice is  a

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relevant  factor. In Croft v. Dunphy, [1933] AC 156 Lord  Mc Millan held that when power is conferred on the  legislature on  a particular topic it is important, in  determining  the scope  of the power, to have regard to what, in  legislative practice, is ordinarily treated as embraced within the topic and particularly in legislative practice of the State  which has  conferred the power. In Wallace Brothers & Co. Ltd.  v. CIT,  Bombay  City, [1948] L.R. 75, IA 86 Lord  Uthwatt  re- ferred to the permissibility and, indeed, the importance  to refer  to the legislative-practice as to what is  ordinarily treated as within the topic of legislation in  understanding the  scope  of a legislative-power. The notion  of  expendi- ture-tax  in  the scheme of the Expenditure Tax  Act,  1957, would, it is urged, detract from such legislative-practice.     9. The second limb of the argument is that the impost is clearly  of the nature of a tax on luxuries within Entry  62 of  List I. The simple test, according to the  argument,  is whether, if a State legislature had enacted a similar law it would  not have been held to be within its competence  under Entry  62  of List II? The answer would,  according  to  the submission,  be  in emphatic affirmation, Referring  to  the concept of a luxury tax, learned counsel referred to the New Encyclopaedia  Britanica Vol. 7 which referring to  "luxury- tax" says:                        "Luxury tax, excise levy on goods  or               services considered to be luxuries rather than               necessities.  Modern  examples  are  taxes  on               jewellery  and  perfume. Luxury taxes  may  be               levied with the intent of taxing the rich,  as               in  the case of the late 18th-and early  19th-               century  British taxes on carriages  and  man-               servants; or they may be imposed in a deliber-               ate  effort  to  alter  consumption  patterns,               either  for moral reasons or because  of  some               national  emergency.  In  modern  times,   the               revenue production of luxury taxes has  proba-               bly overshadowed the moral argument for  them.               Furthermore,  the  progressive nature  of  the               early   taxes  began  to  be   lost  as   more               lower--income  people’s "luxuries" were  taxed               in  the  interest  of  generating   additional               revenue; an example is the amusement tax." 937     On  the analogy of the wealth-tax envisaged by Entry  86 of List I it was urged that even as the concept of  "wealth" for  the imposition of a tax thereon is not  the  individual components  of the assets of the assessee but a totality  of all  assets  which the assessee owns, so is the  concept  of "expenditure" which does not consist of a few stray items of expenditure but a systematised reckoning of expenditure  for and during a particular unit of time.     10.  It  was then urged that recourse to  the  residuary power under Article 248 read with Entry 97 of List I  should be the very last refuge and would be available if, and  only if,  the other entries in the State and concurrent lists  do not cover the topic.     Reliance  was  also placed on the  observations  of  the Federal  Court in Subrahmanyan Chettiar v. Muttuswami  Goun- dan, AIR 1941 FC 47 where it was held:                        "But  resort to that  residual  power               should  be  the very last refuge. It  is  only               when all the categories in the three Lists are               absolutely  exhausted  that one can  think  of               falling back upon a nondescript."                   Shri  Palkhivala  recalled  the  following

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             words  of caution sounded by Chinnappa  Reddy,               J.  in  International Tourist  Corporation  v.               State of Haryana, [1981] 2 SCR 364:                        "   .....  Before exclusive  legisla-               tive competence can be claimed for  Parliament               by resort to the residuary power, the legisla-               tive  incompetence  of the  State  legislature               must  be clearly established. Entry 97  itself               is specific that a matter can be brought under               that  entry  only if it is not  enumerated  in               List  II or List III and in the case of a  tax               if  it  is not mentioned in  either  of  those               lists.  In  a Federal Constitution  like  ours               where  there  is  a  division  of  legislative               subjects but the residuary power is vested  in               Parliament, such residuary power cannot be  so               expansively interpreted as to whittle down the               power  of  the State legislature.  That  might               affect and jeopardise the very federal princi-               ple.  The federal nature of  the  constitution               demands  that  an interpretation  which  would               allow  the  exercise of legislative  power  by               Parliament  pursuant to the  residuary  powers               vested in it to trench upon State  legislation               and  which would thereby destroy  or  belittle               state autonomy must be rejected ......" 938 Sri  Palkhivala  also sought to demonstrate how,  looked  at from another angle, the levy presents an anomalous situation by  splitting-up a transaction which would otherwise be  one of  sale of goods and isolating the price of the  goods  for separate treatment as a distinct subject-matter for levy  of expenditure-tax,  thus robbing the State-power of  its  sub- stance.     Learned  Advocate  General for the State of  Kerala  who intervened made submissions which while being  substantially on  the  lines  of the  petitioners’  contentions,  however, sought to qualify that legislative-competence to the  extent of operation of the ’Act’ in the Union territories could  be sustained.     11. Learned Attorney General on the contrary,  submitted that  the law, in pith and substance, is not one  "with  re- spect  to"  Luxuries under Entry 62 List I and  the  tax  on expenditure,  as the legislature has chosen to conceive  it, is  referrable to residuary power. Learned Attorney  General said that the economists’ concept of such a expenditure  tax is  at best an idea of the manner of effectuation of  fiscal programme  and  is no limitation on the  legislative  power. Indeed, if a topic is not shown to fall within the fields of legislation in Lists II or III, no further inquiry is neces- sary  in order to support the legislative competence of  the Union to legislate on the topic. The purpose of  incorporat- ing  a separate List for the Union, as observed in Union  of India v. H.S. Dhillon, [1972] 2 SCR 33 at 671 is:                         "..........  there is some merit and               legal effect in having included specific items               of List I for when there are three lists it is               easier  to  construe List II in the  light  of               Lists  I and II. If there had been no List  1,               many items in List 11 would perhaps have  been               given  much wider interpretation than  can  be               given under the present scheme. Be that as  it               may,  we have the three lists and a  residuary               power  and  therefore it seems to us  that  in               this context ira Central Act is challenged  as

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             being  beyond  the legislative  competence  of               Parliament, it is enough to enquire if it is a               law with respect to matters or taxes enumerat-               ed in List II. If it is not, no further  ques-               tion arises."                                                  (Emphasis               Supplied)     Learned Attorney General characterised the  petitioners’ contention  that  the  impugned impost is really  a  tax  on luxuries or that one 939 aspect of the taxable event in the sale of goods had  imper- missibly  been  isolated for the creation of  an  artificial idea  ’expenditure’, suffers from certain  basic  fallacies. The legislative-powers, it is urged, recognise the  demarca- tion  of  distinct aspects of the same  matter  as  distinct topics  of  legislation and that the  present  challenge  to legislative  competence overlooks the dichotomy of  distinct aspects  of the same matter constituting distinct fields  of legislation, the line of demarcation, though sometimes  thin and  subtle,  being real. Learned  Attorney-General  further contended  that the measure adopted for the levy of the  tax does  not necessarily determine its essential character  and that  the object on which the expenditure is laid-out  might be an item of luxury or it might not be one; or the "expend- iture" might constitute the price of the goods but, what  is taxed  is  the  "expenditure" aspect which,  in  itself,  is susceptible of recognition, as a distinct topic of  legisla- tion.     12. We have bestowed our careful consideration to  these rival contentions. The principal question is whether the tax envisaged  by  the impugned law is  within  the  legislative competence  of  the  Union Parliament. In  that  sense,  the constitutionality of the law becomes essentially a  question of  power which in a federal constitution, unlike a  legally omnipotent  legislature like the British  Parliament,  turns upon  the  construction of the entries  in  the  legislative lists. If a legislature with limited or qualified  jurisdic- tion  transgresses  its powers, such  transgression  may  be open,  direct and overt, or disguised, indirect and  covert. The  latter kind of trespass is figuratively referred to  as "colourable legislation", connoting that although apparently the legislature purports to act within the limits of its own powers yet, in substance and in reality. it encroaches  upon a  field  prohibited to it, requiring an  examination,  with some  strictness, the substance of the legislation  for  the purpose  of  determining what is that  the  legislature  was really  doing. Wherever legislative powers  are  distributed between the Union and the States, situations may arise where the  two legislative fields might apparently overlap. It  is the  duty  of the Courts, however difficult it  may  be,  to ascertain  to what degree and to what extent, the  authority to  deal with matters falling within these classes  of  sub- jects  exists  in  each legislature and to  define,  in  the particular  case before them, the limits of  the  respective powers. It could not have been the intention that a conflict should exist; and, in order to prevent such a result the two provisions  must be read together, and the language  of  one interpreted,  and, where necessary modified by that  of  the other.     The  Judicial Committee in Prafulla Kumar Mukherjee  and Ors.  v. Bank of Commerce, [1945] FCR 179 referred  to  with approval the 940 following  observations of Sir Maurice Gwyer CJ. in  Subrah-

