Hyderabad Hotel Owners Association & Ors Vs. Hyderabad Municipal
Corporation, Hyderabad & ANR  INSC 6 (20 January 1999)
V. Manohar, A.P.Misra Mrs. Sujata V. Manohar,J.
these proceedings the petitioners are challenging an increase in the licence
fee for a trade licence for running a lodging house, hotel, restaurant, coffee
house, tea stall, eating house, soft drink stall, cafeteria, tiffin room etc.
levied under Section 622 of the Hyderabad Municipal Corporations Act, 1955.
Section 521(1)(e)(ii) of the Hyderabad Municipal Corporations Act of 1955,
except under and in conformity with the terms and conditions of a licence
granted by the Commissioner no person shall, inter alia, carry on, allow to be
carried on, in or upon any premises, any trade or operation which in the
opinion of the Commissioner, is dangerous to life, health or property, or is
likely to create a nuisance either from its nature, or by reason of the manner
in which, or the conditions 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
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.
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 Rs.50/- the rate of licence
fee was Rs.50/-. The licence fees were graded depending upon the rent of the
premises. The maximum licence fee where rent was above Rs.1,000/- was
same was the position with regard to lodging houses where the rates of licence
fee varied from Rs.50/- to Rs.1,000/- depending upon the monthly rent of the
rates so prescribed were higher than the rates in force earlier. This increase
was challenged, but was upheld by the High Court.
the Special Officer, Municipal Corporation of Hyderabad, by his order dated 6.4.1981 revised these licence fees.
The said order, inter alia, stated that in view of the increase of the service
charges rendered by the Municipal Corporation of Hyderabad, it was felt necessary to revise the existing schedule of
rates of licence fee fixed under Section 622(2) of the Hyderabad Municipal
Corporations Act, 1955. As a result of this revision the licence fee where the
monthly rent was up to Rs.50/- was increased to Rs.100/- and the maximum licence
fee where the rent was above 1,500/- but not more than Rs.2,000/- was increased
to Rs.2,000/-. In respect of lodging houses the maximum licence fee where the
rent was above Rs.4,000/- but not more than Rs.5,000/- was fixed at Rs.5,000/-.
The licence fee was proportionately increased in respect of all categories of
lodging houses and eating houses by the said order.
present petitioners filed Writ Petiton No.3055 of 1981 in the High Court of
Andhra Pradesh challenging the increase in the licence fee by the said order of
Learned Single Judge upheld the levy and dismissed the writ petition. An appeal
before the Division Bench of the High Court filed by the petitioners was also
dismissed by the Division Bench. The Division Bench held that since the
Corporation is providing services in the form of inspection by the officials of
the premises of the petitioners, and is also providing general services like
lifting of garbage in the whole city for which staff is required, the
Corporation is providing services though general in nature, to the persons or
traders. The levy is not a tax. It upheld the levy as a fee. Civil Appeal Nos. 1811
and 1812 of 1988 are against the said judgment of the Division Bench of the
1987 the respondent-Corporation again revised and increased licence fees. The
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.
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 Annual
li Annual li- Annual li- Annual li- of the trade& cence fee cence fee cence
fee cencee fee operation to prevaili- increased increased revised in be
licensed ng prior in 1981 in 1987 impugned to 1981 order
------------------------------------------------------------- Rs. Rs. Rs. 1991
1992 Rs. Rs.
Lodging/Hotels Whre monthly rent is upto Rs.
