2012 (7) TMI 498 - SC - Indian Laws

Supreme Court upholds decision on licensing fees under Mysore Race Courses Act, deeming it regulatory not tax.

DELHI RACE CLUB LTD Versus UNION OF INDIA

The Supreme Court upheld the High Court's decision, dismissing the appeal challenging the excessive delegation of legislative power and the nature of the ... Prohibition of horse-racing on unlicensed race- courses - Validity of the demand notice was questioned by the appellant as delegation of powers u/s 11 to the Lt. Governor to fix the licence fee without any guidelines is excessive delegation of legislative power and is therefore ultra vires and in the absence of an element of quid pro quo, the licence fee charged was not in the nature of a fee but a tax and the ten fold increase in licence fee was highly excessive - Held that:- In the instant case, it is plain from the scheme of the Act that its sole aim is regulation, control and management of horse-racing. Such a regulation is necessary in public interest to control the act of betting and wagering as well as to promote the sport in the Indian context. To achieve this purpose, licences are issued subject to compliance with the conditions laid down therein and violation of the conditions is penalised under the Act besides a provision for cognizance by a court not inferior to a Metropolitan Magistrate. To ensure compliance with these conditions, the 1985 Rules empower the District Officer or an Entertainment Tax Officer to conduct inspection of the race club at reasonable times. For the purpose of enforcement, wide powers are conferred on various authorities to enable them to supervise, regulate and monitor the activities relating to the race course with a view to secure proper enforcement of the provisions. Therefore, by applying the principles, it is clear that the said levy is a 'fee’ and not 'tax’. A licence fee imposed for regulatory purposes is not conditioned by the fact that there must be a quid pro quo for the services rendered, but that, such licence fee must be reasonable and not excessive. It would again not be possible to work out with arithmetical equivalence the amount of fee which could be said to be reasonable or otherwise. If there is a broad correlation between the expenditure which the State incurs and the fees charged, the fees could be sustained as reasonable. The object of the Act, as synthesized from its provisions, is to regulate, monitor, control and encourage the sport of horse-racing. For this purpose, licences are issued subject to certain conditions. The compliance with the licence conditions is inevitable for renewal of the licences as well as significant to avoid any penalty under the Act. To ensure such compliance, as aforesaid, district officers/ entertainment tax officers are entrusted with the duty of inspection it is not of a general nature but requires expertise and training and also constant vigil on the activities of the race course. The expenses incurred in carrying out such regular inspections have to be considerable. Hence, in our opinion, the licence fee imposed in the present case is a regulatory fee and need not necessarily entail rendition of specific services in return but at the same time should not be excessive Quantum of the licence fee was increased by the Government on account of non revision of the same since the commencement of the Act. Evidently, the inflation during this period was taken as the criterion for increasing the quantum of the fee. It is a reasonable increase keeping in view the fact that the expenditure incurred by the Government in carrying out the regulatory activities for attaining the object of the Act would have proportionately increased Issues Involved:1. Excessive delegation of legislative power.2. Nature of the licence fee: whether it is a fee or a tax.3. Requirement of quid pro quo for the licence fee.4. Reasonableness and excessiveness of the licence fee.Detailed Analysis:1. Excessive Delegation of Legislative Power:The appellant contended that Section 11(2) of the Mysore Race Courses Licensing Act, 1952, as extended to Delhi, conferred unguided, uncontrolled, and unfettered power on the Administrator to fix the licence fee, making it unconstitutional and ultra vires. The appellant cited several Supreme Court decisions, including Corporation of Calcutta vs. Liberty Cinema and Devi Das Gopal Krishnan vs. State of Punjab, to argue that delegation of power to fix tax rates must be under some guidance. However, the Court noted that the principle of requiring guidance applies primarily to tax levies and not to fees. Since the levy in question was determined to be a fee and not a tax, the argument of excessive delegation did not hold. The Court emphasized that the Act's scheme provided sufficient legislative policy and guidelines, thus not warranting interference on the grounds of excessive delegation.2. Nature of the Licence Fee:The Court examined whether the licence fee under Rule 6 of the 1985 Rules was a fee or a tax. The High Court had concluded that the licence fee was a regulatory fee, not requiring quid pro quo. The Supreme Court upheld this view, distinguishing between a tax and a fee. A tax is a compulsory exaction of money for public purposes without any specific service in return, whereas a fee is levied for services rendered and involves an element of quid pro quo. The Court determined that the primary object of the levy was regulation, control, and management of horse racing, which classified it as a regulatory fee rather than a tax.3. Requirement of Quid Pro Quo:The appellant argued that the licence fee lacked the element of quid pro quo, making it a tax rather than a fee. The Court clarified that while quid pro quo is a factor in determining a fee, it is not a strict requirement for regulatory fees. The Court cited several decisions, including Sreenivasa General Traders vs. State of Andhra Pradesh and Secunderabad Hyderabad Hotel Owners' Association vs. Hyderabad Municipal Corporation, to support the view that regulatory fees do not necessitate a direct quid pro quo. The Court found that the licence fee in question was reasonable and had a broad correlation with the regulatory purpose of the Act, thus not requiring a specific service in return.4. Reasonableness and Excessiveness of the Licence Fee:The appellant initially challenged the tenfold increase in the licence fee as excessive but later confined the argument to the nature of the fee and the delegation of power. The Court observed that the increase in the licence fee from Rs. 2,000/- to Rs. 20,000/- and from Rs. 500/- to Rs. 5,000/- was justified considering the inflation and the increased regulatory expenses over the years. The Court emphasized that the fee was regulatory and not excessive, as it was necessary for the effective enforcement of the Act's provisions. The appellant's long delay in challenging the validity of Section 11(2) of the Act also weakened their case.Conclusion:The Supreme Court dismissed the appeal, upholding the High Court's decision that Section 11(2) of the Act and the 2001 Rules did not suffer from any legal infirmity. The Court concluded that the licence fee was a regulatory fee, not requiring quid pro quo, and the delegation of power to fix the fee was within permissible limits. The appeal was dismissed with costs quantified at Rs. 50,000/-.