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manyan Chettiar’s case:               "It  must inevitably happen from time to  time               that  legislation, though purporting  to  deal               with a subject in one list, touches also on  a               subject  in  another list, and  the  different               provisions of the enactment may be so  closely               intertwined that blind observance to a strict-               ly  verbal  interpretation would result  in  a               large  number of statutes being  declared  in-               valid  because the legislature  enacting  them               may  appear to have legislated in a  forbidden               sphere. Hence the rule which has been  evolved               by  the  Judicial Committee, whereby  the  im-               pugned  statute is examined to  ascertain  its               ’pith and substance’, or its ’true nature  and               character,’  for  the purpose  of  determining               whether  it  is legislation  with  respect  to               matters in this list or in that."     This necessitates as an "essential of federal Government the  role of an impartial body, independent of  general  and regional  Governments", to decide upon the meaning of  deci- sion of powers. The Court is this body.     13. The position in the present case assumes a  slightly different complexion. It is not any part of the petitioners’ case  that ’expenditure-tax’ is one of the taxes within  the States’ power or that it is a forbidden field for the  Union Parliament.  On the contrary, it is not disputed that a  law imposing  ’expenditure-tax’ is well within  the  legislative competence  of Union Parliament under Article 248 read  with Entry 97 of List I. But the specific contention is that  the particular  impost under the impugned law, having regard  to its nature and incidents, is really not an ’expenditure  tax at all as it does not accord with the economists’ notion  of such  a tax. That is one limb of the argument. The other  is that the law is, in pith and substance, really one  imposing a  tax  on  luxuries or on the price paid for  the  sale  of goods.  The  crucial questions, therefore, are  whether  the economists’  concept of such a tax qualifies and  conditions the  legislative-power and, more importantly,  whether  "ex- penditure" laid-out on what may be assumed to be  "luxuries" or  on  the purchase of goods admits of being  isolated  and identified  as a distinct aspect susceptible of  recognition as a distinct field of tax-legislation.     14.  In Lefroy’s ’Canada’s Federal System’  the  learned author  referring  to  the "aspects  of  legislation"  under Sections 91 and 92 of the 941 Canadian  Constitution i.e., British North America Act  1867 observed  that  "one of the most interesting  and  important principles which have been evolved by judicial decisions  in connection  with  the distribution of Legislative  Power  is that  subjects which in one aspect and for one purpose  fall within the power of a particular legislature may in  another aspect and for another purpose fall within another  legisla- tive power. Learned author says:                  ".....  that by ’aspect’ must be understood               the aspect or point of view of the  legislator               in legislating the object, purpose, and  scope               of  the  legislation  that the  word  is  used               subjectively  of the legislator,  rather  than               objectively of the matter legislated upon."     In  Union  Colliery Co. of British Columbia  v.  Bryden, See. 1899 AC 580 at 587, Lord Haldane said:               "It  is  remarkable  the way  this  Board  has               reconciled  the provisions of section  91  and

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             section  92, by recognizing that the  subjects               which  fall within section 91 in  one  aspect,               may, under another aspect, fall under  section               92."     Indeed, the law ’with respect to’ a subject might  inci- dentally  ’affect’ another subject in some way; but that  is not  the same thing as the law being on the latter  subject. There  might be overlapping; but the overlapping must be  in law.  The same transaction may involve two or  more  taxable events in its different aspects- But the fact that there  is an overlapping does not detract from the distinctiveness  of the aspects. Lord Simonds in Governor General in Council  v. Province  of Madras, [1945] FCR 179 P.C. at 193 in the  con- text  of  concepts of Duties of Excise and Tax  on  Sale  of Goods said:                  "  .....  The two taxes the one levied on a               manufacturer  in  respect of  his  goods,  the               other  on  a vendor in respect of  his  sales,               may,  as  is there pointed out, in  one  sense               overlap.  But in law there is no  overlapping.               The  taxes are separate and distinct  imposts.               If  in fact they overlap, that may be  because               the  taxing  authority,  imposing  a  duty  of               excise,  finds  it convenient to  impose  that               duty at the moment when the excisable  article               leaves  the factory or workshop for the  first               time on the occasion of its sale  ......  "                   15.  Referring  to the  "aspect"  doctrine               Laskin’s "Canadian Constitutional Law" states:               942               "The ’aspect’ doctrine bears some  resemblance               to  those lust noted but, unlike  them,  deals               not with what the ’mat-               ter’ is but with what it ’comes within’  .....               "                                                             (p.               115)               "  .....  it applies where some of the consti-               tutive  elements about whose  combination  the               statute  is concerned (that is, they  are  its               ’matter’),  are a kind most often met with  in               connection  with  one class  of  subjects  and               others  are  of a kind mostly  dealt  with  in               connection  with another. As in the case of  a               pocket   gadget  compactly  assembling   knife               blade,   screwdriver,  fishscaler,   nailfile,               etc., a description of it must mention  every-               thing but in characterizing it the  particular               use proposed to be made of it determines  what               it is."                                                               (p.1 16)                 "   .....   I pause to  comment  on  certain               correlations of operative incompatibility  and               the  ’aspect’ doctrine. Both grapple with  the               issues arising from the composite nature of  a               statute, one as regards the preclusory  impact               of federal law on provincial measures  bearing               on  constituents of federally  regulated  con-               duct, the other to identify what parts of  the               whole  making up a ’matter’ bring it within  a               class of subjects  .....  "                                                                (p.               117)                   The  distinction between what  is  "ancil-

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             lariness"  and what  "incidentally  affecting"               the treatise says:                        "  ....  There is one big  difference               though  it is little mentioned.  Ancillariness               is usually associated with an explicit ’statu-               tory  provision of a peripheral  nature;  talk               about  ’incidentally  affecting’ crops  up  in               connection with the potential of a non-differ-               entiating statute to affect indiscriminately m               its application matters assertedly immune from               control  and others. But it  seems  immaterial               really  whether it is its words or  its  works               which  draw the flotsam within  the  statute’s               wake." .lmo                                                   (p.115)     16, Referring to the flexibility in the modes of  effec- tuating  a tax in view of innate complexities in the  fiscal adjustment of diverse 943 economic factors inherent in the formulation of a policy  of taxation  and  the  variety of policy-options  open  to  the State, J Rauls in "Modern Trends in Analytical and Normative Jurisprudence" (Introduction to Jurisprudence by Lord  Lloyd of Hampstead & Freeman, 5th Edn.) observed:                  "   .....   In practice,  we  must  usually               choose between several unjust, or second best,               arrangements;  and  then we look  to  nonideal               theory to find the least unjust scheme.  Some-               times  this scheme will include  measures  and               policies  that a perfectly just  system  would               reject.  Two  wrongs can make a right  in  the               sense that the best available arrangement  may               contain a balance of imperfections, an adjust-               ment of compensating injustices."     Adverting  to "Expenditure-dampening" policies  and  the choice  of measures designed to reduce the aggregate  demand for  goods and services, the "Dictionary of Economic  Terms" by Allan Gilpin says:               "Expenditure-dampening  Policies:   Government               measures  designed  to  reduce  the  aggregate               demand for goods and services in the  communi-               ty. The measures may consist of raising  taxes               (q.v.)  lowering  government  expenditure   or               curtailing   hire-purchase  or  other   credit               facilities.               EXPENDITURE-SWITCHING POLICIES.               Expenditure-switching   Policies:   Government               measures designed to influence the pattern  of               expenditure by the community. For example, the               taxing  of imported goods may effect a  switch               of  expenditure from imported to  homeproduced               goods;  devaluation of the  nation’s  currency               may  have  the same effect as  imports  become               more  expensive.  See   EXPENDITURE-DSAMPENING               POLICIES."     Learned Attorney General also referred to the  following observations  in  The British Tax System (by J.A.  Kay  M.A. King) to indicate that a tax on expenditure need not  neces- sarily be an expenditure-tax in the economists’ reckoning of things:                         "An  annual expenditure  tax,  which               seeks  to measure an individual’s spending  in               each  separate year of assessment, poses  very               serious administrative problems, because               944

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             it requires that his assets be assessed  annu-               ally  ......  "                  "  .....  But there is a much easier way of               reaching  a more accurate answer.  You  simply               measure  how  much foreign currency  you  took               with  you,  add  the amount  of  currency  you               bought  while abroad, and substract  what  was               left  when you got back. You measure, not  the               expenditure  itself,  but the sources  of  the               expenditure, and can thus achieve a simple and               reliable  measure  on  the basis  of  a  small               number  of recorded (and  readily  verifiable)               transactions."     It  is trite that the true nature and character  of  the legislation must be determined with reference to a  question of the power of the legislature. The consequences and effect of the legislation are not the same thing as the legislative subject  matter. It is the true nature and character of  the legislation  and  not  its ultimate  economic  results  that matters.     Indeed, as an instance of different aspects of the  same matter,  being  the  topic of  legislation  under  different legislative  powers,  reference may be made to  the  annual- letting  value of a property in the occupation of  a  person for his own residence being, in one aspect, the measure  for levy  of property-tax under State-law and in another  aspect constitute  the notional or presumed income for  purpose  of income-tax.     16.  Petitioners’ reference to  legislative-practice  as determining  the scope of the present legislation  does  not assist  them. There are two infirmities in  the  contention. The first is that the question of legislative-practice as to what a particular legislative-entry could be held to embrace is inapposite while dealing with a tax which is  sui-generis or non-descript imposed in exercise of the residuary  powers so long as such tax is not specifically enumerated in  Lists II & III. Secondly, there is no conclusive material indicat- ing that the appropriate legislature had limited the  notion of a tax of this kind within any confines. It is relevant to recall the words of Lord Uthwatt in Walace Brothers case  in 1959 SCR 379 at 402;               "The  point of the reference  is  emphatically               not to seek a pattern to which a due  exercise               of  the power must conform. The object  is  to               ascertain  the general conception involved  in               the words in the enabling Act." But  as  observed in Navinchandra Mafatlal  v.  CIT,  Bombay City, 945 [1955]  1 SCR 829 the meaning the word "income" is given  in the Income-tax Act is not determinative of its content as an entry in a legislative list. Das J. observed:               "  .....  It is, therefore, clear that none of               the authorities relied on by Mr. Kolah  estab-               lish what may be called a legislative practice               indicating  the connotation of the  term  "in-               come",  apart from the Income-tax statute.  In               our  view, it will be wrong to  interpret  the               word "income" in entry 54 in the light of  any               supposed   English  legislative  practice   as               contended for by Mr. Kolah  .......  "                                                                (p.               835)     17. In Union of India v. H.S. Dhillion, [1972] 2 SCR  33 at 61 this Court dealt with the scope of the Residuary power