50/- 100/- 300/- 1200/-600/-
------------------------------------------------------------- Rent above 50/-
not more than 100/- 125/- 150/- 450/- 1800/-900/-
------------------------------------------------------------- Rent above 100/-
but not more than 200/- 200/- 250/- 750/- 3000/-1500/-
-------------------------------------------------------------- Rent above 200/-
but not more than 400/- 300/- 400/- 1200/- 4800/-2400/-
--------------------------------------------------------------- Rent above
400/- but not more than 600/- 400/- 600/- 1800/- 7200/-3600/-
---------------------------------------------------------------- Rent above
600/- but not more than 800/- 500/- 800/- 2400/- 9600/-4800/-
---------------------------------------------------------------- Rent above
800/- but not more than 1000/- 600/- 1000/- 3000/- 12000/-6000/-
----------------------------------------------------------------- Rent above
1000/- but not more than 1500/- 1000/- 1500/- 4000/- 16000/-8000/-
------------------------------------------------------------------ Rent above
1500/- but not more than 2000/- 1000/- 2000/- 6000/- 24000/-12000/
------------------------------------------------------------------- Rent above
3000/- but not more than 4000/- 1000/- 4000/- 12000/- 48000/-24000/
-------------------------------------------------------------------- Rent above
4000/- 1000/- 5000/- 15000/- 60000/-30000/ --------------------------------------------------------------------
The petitioners contend that the increased licence fees of 1981 and thereafter
of 1992 are not in the nature of fees since there is no quid pro quo between
the fees charged by the respondents and the services rendered by them to the
traders in question. These are taxes. The petitioners have drawn our attention
to Chapter VIII of the Hyderabad Municipal Corporations Act, 1955 which deals
with municipal taxation. Under Section 197, (which is the first section falling
under Chapter III) for the purposes of this Act the Corporation shall impose
the taxes which are specified in that section. Under sub-section(2) of Section
197 the Corporation may impose any tax other than those specified under
sub-section(1) subject to the previous sanction of the Government. Under
Section 198 before the Corporation passes any resolution imposing a tax for the
first time or at a new rate it shall direct the Commissioner to publish a
notice in the Andhra Pradesh Gazette and in the local newspaper of its
intention to do so and fix a reasonable period not being less than one month
for submission of objections. The Corporation may, after considering the
objections, determine by resolution to levy the tax. The Corporation is also required
to publish a notice specifying the date from which and the rate at which such
tax or increased tax is to be levied. The petitioners contend that this
procedure has not been followed while increasing the licence fee which is in
the nature of a tax and not a fee and hence the levy is not valid.
first question, therefore, which requires consideration is whether the
increased licence fee under the orders of 1981 and 1992 is in the nature of a
tax or a fee.
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;
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.
are several other conditions. e.g. the licensee shall make adequate provision
for parking of cycles, motor cars or other vehicles of the persons visiting the
licensee shall provide suitable means of drainage, ventilation and lighting of
such premises. The licensee shall provide in the kitchen suitable outlets for
licensee shall provide doors and windows with shutters fitted with wire gauge
so as to make them proof against dust and flies. The licensee shall provide
good supply of wholesome water. All cups, saucers etc. shall be rinsed in clear
water. No vessels or utensils shall be used which are likely to get corroded or
which would otherwise render obnoxious the article of food, and so on. There
are a large number of conditions for the purpose of ensuring that the premises
are safe and suitable, the food is wholesome and hygienic and there is adequate
ventilation, drainage and so on. The respondent-Corporation is required to
inspect the premises in question in order to ensure that the conditions are
complied with. It also has the responsibility for inspecting and supervising the
sale of foodstuff to ensure that all the conditions of licence pertaining to
the preparation and sale of such food are complied with. The respondent is also
required to ensure cleanliness, removal of garbage and maintenance of hygiene
in these premises.
the Corporation has the general duty to provide scavenging and sanitation
services including removal of garbage and maintaining hygienic conditions in
the city for the benefit of all persons living in the city.
hotels and eating houses by reason of the nature of their occupation, do impose
an additional burden on the municipal corporation in discharging its duties of
lifting of garbage, maintenance of hygiene and sanitation since a large number
of persons use the premises either for lodging or for eating; the food is
prepared in large quantity unlike individual households and the resulting
garbage is also much more than what would otherwise be in the case of
individual households. In fact, under Section 230 of the said Act the respondent-Corporation
has the power to fix special rates of conservancy tax in respect of a hotel,
club or other large premises. This, however, does not turn a licence fee into a
by now, well settled that a licence fee may be either regulatory or compensatory.
When a fee is charged for rendering specific services a certain element of quid
pro quo must be there between the service rendered and the fee charged so that
the licence fee is commensurate with the cost of rendering the service although
exact arithmetical equivalence is not expected. However, this is not the only
kind of fee which can be charged. Licence 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.
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 Marketing Board (60
C.L.R. 263, 276) (see at page 1040). "A tax" according to the learned
Chief Justice, "is a compulsory exaction of money by public authority for
public purposes enforceable by law and is not payment for services
rendered". A fee on the other hand is generally defined to be a charge for
a special service rendered to individuals by some governmental agency. The
amount of fee levied is supposed to be based on the expenses incurred by the
Government in rendering the service though in many cases the costs are
arbitrarily assessed. Ordinarily, the fees are uniform and no account is taken
of the varying abilities of different recipients to pay. These are undoubtedly
some of the general characteristics, as far may be, of various kinds of fees.
