TaxTMI 
TaxTMI 
1999 (1) TMI 523
X X X X Extracts X X X X
X X X X Extracts X X X X
....itions under which, the same, is or is proposed to be carried on. By an order of the Special Officer, Municipal Corporation of Hyderabad, dated 15.4.1972 a list of trades, operations etc. covered by Section 521(1)(e)(ii) was notified. The trades so covered include eating houses, hotels, restaurants, Cafes, bars, tea stalls, canteens, coffee houses, tiffin rooms, cafeteria or any place where food is prepared and supplied or sold for the purpose of gain. Lodging houses were also covered. Under Section 622 of the Hyderabad Municipal Corporations Act, 1955 whenever it is provided under the Act that a licence or a written permission may be given for any purpose, such licence or written permission shall specify the period for which and the restrictions and conditions subject to which, the same is granted. Under Section 622 (2) for every such licence or written permission a fee may be charged at such rate as shall from time to time be fixed by the Commissioner, with the sanction of the Corporation. Under the said order of 15.4.1972 the licence fees for the said trades were specified/revised. Where the monthly rent of an eating house etc. was up to ₹ 50/- the rate of licence fee was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he said increase is under challenge before the High Court. Thereafter by an order dated 12.10.1991 the respondent- Corporation again increased the licence fees of eating houses and lodging houses. The increase was four times the licence fee fixed in 1987. However, on 25.7.1992 the respondents have reduced this increase on the basis of a compromise arrived at between the Corporation and several groups of affected traders. The increased licence fee under the order of 25.7.1992 is twice the licence fee charged under the order of 1987. The petitioners were not parties to the compromise. They have filed Writ Petition No. 238 of 1992 in this Court under Article 32 challenging the increased licence fee under the orders of 1992. Since common questions of law arise in all these proceedings they have been heard together. A chart showing the increase of licence fee for lodgings and eating houses from time to time is set out below:- Description of the trade& operation to be licensed Annual licence fee prevailing prior to 1981 Annual licence fee increased in 1981 Annual licence fee increased in 1987 Annual licencee fee revised in impugned order Rs. Rs. Rs. 1991 Rs. 1992 Rs. Lodging....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re, which requires consideration is whether the increased licence fee under the orders of 1981 and 1992 is in the nature of a tax or a fee. In order to answer this question it is necessary to look at the nature of the licence which is granted. The hotel licence which is issued to each of the traders is subject to the conditions set forth in the bye-laws of the Municipal Corporation of Hyderabad relating to the regulation of eating houses or hotels mentioned in Section 521. These conditions are reproduced in the licence. These prescribe, inter alia, that (1) the building shall be situated at a suitable place and shall be spacious and have enough accommodation according to the requirements of business; (2) it shall be constructed of masonry and such other non-inflammable material as may be approved by the Commissioner; (3) a sign board of the hotel in English and at least one regional language shall be hung in front of the building; (4) the licensee shall put up a notice-board in a conspicuous part of the dining hall stating whether the articles of food are made of beef, mutton, ghee or oil. There are several other conditions. e.g. the licensee shall make adequate provision for parki....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quid pro quo must be there between the service rendered and the fee charged so that the licence fee is commensurate with the cost of rendering the service although exact arithmetical equivalence is not expected. However, this is not the only kind of fee which can be charged. Licence fees can also be regulatory when the activities for which a licence is given require to be regulated or controlled. The fee which is charged for regulation for such activity would be validly classifiable as a fee and not a tax although no service is rendered. An element of quid pro quo for the levy of such fees is not required although such fees cannot be excessive. In the case of The Commissioner, Hindu Religious Endowments, Madras v. Sri Laxshmindra Thirtha Swamiar of Sri Shirpur Mutt (1954 SCR 1005) one of the earliest cases dealing with the question whether the levy is a fee or a tax, this Court held that the Constitution and in particular the legislative entries in Schedule VII of the Constitution make a clear distinction between a tax and a fee. The High Court reproduced the definition of what "tax" means, given by Latham C.J. of the High Court of Australia in Matthews v. Chicory Market....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arkash Agarwal etc. v. Giri Raj Kishori & Ors. etc. ([1986] 1 SCR 149) and The Municipal Council, Madurai v. R. Narayanan etc. ([1976] 1 SCR 333 at pages 339 to 400) the Court had considered a fee which was charged for services rendered. In all these cases the Court observed that when a fee is charged for services rendered an element of quid pro quo is necessary and there has to be a co-relationship of a general character between the cost of rendering such service and the fee charged. A number of other decisions were also cited in this connection. The position in respect of fees for services rendered is summed up in the case of Krishi Upaj Mandi Samiti and Ors. v. Orient Paper & Industries Ltd.([1995] 1 SCC 655 in paragraph 21). In the present case, however, the fees charged are not just for services rendered but they also have a large element of a regulatory fee levied for the purpose of monitoring the activity of the licensees to ensure that they comply with the terms and conditions of the licence. Dealing with such regulatory fees, this Court in Vam Organic Chemicals Ltd. & Anr. etc. v. State of U.P. & Ors. etc. ([1997] 2 SCC 715 at page 726) observed that in the case of a regu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....regulatory services. The Hyderabad Municipal Corporation Budget Estimate Rules, 1968 under Rule 6 provide as follows:- "6. Sanctioning of the Budget:- The council shall, after satisfying itself on the following points, sanction the budget ordinarily not later than the twentieth of February, each year with such modifications, as it may deem necessary: (a)............ Provided that no part of the receipts under any fee or charge collected or recovered for performance of services such as Slaughter House fee, Market fees and rents, buildings permit fees, layout fees, licence fee and the like shall be utilised or expended for purposes other than those for which the fees and rents are collected. Any amount remaining surplus or unexpended shall be invested in a reserve fund." The fees, though credited in the common fund, are earmarked for the purposes for which they are collected. Clearly, therefore, the intention is to levy a fee which would be utilised for regulatory and compensatory purposes in the present case. The contention of the petitioners that this is a tax in the guise of a fee does not appears to be sustainable. It is, however, contended by the petitioners that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ervices. In respect of the year 1981-82, when the first increase which is under challenge took place, the income from licences on the basis of the rates as enhanced in 1981, was to the tune of ₹ 37,89,627/- while the expenditure on license section and sanitary section of the Corporation was ₹ 3,85,11.961/-. The Corporation also pointed out that the annual salary bill in the year 1981 for the staff in various sections of the municipal corporation dealing with licences was ₹ 40,45,585/-. The annual salary of the same staff in 1992 was ₹ 1,75,31,943/-. The attempt of the Corporation is to show that the expenditure under various heads between 1981 and 1992 had more than doubled. Therefore, the increase in the licence fee which was made in 1981 for the first time after 1972, as also the increase made in the licence fee in 1992 were co-related with the increase in the cost of providing services ? whether regulatory or otherwise, to the trades in question. The respondents in their affidavit have also annexed budget estimates for the year 1989-90 in order to show that the licence fees collected are far less than the requirements of the municipal corporation for deal....