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under  Entry 97 List I. Referring to following  observations of   Lord  Loreburn  in  AttorneyGeneral  for   Ontario   v. Attorney-General, for Canada (See: (1912) AC 571 at 581:                         "Now,  there  can be no  doubt  that               under  this  organic  instrument  the   powers               distributed  between the Dominion on  the  one               hand  and  the provinces on  the  other  hand,               cover the whole area of self-government within               the whole area of Canada. It would be  subver-               sive  of the entire scheme and policy  of  the               Act  to  assume  that any  point  of  internal               selfgovernment was withheld from Canada."                                         (Emphasis Supplied) It  was  held  that the last portion of  the  above  excerpt applied  a  fortiori to the Constitution of  the  Sovereign, Democratic  Republic. Sikri CJ. proceeded to  observe  (See: 1972 (2) SCR 33 at 61):               "  ....  If this is the true scope of  residu-               ary  powers of Parliament, then we are  unable               to see why we should not, when dealing with  a               Central Act, enquire whether it is legislation               in  respect of any matter in List II for  this               is  the only field regarding which there is  a               prohibition  against Parliament. If a  Central               Act does not enter or invade these  prohibited               fields  there is no point in trying to  decide               as  to under which entry or entries of List  I               or  List III a Central Act would  rightly  fit               in." Then, considering the includibility of the value of agricul- tural 946 property in the wealth of the assessee under the Wealth  Tax Act  despite the exclusionary words in Entry 86, List I  the learned Chief Justice said:               "  .....  We are definitely of the opinion, as               explained  a little later, that the scheme  of               our  Constitution and the actual terms of  the               relevant articles, namely, Art. 246, Art.  248               and  Entry  97 List I, show that  any  matter,               including  tax,  which has not  been  allotted               exclusively  to the State  Legislatures  under               List II or concurrently with Parliament  under               List III, falls within List I, including Entry               97 of that list read with Art. 248." It  was  held that the subject did not fall under  Entry  49 List  II and that despite the exclusion in Entry 86  List  I the Union, as the repository of the residuary power, had the competence to legislate as long as the topic was not  allot- ted to or within the State-power. It was further observed:                         "It seems to us unthinkable that the               Constitutionmakers, while creating a sovereign               democratic republic, withheld certain  matters               or taxes beyond the legislative competency  of               the legislatures in this country either legis-               lating singly or jointly  .....  "               "   .....  There is no principle that we  know               of which debars Parliament from relying on the               powers  under specified entries 1 to 96,  List               I,  and supplement them with the powers  under               Entry  97  List I and Art. 248, and  for  that               matter powers under entries in the  Concurrent               List."                                                    (p. 74)     18.  The subject of a tax is different from the  measure

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of the levy. The measure of the tax is not determinative  of its essential character or of the competence of the legisla- ture. In M/s. Sainik Motors v. State of Rajasthan, [1962]  1 SCR  5  17 the provisions of a State-law levying  a  tax  on passengers and goods under Entry 56 of List I were  assailed on  the  ground that the State was, in the guise  of  taxing passengers  and goods, in substance and reality  taxing  the income of the stage carriage operators or, at any rate,  was taxing the "fares and freights", both outside of its powers. It  was pointed out that the operators were required to  pay the  tax  calculated at a rate related to the value  of  the fare and freight. Repelling the contention, Hidayatullah  J. speaking for the Court said: 947 "   ....   We  do not agree that the Act, in  its  pith  and substance, lays the tax upon income and not upon  passengers and goods. Section 3, in terms, speaks of the charge of  the tax  "in respect of all passengers carried and goods  trans- ported by motor vehicles", and though the measure of the tax is  furnished by the amount of fare and freight charged,  it does not cease to be a tax on passengers and goods  .....  " Indeed, reference may be made to the following statement  in Encyclopaedia Britannica (Vol. 14 page 459) on ’Luxury Tax’:                         "A  different  approach  to   luxury               taxation, much less frequently found, seeks to               single out the luxury component of spending on               a  given object rather than  taxing  specified               goods and services as luxuries. One example of               this is the Massachusetts 5% tax on restaurant               meal of $1 or more ......"                                        (Emphasis supplied)     19. The submissions of the learned Attorney-General that the  tax  is  essentially a tax on expenditure  and  not  on Luxuries  or sale of goods falling within the  State  power, must,  in  our  opinion, be accepted. As  contended  by  the learned  Attorney General, the distinct aspect namely,  ’the expenditure’  aspect  of the transaction  falling  with  the Union power must be distinguished and the legislative compe- tence to impose a tax thereon sustained. Contention (a)  is, in our opinion, unsubstantial and, accordingly, fails. 20. Re: Contention (b):     It is urged that the application of the Act is  confined to hotels where the "room-charges" for any unit of  residen- tial accommodation are Rs.400 or more per day per  individu- al,  while  expenditure  of greater  magnitude  and  quantum incurred in other hotels is not exigible to the tax,  either because  such room-charges are less than Rs.400  or  because the establishment which, though providing food and drink and other  services  envisaged  by Section 5,  may  not  provide residential accommodation. This distinction, it is said,  is violative  of  the constitutional pledge  of  equality.  The averments in this behalf in the memorandum of writ  petition are these:               "There is no basis or intelligible differentia               for discriminating between the levy of the tax               on expenditure over food or drink provided  by               a hotel and the food or drink provided by               948               a restaurant or eating house not situated in a               hotel (or in a hotel to which the Act does not               apply) even though the cost of food or  bever-               age is higher than that on similar items in an               applicable Hotel. There is also no  intelligi-               ble  differentia  for  discriminating  between               levying  of  tax on expenditure  on  food  and

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             drinks outside the hotel which is provided  by               the  hotel and not levying tax on  expenditure               on food and drinks incurred outside the  hotel               but  which is not provided by the hotel,  even               though  the  latter expenditure  may  be  more               greater than the former  ...."               "The  arbitrariness and lack  of  intelligible               differentia  is even more apparent in  respect               of  clause  5(d) read with Exception  (c).  To               give an example, if a shop or office is  owned               by  the  hotel in the hotel,  any  expenditure               incurred  in such a shop or office  would  at-               tract  expenditure tax but if such a  shop  or               office  is not owned or managed by  the  hotel               even  though situated in the  hotel  premises,               such expenditure in by the hotel would not  be               liable to the impugned expenditure tax."                         "By  way of illustration it  may  be               pointed  out that in the City of Bombay  there               are  numerous  restaurants like, Talk  of  the               Town,  China Garden, Gazebo and Gaylord  which               are similarly situated in every way to restau-               rants  located in applicable hotels, from  the               point of view of their decor, furnishing,  the               range  of the menu, the pricing of the  items,               the  standards  of service. The  clientele  of               such  restaurants are also as affluent as  the               class  of  people  who  patronise  restaurants               which  are located in applicable hotels.  Fur-               ther  more, many of the said independent  res-               taurants are far more luxurious and  expensive               than restaurants and/or dining rooms  attached               to  applicable  hotels in the City  of  Bombay               which have one or more rooms charging a  daily               tariff of rupees 400 or more per person."     It  is now well settled though taxing laws are not  out- side Article 14, however, having regard to the wide  variety of diverse economic criteria that go into the formulation of a  fiscal-policy legislature enjoys a wide latitude  in  the matter  of  selection of  persons,  subject-matter,  events, etc., for taxation. The tests of the vice of  discrimination in a taxing law are, accordingly, less rigorous. In  examin- ing the allegations 949 of  a hostile, discriminatory treatment what is looked  into is  not its phraseology, but the real effect of  its  provi- sions. A legislature does not as an old saying goes, have to tax  everything  in order to be able to  tax  something.  If there is equality and uniformity within each group, the  law would not be discriminatory. Decisions of this Court on  the matter  have permitted the legislatures to exercise  an  ex- tremely  wide discretion in classifying items for  tax  pur- poses,  so long as it refrains from clear and  hostile  dis- crimination against particular persons or classes.     But,  with all this latitude certain irreducible  desid- erata of equality shall govern classifications for differen- tial treatment in taxation laws as well. The  classification must be rational and based on some qualities and  character- istics  which  are to be found in all  the  persons  grouped together and absent in the others left out of the class. But this  alone is not sufficient. Differentia must have  a  ra- tional  nexus with the object sought to be achieved  by  the law.  The State, in the exercise of its Governmental  power, has,  of  necessity, to make laws operating  differently  in relation  to different groups or class of persons to  attain

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certain  ends  and  must, therefore, possess  the  power  to distinguish  and  classify  persons or things.  It  is  also recognised  that no precise or set formulae  or  doctrinaire tests  or  precise  scientific principles  of  exclusion  or inclusion  are to be applied. The test could only be one  of palpable  arbitrariness applied in the context of  the  felt needs  of  the  times and societal  exigencies  informed  by experience.     21. Classifications based on differences in the value of articles  or  the  economic superiority of  the  persons  of incidence  are well recognised. A reasonable  classification is  one  which includes all who are similarly  situated  and none who are not. In order to ascertain whether persons  are similarly  placed, one must look beyond  the  classification and to the purposes of the law.     In  Jaipur  Hosiery Mills Ltd. v.  State  of  Rajasthan, [1970] 2 SCC 27 a notification under the Rajasthan Sales-tax Act, 1950, exempting from tax the sale of garments which did not exceed Rs.4 per piece was assailed. This court found the classification permissible. It was held:               "   .....  It has to be borne in mind that  in               matters of taxation the Legislature  possesses               the large freedom in the matter of classifica-               tion. Thus wide discretion can be exercised in               selecting  persons  or objects which  will  be               taxed and the statute is not open to attack on               the mere ground that it               950               takes some persons or objects and not  others.               it is only when within the range of its selec-               tion the law operates unequally and cannot  be               justified on the basis of a valid  classifica-               tion that there would be a violation of  Arti-               cle 14." In Hiralal v. State of UP, [1973] 2 SCR 502 this Court said:               "   ....   it is open to  the  legislature  to               define  the nature of the goods, the  sale  or               purchase  of which should be brought  to  tax.               Legislature  was not incompetent  to  separate               the processed or split pulses from the unsplit               or  unprocessed  pulses and treat the  two  as               separate and independent goods."               "  .....  But the legislature has wide  powers               of classification in the case of taxing  stat-               utes."                                                               (p.               510)               "   .....   The  classification  between   the               processed or split pulses .and unprocessed               or unsplit pulses is a reasonable  classifica-               tion.  It is based on the use to  which  those               goods  can be put. Hence, in our opinion,  the               impugned  classification is not  violative  of               Art. 14."                                                               (p.               511)     In  State of Gujarat v. Sri Ambika Mills Ltd., [1974]  3 SCR 760 Mathew J. said:               "Statutes are directed to less than  universal               situations.  Law  reflects  distinction   that               exist  in fact or at least appear to exist  in               the  judgment of legislations--those who  have               the  responsibility for making law  fit  fact.               Legislation  is  essentially empiric.  It  ad-               dresses  itself  to  the more  or  less  crude

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             outside  world  and not to the  neat,  logical               models of the mind. Classification is inherent               in  legislation. To recognize  marked  differ-               ences  that  exist in fact is living  law;  to               disregard  practical differences  and  concen-               trate on some abstract identities is  lifeless               logic."               "In the utilities, tax and economic regulation               cases,  there  are good reasons  for  judicial               self-restraint  if not judicial  deference  to               legislative  judgment. The  legislature  after               all  has the affirmative  responsibility.  The               Courts have only the               951               power  to  destroy, not to  reconstruct.  When               these are added to the complexity of  economic               regulation, the uncertainty, the liability  to               error,  the  bewildering conflict of  the  ex-               perts, and the number of times the judges have               been overruled by events--self-limitation  can               be seen to be the path to judicial wisdom  and               institutional prestige and  stability."                                                (p. 784)     In G.K. Krishnan v. Tamil Nadu, [1975] 2 SCR 715  Mathew J.  referred  to the following observations of  the  Supreme Court   of  U.S.A.  in  San  Antonio  School   District   v. Bodrigues,:               "Thus  we  stand on familiar  ground  when  we               continue  to acknowledge that the Justices  of               this  Court  lack both the expertise  and  the               familiarity  with local problems so  necessary               to  the making of wise decisions with  respect               to  the  raising  and  disposition  of  public               revenues.  Yet,  we are urged  to  direct  the               States   either  to  alter,  drastically   the               present  system or to throw out  the  property               tax altogether in favour of some other form of               taxation.  No scheme of taxation, whether  the               tax  is imposed on property, income,  or  pur-               chases  of  goods and services, has  yet  been               devised  which is free of  all  discriminatory               impact.  In such a complex arena in  which  no               perfect  alternatives  exist, the  Court  does               well not to impose too rigorous a standard  of               scrutiny lest all local fiscal schemes  become               subjects of criticism under the Equal  Protec-               tion Clause."                                                 (p. 729) In  I.T.O.  v. N. Takim Roy Limbe, [1976] 3 SCR 413  it  was held:               "   .....  Given legislative  competence,  the               legislature  has ample freedom to  select  and               classify  persons, districts,  goods,  proper-               ties, incomes and objects which it would  tax,               and  which  it would not tax. So long  as  the               classification  made  within  this  wide   and               flexible  range by a taxing statute  does  not               transgress the fundamental principles underly-               ing  the doctrine of equality, it is not  vul-               nerable on the ground of discrimination merely               because  it  taxes or exempts  from  tax  some               incomes  or  objects and not others.  Nor  the               mere fact that tax falls more heavily on  some               in the same category, is by itself a ground to               render the law invalid. It is only

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             952               when  within the range of its  selection,  the               law operates unequally and cannot be justified               on  the basis of a valid classification,  that               there would be a violation of Article 14."     In the present case, the bases of classification  cannot be  said  to  be arbitrary or unintelligible  nor  as  being without a rational nexus with the object of the law. A hotel where a unit of residential accommodation is priced at  over Rs.400 per day per individual is, in the legislative wisdom, considered a class apart by virtue of the economic superior- ity of those who might enjoy its custom, comforts and  serv- ices.  This  legislative assumption cannot be  condemned  as irrational. It is equally well recognised that judicial veto is  to  be exercised only in cases that leave  no  room  for reasonable doubt. Constitutionally is presumed. These  words of James Bradley Thayer may be recalled:               "This  rule recognizes that, having regard  to               the  great, complex ever-unfolding  exigencies               of government, much which will seem  unconsti-               tutional  to  one  man, or body  of  men,  may               reasonably  not seem so to another;  that  the               constitution often admits of different  inter-               pretations;  that  there is often a  range  of               choice  and judgment; that in such  cases  the               constitution does not impose upon the legisla-               ture any one specific opinion, but leaves open               this range of choice; and that whatever choice               is rational is constitutional."                                                    (Emphasis               Supplied)               [See:  Supreme Court Statecraft; The  Rule  of               Law and Men: Wallace Mendelson: p. 4. ]     Thayer also referred to the words of a Chief Justice  of Pennsylvania  way back in 1811 which are also worth  recall- ing:               "For weighty reasons, it has been assumed as a               principle  in constitutional  construction  by               the  Supreme  Court of the United  States,  by               this  court, and every other court of  reputa-               tion in the United States, that an Act of  the               legislature is not be declared void unless the               violation of the constitutional is so manifest               as to leave no room for reasonable doubt."     In  Secretary  of Agriculture v. Central  Roig  Refining Co., [1949] 338 U.S. 604 the Supreme Court of USA said: 953               "   .....   This court is not a  tribunal  for               relief for crudities and inequities of compli-               cated experimental economic Legislation."     In  M/s Hoechst Pharmaceuticals Ltd. v. State of  Bihar, AIR 1983 SC 1019 it was observed:               "  .....  On questions of economic regulations               and  related matters, the court must defer  to               the  legislative-judgment. When the  power  to               tax  exists, the extent of burden is a  matter               for  the discretion of the law-makers.  It  is               not the function of the Court to consider  the               propriety or justness of the tax or enter upon               the  reality  of Legislative  policy.  If  the               evident  intent and general operations of  the               tax legislation is to adjust the burden with a               fair  reasonable degree of equality, the  con-               stitutional requirement is satisfied  .....  "     22. It is contended that the standards and measures  for

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the  computation of the "chargeable-expenditure"  under  the Act  is  vague  and arbitrary. It is pointed  out  that  the expression  or  "other similar services" in clauses  (d)  of Section 5 is non-specific and vague. This argument does  not commend itself to us. It is true that when the statute  says "other  similar services" it does not contemplate  that  the "other  services"  shall, in all respects, be the  same.  If they were the same then words would, indeed, be unnecessary. These were intended to embrace services like--but not  iden- tical with--those described in the preceding words.     The  content of the expression "other similar  services" following, as it does, the preceding expressions "by way  of beauty  parlour,  health club, swimming pool or ..."  has  a definite connotation in the interpretation of such words  in such  statutory contexts. The matter is one of  construction whether any particular service falls within the section  and not one of constitutionality. We find contention (b) also not acceptable either. 23. Re: Contention (c):     It  is  urged that the provisions of the Act  impose  an unreasonable  restriction  on the  petitioners’  fundamental right under Article 19(1)(g). It is averred in the petition: 954               "....   The various taxes to which  the  hotel               industry  is subject to are mentioned  in  the               earlier part of this Petition. Thus in respect               of food and beverages consumed in a hotel, the               element  of taxes representing sales  tax  and               the  present  Expenditure-Tax works  out,  for               example  in Maharashtra, to as much as  thirty               five  per  cent. Likewise, in respect  of  the               room  tariff,  element of tax works  out,  for               example in Gujarat, to as much as thirty seven               per cent. The details of the said calculations               are  given  in  Exhibit ’D’  annexed  to  this               Petition. The hotel industry today is  subject               to an extremely heavy dose of taxation in  the               shape of incometax and even the recent tax  on               works contracts. The Petitioners say that  the               tourism, industry is now not in a position  to               sustain any additional burden and the impugned               tax is literally the last straw on the camel’s               back ...."  " It is also contended:               "   .....  Several of the hotels belonging  to               members   of  Petitioners  Associations   have               entered into long-term contracts for supply of               food and beverages and for providing  accommo-               dation. The execution of such contracts  would               become onerous and even impossible in view  of               the levy of the present Expenditure-Tax. There               is  no  provision in the Act or  any  separate               legislation whereby hotels can pass on such  a               tax  to persons who have contractually  agreed               to   avail  of  any  services  at   contracted               rates  .....  "     24.  A taxing statute is not, per-se, a  restriction  of the freedom under Article 19(1)(g). The policy of a tax,  in its  effectuation, might, of course, bring in some  hardship in some individual cases. But that is inevitable, so long as law represents a process of abstraction from the  generality of  cases  and  reflects the  highest  common-factor.  Every cause,  it  is said, has its martyrs. Then again,  the  mere excessiveness  of a tax or even the circumstances  that  its imposition might tend towards the diminution of the earnings

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or profits of the persons of incidence does not, per-se, and without  more,  constitute  violation of  the  rights  under Article  19(1)(g). Fazal Ali J., though in a different  con- text, in Sonia Bhatia v. State of U.P. & Ors., [1981] 3  SCR 239 at 258 observed:               "   .....  The Act seems to implement  one  of               the  most important constitutional  directives               contained in Part IV of               955               the Constitution of India. If in this  process               a few individuals suffer severe hardship  that               cannot  be  helped, for  individual  interests               must  yield  to the larger  interests  of  the               community or the country as indeed every noble               cause claims its martyr." Contention (c) is also insubstantial.     25.  In  the result, for the foregoings  reasons,  these petitions  fail and are dismissed. However, in  the  circum- stances of the case there will be no order as to costs.     RANGANATHAN,  J.  1. I have perused the judgment  of  my learned  brother  Venkatachaliah, J. in this batch  of  writ petitions as well as in the two connected batches of matters viz.  CA  Nos. 338 and 339 of 1981 and WP  Nos.  254-261  of 1981. I respectfully agree with his conclusions in all these matters but wish to add a few words, primarily in so far  as the constitutional validity of the Expenditure Act, 1987  is concerned.  As my learned brother has set out, analysed  and discussed in detail the provisions of the various  statutes, the validity of which is in question, I shall avoid a  repe- tition of the same and confine myself only to the considera- tion of the crucial issues for determination.     2. The contentions of the assessees in the three batches of cases above referred to, prima facie, sought to make  out a state of direct collision between a group of State  enact- ments on the one hand and a couple of Central enactments  on the other, which cannot be averted save by declaring one set of  the  enactments  to be invalid. The  powerful,  if  also "diplomatic",  endeavour  of the learned  Attorney  General, appearing  for  the Union of India, was to show  that  these sets  of enactments are not really on a collision course  at all  but, on the contrary, are proceeding on parallel  lines and that each of the sets of legislations is quite safe from attack  on the ground of legislative  incompetence.  Whether this  contention is acceptable and both sets  of  enactments can  be saved or whether one of the two has to give  way  to the other is the question for consideration in these batches of cases.     3.  The set of State enactments which blazed  the  trial (to be followed up by others) and hence are prior inpoint of time,  is  that  comprising of various  statutes  passed  by several  States  in India. The  specific  State  legislation which  are in challenge in the petitions and appeals  before us (as indicated in the brackets at the end) are: 956 (a) Gujarat Tax on Luxuries (Hotels and Lodging Houses)  Act (No. 24 of) 1977.                                    (C.A. 338,339/1981; W.P.                                    Nos. 7990, 8338, 8339,                                    9110of 1981) (b) Tamil Nadu Tax on Luxuries in Hotels and Lodging  Houses Ordinance, 1980 followed by an act (Act No. 6 of 1981)                                    (WP 162/82) (c)  Karnataka Tax on Luxuries (Hotels and  Lodging  Houses) Act (No. 22 of) 1979.                                    (WP 1271-2/82)

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(d)  West  Bengal Entertainments and  Luxuries  (Hotels  and Restaurants) Tax Act (No. 21 of) 1972.                                    (WP 5321/85) The  States  of Uttar Pradesh, Maharashtra and  Kerala  have also passed similar enactments, being the: (a)  Uttar Pradesh Taxation and Land Revenue Laws Act,  (No. 8) of 1975; (b)  Maharashtra Tax on Luxuries (Hotels &  Lodging  Houses) Act (XLI of) 1987; and (c) Kerala Tax on Luxuries in Hotels and Lodging Houses  Act (No. 32 of) 1976 repealing Kerala Ordinance No. 5 of 1976.     4.  The above statutes have apparently been  enacted  by the  various State Legislatures in exercise of the  legisla- tive  powers conferred on them under article 246(3)  of  the Constitution,  read with Entry 62 of List II in the  Seventh Schedule to the Constitution of India, which runs: "62.  Taxes on luxuries, including taxes on  entertainments, amusements, betting and gambling." (Some aspects thereof are also sought to be related to Entry 54  of  List II, but as this stands on the same  footing  as Entry  62 for the purposes of the present case, no  separate reference  is made to Entry 54 hereinafter). This  is  clear because the short title to each of the above 957 enactments describes it as an Act to provide for the  "impo- sition" or "the levy and collection" of a tax on  "luxuries" or  "entertainment and luxuries" in or provided in  "hotels" or "hotels and restaurants" or "hotels and lodging  houses". Although  "luxuries and entertainments" may be  provided  or availed of in various ways and could all be made the subject matter  of a tax by virtue of the entry above  referred  to, these  enactments  are  confined only to one  type  of  such entertainments  and luxuries viz. those provided in  hotels, restaurants or lodging houses as defined under the  relevant enactments.  Also, only certain specified classes of  enter- tainments or luxuries provided in such places are brought to tax.  The details of the imposition, levy and collection  of the taxes vary with the enactments and need not be  repeated here. It is quite clear from the scheme of the  legislations that  they all fall within the scope of Entry 62 of List  II set out earlier. My learned brother has held so and I agree. Indeed,  their  validity would, perhaps, have  gone  unchal- lenged  but  for the enactment of Parliament  of  the  Hotel Receipts  Tax, 1980, (hereinafter referred to as  ’the  1980 Act’). When, in pursuance of the 1980 Act, a tax on some  of the  receipts of a hotelier was sought to be charged  w.e.f. 1st  February,  1981,  it was but natural for  some  of  the affected hoteliers to rush to Court for relief against  this two-pronged taxation of their receipts. Writ petitions  were filed challenging the competence of both sets of  enactments and  these  have  now come up for final  hearing.  It  must, however,  be mentioned here that the levy of  the  Hotel-Re- ceipts  Tax was withdrawn after a year; nevertheless it  was in operation for one assessment year and hence the challenge to its validity is not purely academic. The validity of  the 1980 Act has been upheld by my learned brother as  traceable to Entry 82 of List I in the Seventh Schedule to the Consti- tution.  Taxes on income other than agricultural  income.  I respectfully agree.     5.  The relief conferred by the withdrawal of  the  1980 Act  was, however, short-lived; it was only a  "lull  before the  storm" which descended on all hoteliers in the form  of the  Expenditure Tax Act, 1987 (hereinafter referred  to  as ’the  1987  Act’). Before referring to this  enactment,  the validity  of which has been challenged in writ petition  no.

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1393 of 1987, it will be convenient to run back on the  time machine by a period of three decades.     6.  Mr.  Nicholas  Kaldor, Reader in  Economics  in  the University of Cambridge, was the proponent of a levy  styled as "Expenditure Tax". When the Government of India requested him,  sometime in the firties, 10 have a look at the  system of  direct taxation prevailing in this country and make  his recommendations for a comprehensive scheme 958 of  tax  reform, he suggested, inter alia, the  levy  of  an "expenditure tax". His opinion was that such a levy, supple- menting an income tax levy at rates lower than those  preva- lent  then, would enable the Government to more  effectively harness its resources. In the course of arguments before us, copious references have been made to passages from  Nicholas Kaldor’s  book  (’An Expenditure Tax’  published  by  George Allen & Unwin Ltd. of U.K.) and his ’Survey Report on Indian Tax  Reform’ (published by the Government of India)  out  it will  be  sufficient  to mention here  that  Prof.  Kaldor’s report was implemented by Parliament by enacting the Expend- iture  Tax Act, 1957 (hereinafter referred to as  ’the  1957 Act’).  The validity of the above Act was challenged  before this Court but unsuccessfully. The decision of this Court is reported as Azarnjah v. E.T.O., [1972] 1 SCR 470. The nature and  scope  of  the Act have been dealt with  in  the  above decision and it is unnecessary to repeat the same here.     7.  The 1957 Act was withdrawn after a few years; to  be precise,  with effect from assessment year 1965-66.  It  was given up both because it was found to be too cumbersome  and difficult to administer and also because the yield of  reve- nue therefrom was not substantial due to the limited  number of  assessees it covered. After it was given up, as  already mentioned, the 1980 Act occupied the field for a very  short time, the pendency of writ petitions challenging its validi- ty  having  perhaps largely contributed to  its  withdrawal. After  some interval, now, Parliament has come in  with  the 1987 Act. The ambit and scope of this Act along with, on the one  hand, its distinguishing features, as  contrasted  with the  1957 and 1980 Acts and its similarities, when  compared to  the State legislations, on the other, have been  brought out in the judgments of brother Venkatachaliah J. and do not need repetition here. It is in this background that we  have to  determine  the pith and substance of the  1987  Act  and decide whether Parliament had the legislative competence  to enact the same or not.     8.  The short question that one has to answer  in  these cases  is whether the levies in question by the  States  and the  Union  can both stand or whether we have to  treat  the levies as either tax on ’luxuries’ or as tax on ’income’  or ’expenditure’ and thus uphold one of them but not both. I do not think there can by any doubt at all that, in the context of  the  social and economic conditions  that  prevailed  in India,  it  was a luxury for any person to  stay  in  hotels charging  high rents and providing various types of  facili- ties, amenities and conveniences such as telephone,  televi- sion,  air-conditioner, etc. The decision of this  Court  in Abdul Kadir & Sons v. State of Kerala, [1976] 2 SCR 690, and 959 in  particular,  the discussion at pages 699 to  701  places this  beyond all doubt. This aspect has also been  discussed by  Thakkar, J. of the Gujarat High Court (as  His  Lordship then was) in the judgment under appeal and I am in agreement with his reasonings and conclusion that the Gujarat  statute has been validly enacted in exercise of the powers available to  the State legislatures under Entry 62 of List  I1.  This

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applies  equally to the other impugned State  enactments  as well.     9. It has been argued that the monetary ceilings for the rents  have been fixed at such low figures that even  tempo- rary  stay at a not so comfortable hotel or  lodging  house, when  a  person is constrained to go outside  his  hometown, will  become a luxury, according to these standards.  Indeed some statistics have been supplied by the Gujarat  petition- ers in support of such a contention. But this, I think, is a matter  which must be left to legislative determination.  As is well known the legislature has, particularly in a  taxing statute,  a considerable amount of latitude and there is  nO material to hold that, in fixing the standards of indication of  luxury  the legislature, has not applied  its  mind.  In fact,  the figures have been amended from time to time  and, one has to presume that the legislature had good reason  for fixing  these standards. The State legislations  are  there- fore,  clearly, within the competence of the State  legisla- tures and are not liable to be challenged.     10. It seems equally cleat that the pith and legislation of the 1980 Act is, as held by Venkatachaliah, J.  traceable to  Entry  82 of List I. In interpreting the  scope  of  the legislative  entries in the three lists, we have to keep  in mind that, while on the one hand, it is desirable that  each entry  in  each  of the lists should  receive  the  broadest interpretation, it is equally important, on the other,  that the  three lists should be read together  and  harmoniously. Our  attention was drawn to some of the entries in  List  II which show that the legislative power in respect thereof are to  be exercised subject to the powers of Parliament  envis- aged  under List I, vide entry Nos. 2, 17, 22, 23,  24,  26, 27, 32, 33 and 50. There is no doubt that these entries have to be read subject to the entries of List I which have  been mentioned  or the powers of Parliament referred to  therein. These,  however,  are instances of entries which,  on  their very language, are controlled by entries in List I. But even apart  from these instances, the language of clause (1)  and (3)  of article makes it clear that the power of  the  State legislature to make laws with respect to any of the  matters enumerated  in List II is subject to the exclusive power  of Parliament  to make laws with respect to any of the  matters enumerated in List I. Hence, if a matter is 960 covered  by an entry in the Union List, no restrictions  can be read into the power of Parliament to make laws in  regard thereto. This is so far as the general power of  legislation is  concerned. As pointed out by this Court in  Sundararami- er’s  case,  (1958 S.C.R. 1422 at pp. 1479  and  1490),  the legislative entries are so arranged that the power to  enact laws in general and the power to impose taxes are separately dealt  with.  The subject matters of taxation  available  to Parliament  are. enumerated in entries 82 to 97 of  List  I, those  available to the State legislatures in entries 45  to 63  of  List II and those available to both in entry  44  of List III. Under s. 246(1) Parliament has exclusive power  to make  laws  with  respect to any of  the  matters--and  this includes the power to impose taxes--enumerated in List I. In this situation and in view of the fact that the 1980 Act is, in  pith and substance, a tax on income, its  constitutional validity can be in no doubt at all.     11. But can the Union enactment of 1987 also be support- ed  for  the same reasons, as imposing  an  expenditure  tax which,  as  held in Azam Jha’s case, 1972 1 SCR  470,  falls within  the scope of Entry 97 of List I? Sri Palkiwala  says it cannot be. His first contention is that the tax levied by

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the  1987 Act is not, in fact and in truth,  an  expenditure tax.  He says that it is not sufficient for the  legislature to give such a description or label to a tax proposed to  be levied  by it as does not fall under List II and claim  that it  should  be upheld under Entry 97. The tax sought  to  be imposed should be one which has real existence and  recogni- tion  in the world of economics. According to him, the  eco- nomic  concept  of an expenditure tax is of a  tax  that  is levied  not on isolated items of expenditure but one on  the totality of the expenditure incurred by an assessable  enti- ty,  just as income tax has gained recognition as a  tax  on the  total income of a taxable entity. That was the  concept of  the expenditure tax which Nicholas Kaldor had  in  mind, which  was  embodied in the 1957 Act and which,  hence,  was endorsed  with approval by this Court. A tax on a few  items of  expenditure, it is said, is not necessarily the same  as an expenditure tax. Referring to the decisions of this Court upholding  the levy of Wealth Tax and Gift Tax in as far  as it  affected  agricultural lands: Gift Tax Officer  v.  D.H. Nazareth  etc., [1971] 1 SCR 195 and Union of India v.  H.S. Dhillon, [1972] 2 SCR 33, it is submitted that the decisions may well have been different had they been concerned with an imposition  only  on "lands and buildings" by  reference  to their  capital value or only on "agricultural lands" on  the occasion of a gift.      12.  It is difficult to accept the contention that  the tax cannot be considered to be an expenditure tax because it is not on "expenditure" 961 generally  but is restricted to specific types  of  expendi- ture.  There is, no legal, judicial, economic or other  con- cept of expenditure tax that would justify any such restric- tive meaning. If, conceptually, the expenditure incurred  by a  person can be a subject-matter with reference to which  a tax  can  be levied, there is no reason  why  such  taxation should not be restricted only to certain items or categories of  expenditure  and why its base should necessarily  be  so wide  as to cover all expenditure incurred by an  assessable entity. After all, even under the 1957 Act, all  expenditure of  all  persons  was not liable to  tax.  It  substantially covered only certain types of assessees and certain types of expenditure (for several types of expenditure were exempted) and  that  too  only when it exceeded  certain  limits.  The analogy  of  the Income-tax or Wealth Tax or Gift  Tax  Acts also  does  not really help us. Though they  are  enactments which cover a larger area of the subject matter taxed,  that was because the legislature found it expedient to do so  and not  because they were obliged to cover the entire  area  of income, wealth or gift. An Act imposing a tax, for  example, on  hotel  receipts alone or dividends alone or  on  capital gains alone will not be any the less a tax on income  within the scope of Entry 82 of List I. Likewise even if the legis- lature  had confined its levy of wealth tax only to  certain assets  such as lands and buildings or the Gift Tax Act  had levied a tax only on gifts of agricultural land, they  would not  have  ceased to fall within the scope of  the  relevant entries  of  the Union List, so long as, in  pith  and  sub- stance,  they  are  found respectively to be  taxes  on  the capital  value of the assets in question or on the  transac- tion of gift. The Central Excise Act, for example, does  not levy  excise duty on the manufacture and production  of  all goods  and additional excise duty is levied only in  respect of  certain  goods. So also, in regard to sales tax.  It  is indeed  even possible to say that no tax levy in respect  of any  subject matter can or does operate universally  without

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any exceptions or exemptions. Selection of objects and goods for  taxation is the essence of any tax legislation and  any limitation  of the nature suggested is an  unwarranted  cur- tailment of this selective power of taxation of Parliament.     13.  There is also no established  legislative  practice which  would enable one to limit the concept of an  expendi- ture tax in the manner suggested. So far as expenditure  tax is concerned, the only legislation earlier in force was  the 1957  Act  which was in force for a period of  eight  years. Such short lived legislation can hardly furnish the  founda- tion of an argument to limit the scope of legislative  power to  the manner in which it was exercised under  that  enact- ment.  If,  after withdrawing this  legislation,  Parliament considered that it was not worthwhile or possible to  impose a tax on all expenditure and that it would 962 be sufficient, expedient or necessary to impose such a  levy only  on lavish spending in certain directions, that  cannot certainly be precluded on any theory of established legisla- tive  practice,  as was done in State of  Madras  v.  Gannon Dunkerley  Co., [1959] SCR 379 in respect of sales  tax.  In that  case the legislative trend prevalent over decades  was relied  upon in interpreting the expression "sale of  goods" used in the Constitution. But there the Court was  concerned with  a  legal term, "sale", which had acquired  a  definite connotation  in law and in legislative instruments and  that analogy cannot be availed of to interpret the scope of Entry 97. On the other hand, even a fairly long-established legis- lative  practice under which income tax levy by  the  Centre was  restricted  to items of income stricto sensu  (as  con- trasted with capital gains) was not considered sufficient to place that type of restriction on the interpretation of  the expression "taxes on income" used in the Central Legislative List: vide, Navinchanda Mafat Lal v. CIT, [1955] 1 SCR  829. Not only that, the validity of later definitions of "income" under  the Income-tax Act which have a much wider ambit  has been upheld as covered by the above legislative entry.  See, in  this  context, the decisions in Naynit Lal v.  AAC,  AIR 1965  SC 1375, Bhargava v. Union, [1966] 2 SCR 22 and  Bhag- wandas  v. Union, [1981] 2 SCR 808. There is not  even  that much  of legislative practice, so far as expenditure tax  is concerned, which would justify our importing any  limitation on  the concept of a "tax on expenditure" under Entry 97  of List  I. A perusal of the decision of this  Court  upholding the  validity of the 1957 Act Azam Jha’s case, [1972] 1  SCR 470 does not also justify the reading in of any such limita- tion.  The wider coverage of the tax made it easier for  the Court  to pin point its subject matter as "expenditure"  and to  treat it as a matter falling under the residuary  entry, but  it  does not justify the inference sought to  be  drawn that  a  tax cannot be said to be a tax  with  reference  to "expenditure" because it does not tax expenditure in general but  confines itself to certain types or categories  of  ex- penditure. Once it is granted that the tax need not  exhaust the entire universe of the subject-matter, the extent of the subject matter that should be covered or selected for impos- ing tax should be entirely left to Parliament. subject  only to  any criteria of discrimination or unreasonableness  that may attract the provisions of Part III of the Constitution.     14.  The  fact that the 1987 Act seeks to tax  only  the expenditure on items which can be described as luxuries  is, however, used by Sri Palkiwala to support his other  conten- tion  (which has really troubled me considerably)  that  the pith and substance of both sets of legislations is the same, that they both impose a tax only on luxuries or

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963 entertainments and that the distinction sought to be made on behalf of the Revenue that one is a tax on ’luxuries’  while the  other is a tax on the expenditure incurred by a  person on  luxuries is only a distinction between "Tweedledum"  and "Tweedledee". The object and effect of a tax on luxuries  is only  to curb expenditure on luxuries and such a tax may  be imposed,  levied  or collected either from the  provider  of luxuries  or  the person who enjoys them. The object  of  an expenditure tax is also similar and that can also be  levied either  on  the person who spends the  moneys  directly,  or through  some  other  person, or even from  the  person  who benefits by the incurring of such expenditure. The provision of a luxury and the payment for it are only obverse sides of the same coin and cannot, from any practical point of  view, be  considered as two separate and independent subject  mat- ters of taxation. It is a well settled proposition that  the entries in the legislative lists should be given the  broad- est  of connotation and, hence, a tax on luxuries by  refer- ence to the expenditure thereon will fall clearly under  the entry in the State List. The pith and substance of both sets of legislation, therefore, fails only under entry No. 62  of the State List. This being so, Entry 97 of List I will  have no  applicability at all; that can be called in aid only  to cover  matters  not  specifically enumerated  or  taxes  not mentioned in List II or III. It is, therefore, not possible. it  is  urged, to sustain the validity of the  1987  Act  by reference to Entry 97 of List I.     15.  The  learned Attorney General sought to  meet  this contention  in  two ways. He first urged that the  pith  and substance  of the two legislations are different. A  tax  on ’luxuries’  measured by reference to the amount  charged  or paid therefore is totally different from a tax to curb  opu- lent or ostentatious expenditure even though the  categories of  expenditure  brought  in for taxation  by  a  particular statute may be restricted. The latter cannot be described as a  tax on ’luxuries’ and does not fall within the  scope  of Entry 62 of the State List and, in the absence of any refer- ability  to  any other entry of List II’, it  is  safe  from attack  under  Article 248(2) and will also be  covered,  if need be, by Entry 97 of List I. The second argument is that, after  the  decision in Azatn Jha’s case, [1972] 1  SCR  470 holding  that  a "tax on expenditure"  will  be  legislation covered  by Entry 97 in List I, the constitutional  position is the same as if, before item 97, a specific entry had been inserted  in List I (say, Entry no. 96A) which reads  "Taxes on  expenditure". The result, he says, is that  the  Central legislation  will be squarely covered by an entry in List  I and so we need not embark on any investigation as to whether it falls or does not fall under any entry in List II or List III. 964     16. It seems to me that there is a fallacy in the second line of argument addressed by the learned Attorney  General. I do not think that the legislative lists can be  interpret- ed,  as suggested by him, on the assumption that there is  a deemed  entry, "Taxes on Expenditure". added to List I as  a result of the decision in Azam Jha’s case [1972] 1 SCR  470. One cannot add entries to the legislative lists on the basis of decisions of this Court. In Azam Jha’s case, the pith and substance  of the Act considered did not fall under  any  of the  entries  in List II or III. That being so,  this  Court upheld  it by reference to Entry No. 97 describing the  tax, having regard to its pith and substance, as a tax on expend- iture.  Here,  however, we have a legislation  which  covers

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only certain types of expenditure and the contention of  the petitioners  is  that ,these are all  items  of  expenditure pertaining  to  luxuries. The decision in  Azam  Jha’s  case cannot  help us to determine whether the legislation  before us  should be construed as imposing a tax on expenditure  or one  on  luxuries.  If, in spite of its  dealing  with  only certain  types of expenditure relatable to luxuries, it  can be said to be, in pith and substance, not a tax on luxuries, then  we may hold that parliament can legislate with  refer- ence to it and, for purposes of convenience, take  advantage of  its  description as a tax on expenditure to rest  it  on Entry  97  of  List I. In other words, Entry 97  of  List  I cannot come to our rescue unless we are in a position to say that the substance of the Central legislation in question is not  a tax on luxuries, entertainments or  amusements.  This takes  us to the first part of the argument of  the  learned Attorney General.     17. Is there a tenable and true distinction between  the tax on expenditure levied by the Act and a tax on  luxuries? Are  Parliament and the State Legislatures dealing with  the same  ’matter’  and taxing one and the  same  thing,  though describing it differently--or are they taxing two  different matters  or  things?  Sri Palkiwala says  that  the  subject matter of taxation is ’luxury’ and that it is meaningless to consider  the expenditure incurred on it as a  separate  and distinct subject matter. The acceptance of such an argument, he  says, will lead to double taxation in respect of  almost every  matter on earth. For instance, A may be taxed on  the salary  or  interest  or dividend paid to him by  B  as  his income and, at the same time, B can be asked to pay a tax on the  expenditure  incurred  by him by way  of  such  salary, interest or dividend payment. A can be asked to pay a wealth tax  on the capital value of the assets acquired by him  and also  asked to pay an expenditure tax on the money spent  on such  acquisition. A can be asked to pay a sales tax on  the goods  sold by him to B and also asked to pay or  collect  a tax on the expenditure incurred by B to purchase the same. 965 Such  instances, he says, can be multiplied and will  reduce the argument to an absurdity.     18.  The  Attorney General, on the other  hand,  submits that  the  question whether both legislation relate  to  the same matter does not bring out correctly the controversy  in issue.  He  says that if the expression  "matter",  in  this context,  is understood in its widest sense. it will  create chaos in the matter of interpretation of the lists.  Accord- ing to him, for applying the doctrine of pith and  substance we  have  to  understand the expression ’matter’  not  in  a ’gross’, but in a ’rare’ sense. He develops this  contention by  invoking,  to his aid, what may be called  the  ’aspect’ rule  as explained in certain text books and judicial  deci- sions. 19.  A.H.P. Lefroy in his ’Canadian Constitution’  observes, at                                                       p. 98:               "Sec.  XXI.  Aspect of  legislation:  Subjects               which  in  one  aspect and  one  purpose  fall               within s. 92 of the Federation Act and so  are               proper  for  provincial  legislation  may.  in               another  aspect and for another  purpose  fall               within  s.  97 and so be proper  for  Dominion               legislation. And as the cases which illustrate               the  principle show, by ’aspect’ here must  be               understood the aspect or point of view of  the               legislator in legislating, the object, purpose

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             and scope of the legislation. The word is used               subjectively  of the legislator,  rather  than               objectively of the matter legislated upon." To  similar  effect is the passage from  Laskin’s  "Canadian Constitutional Law" extracted in the judgment of Venkatacha- liah,  J.  the Federal Court in the C.P. &  Berar  Act  case [1939]  FCR 18 also touches upon the ’aspect’ theory  at  p. 49:               "Here are two separate enactments, each in one               aspect  conferring the power to impose  a  tax               upon  goods;  and it would accord  with  sound               principles  of construction to take  the  more               general power, that which extends to the whole               of India as subject to an exception created by               the  particular power, that which  extends  to               the Province only."                                                      (emphasis               added) A  similar reference to the ’aspect’ of legislation  can  be seen  in Kerala State Electricity Board v. Indian  Aluminium Co., [1976] 1 SCR 562 at p. 573-4. 966               "The argument of the learned Solicitor General               appearing on behalf of the Kerala  Electricity               Board  in support of his submission  that  the               legislation  falls under Entries 26 and 27  of               List  II may be summarised as  follows:  Those               entries  do not enable the State  Legislatures               to  legislate with regard to  all  conceivable               goods  like arms, ammunition, atomic  minerals               etc.  as was argued by Mr. Sen. A  legislature               while  legislating  with  regard  to   matters               within  its competence should be deed to  know               its  limits and its legislative authority  and               should not be deemed to be legislating  beyond               its  jurisdiction. One thing that  has  always               got  to  be kept clear in one’s mind  is  that               there may be more than one aspect with  regard               to a particular subject matter".                                                         (emphasis               added) Relying on this principle, backed by these observations, the learned Attorney-General submits that, properly  understood, the pith and substance of the 1987 Act is ’expenditure’, not ’luxuries’.     20. At first blush, the argument of the learned Attorney General  may sound a little subtle and  somewhat  artificial but, on some reflection, legislative competence will  indeed be  seen to vary with different aspects of a subject  matter as understood in a wide sense. This can be seen from some of the decided cases. The first triumvirate of cases that arose in  India  under  the Government of India Act,  viz.  In  re Central  provinces & Berar Act XIV of 1953, [1939]  FCR  18; Province  of Madras v. Boddu Paidanna & Sons, [1942] FCR  90 and  G.G. in Council v. Province of Madras, [1945] FCR  179, were  concerned with the question whether the  impugned  tax was one on the sale of goods or an excise duty. Interpreting the word ’subject matter’ in a broad sense it could  perhaps be said that both were taxes with respect to goods. But this concept  alone  was not sufficient to dispose  of  the  case because  the  relevant legislative entries did not  talk  of taxes with respect to goods but referred to taxes in respect of two different activities referable to goods (conveniently described  as the ’taxable event’), one the manufacture  and production of goods and the other with sale thereof. In  the

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light of these legislative entries the two different activi- ties  could properly regarded as two different  matters  for taxation  and  the relevant legislation was held to  be  one concerned  with ’sale’ and not with ’manufacture’. In  other words,  there  could be two enactments "each in  one  aspect conferring the power to impose a tax upon goods". The legis- lation was held not to be vitiated merely because there  was an element of overlapping in that both excise duty and sales tax became 967 leviable  on the same assessee in respect of the same  goods and by reference to the same sale price when the first  sale after manufacture occurs, one by reference to the  ’manufac- ture’  aspect  and  the other by reference  to  the  ’sales’ aspect.  This bifurcation of the two different aspects  per- taining to goods was justified by the language of the legis- lative  entries themselves which referred separately to  the different sets of activities and put them down in  different legislative  lists. Again, on the same principle, the  manu- facture of electricity may attract excise duty at the  point of  its captive consumption (under Entry 84 of List  I)  and also a tax on the consumption or sale of electricity (refer- rable to Entry 53 of List II).     21.  The power to levy taxes with respect to  ’property’ has  created similar problems. All States  (or  corporations and municipalities therein) levy a property tax on the owner or  occupier which is almost universally measured by  refer- ence  to its annual value (viz. the rent it would  fetch  if let  from year to year). The Income-tax Act also  charges  a tax  on the same basis. In other words, in a  realistic  and practical sense, the tax was levied by both legislatures  on the  same amount and with reference to the same matter.  But both levies have been upheld under the 1935 Act, the  former as  a  ’tax  on lands and buildings,  hearths  and  windows’ (Entry  42  of List II) and the latter as a  tax  on  income (under Entry 84 of List I.) Ralla Ram [1948] FCR 207 pointed out that they were different types of levies one on the land and buildings (generally, but not necessarily, measurable by reference to the income derived or capable of being derived) and the other on the income (actually or notionally) derived from it. The pith and substance of the former, it was  said, was  not  ’income’ (from the property) though  the  tax  was levied on the basis thereof. Expressed differently, it could be said that, though both were taxes with respect to proper- ty,  they  touched different aspects of  the  above  subject matter;  the first was a tax on the aspect of  ownership  or occupation  of property; the second on the aspect of  income from  property. The decision of this Court in  Bhagwan  Dass Jain v. Union, [1981] 2 SCR 808 is also to the same effect.     22.  The Hingir -Rampur Coal Co. case [1961] 2  SCR  537 was  concerned  with  the validity of an  Orissa  Act  which sought  to levy a cess not exceeding 5% of the valuation  of the  coal stacked at pit’s mouth. The question  was  whether this was in pith and substance a duty of excise (Entry 84 of List  I)  or a fee to regulate and control the  coal  mining industry (Entry 66 and 23 of List II). Here again though the method  adopted  for recovering the impost was the  same  as that of an 968 excise duty, the validity of the tax was upheld as it relat- ed to the aspect of control over the industry rather than to the aspect of an impost on production of coal.     23.  Sainik  Motors case [1962] 1 SCR 517  furnishes  an illustration  which  comes nearer to the question  at  issue before us. In that case a Rajasthan Act purported to levy  a

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tax on passengers and goods measuring it by reference to the fares and freights charged by operators for carriage of such passengers  or goods. If it were to be treated as a  tax  on ’fares  and freights’ it would be a tax on income which  the State  legislature could not levy. But, if treated as a  tax on  passengers and goods carried by road it was valid  under Entry  56 of List II. The validity of the Act was upheld  on the  latter ground, the court pointing out that the tax  was on  goods  and passengers though measured  by  reference  to fares  and  freights. This dichotomy could perhaps  also  be justified  on the basis of the language of Entry 89 of  List I.  That entry makes a distinction between the two types  of imposts  and illustrates that two different aspects  of  the same  matter  viz.  taxes in respect  of  vehicles  carrying passengers or goods can form separate matters for taxation.     24.  In the light of the above entries and decisions,  I think  that the learned Attorney General is right in  urging that, merely because the 1987 Act as well as the State  Acts levy  taxes which have ultimate impact on persons who  enjoy certain  luxuries, the pith and substance of both cannot  be considered to be the same. The object of a tax on luxury  is to  impose a tax on the enjoyment of certain types of  bene- fits,  facilities  and advantages on which  the  legislature wishes to impose a curb. The idea is to encourage society to cater  better to the needs of those who cannot afford  them. For  instance, a luxury tax may, to cite a  catchy  example, encourage  construction of "janata" hotels rather than  five star  hotels. Such a tax may be on the person  offering  the luxury  or the person enjoying it. It may be levied  on  the basis  of the amount received for providing, or  the  amount paid for or expended for enjoying, the luxury.  Conceivably, it could be on different bases altogether. The object of  an expenditure  tax--and, that, conceptually, there can  be  an expenditure tax is borne out by Azam Jha’s case  (supra)--is to  discourage expenditure which the  legislature  considers lavish or ostentatious. The object of the first would be  to discourage  certain types of living or enjoyment while  that of  the second would be to discourage people from  incurring expenditure  in ’unproductive or undesirable channels. If  a general  Expenditure  Tax Act, like that of 1957,  had  been enacted, no challenge to its validity could have been 969 raised because it incidentally levied the tax on expenditure incurred  on  luxuries.  The fact that there  will  be  some overlapping  then or that here there is a good deal of  such overlapping, because the States have chosen to tax only some types  of  luxuries and the Centre to tax, atleast  for  the time being, only expenditure which results in such luxuries, should  not  be  allowed to draw a curtain  over  the  basic difference  between the two categories of imposts.  For  in- stance, if the conflict alleged had been between the present State  Acts  and  an Act of  Parliament  taxing  expenditure incurred in the construction of theatres or the  maintenance of  race horse establishments or the like, there would  have been no overlapping at all and the pith and substance of the central tax could well be described as "expenditure" and not "luxuries".  This  distinction  is  not  obliterated  merely because  of  the circumstance that  both  legislatures  have chosen to attack the same area of vulnerability, one with  a view to keep a check on ’luxuries’ and the other with a view to curb undesirable ’expenditure:.     For  these  reasons,  I agree with  my  learned  brother Venkatachaliah,  J. that the validity of the three  impugned enactments  has  to be upheld and these writ  petitions  and appeals dismissed.

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N.P.V.                             Petitions dismissed. 970