It is not possible to formulate a definition that would be applicable to all
cases. The Court then observed (at page 1042), "The distinction between a
tax and a fee lies primarily in the fact that a tax is levied as a part of the
common burden, while a fee is a payment for a special benefit or privilege.
Fees confer a special capacity, although the special advantage, as for example,
in the case of registration fees for documents or marriage licences, is
secondary to the primary motive of regulation in the public interest".
There is really no generic difference between tax and fee and as said by
Seligman, the taxing power of a State may manifest itself in three different
forms known respectively a special assessments, fees and taxes. Our
Constitution has, for legislative purposes, made a distinction between a tax
and a fee.
case of Corporation of Calcutta and Another v. Liberty Cinema ( 2 SCR 477
at page 483), this Court after referring to the constitutional provisions
making a distinction between a fee and a tax, also went on to say that in our
Constitution fees for licence and fees for services rendered are contemplated
as different kinds of levy. The former is not intended to be a fee for services
rendered. This is apparent from a consideration of Article 110(2) and Article
199(2) where both the expressions are used indicating thereby that they are not
the same. In other words, a distinction was made between fees for services
rendered and fees which are regulatory. In Indian Mica & Micanite
Industries Ltd. v. State of Bihar & Ors. (1971 Supp. SCR 319 at page 324), Om
Parkash Agarwal etc. v. Giri Raj Kishori & Ors. etc. ( 1 SCR 149) and
The Municipal Council, Madurai v. R. Narayanan etc. ( 1 SCR
333 at pages 339 to 400) the Court had considered a fee which was charged for
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.( 1 SCC
655 in paragraph 21).
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.
with such regulatory fees, this Court in Vam Organic Chemicals Ltd. & Anr. etc.
v. State of U.P. & Ors.
( 2 SCC 715 at page 726) observed that in the case of a regulatory fee no
quid pro quo was necessary but such fee should not be excessive. The same
distinction between regulatory and compensatory fees has been made in the case
of P. Kannadasan & Ors. v. State of T.N.
5 SCC 670 in paragraph 36) as well as State of Tripura & Ors. v. Sudhir Ranjan
Nath ( 3 SCC 665 at 673).
petitioners, however, submitted that the fee charged was, in fact, a tax in the
guise of a fee. Because apart from the fact that there was no element of quid
pro quo present in this case, the amount collected by way of fees was credited
to the common fund of the municipal corporation. Under Section 169 of the
Hyderabad Municipal Corporations Act, 1955 a municipal fund is constituted and
under the said section it is provided as follows:- "169. Constitution of
Municipal Fund :- (1)Subject to the provisions of this Act and the rules and
the bye-laws - (a) all moneys received by or on behalf of the Corporation under
the provisions of this Act or any other law for the time being in force, or
under any contract, (b) .............
all moneys raised by any tax levied for the purposes of this Act, (e) all fees
and fines payable and levied under this Act or under any rule, bye-law or
standing order in force thereunder, (f) .............
............., and (h) all interest and profits arising from any investment of,
or from any transaction in connection with any money belonging to the
Corporation shall be credited to a fund which shall be called 'the Municipal
Fund' and which shall be held by the Corporation in trust for the purposes of
this Act, subject to the provisions herein contained.
Section 174 describes the purpose for which the municipal fund is to be
applied. It is, therefore, submitted that since all the fees form a part of the
common municipal fund, and this fund is to be deployed for various purposes of
the municipal corporation, there is no provision by which the fee collected is
used for regulatory purposes.
Court, however, in the case of Sirsilk Ltd. & Anr. v. Textiles Committee
& Ors. ( Supp.(2) SCR 880 at pages 910, 912) has pointed out that a
separate fund is not essential in the case of regulatory fees. In the present
case the Budget Estimate Rules are relied upon by the respondents in order to
show that the fees are being utilised for 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:
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.
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 besustainable.
however, contended by the petitioners that if this is a fee, the quantum of fee
levied is excessive. It is also unreasonable because the manner in which the
fee is levied bears no nexus to the purpose for which the fee is levied. The
petitioners contend that a licence fee based on the rent payable in respect of
the premises in which the activities of an eating house or a lodging house are
carried on is not a proper basis for charging a fee because the rent charged
for the premises has no nexus with the services rendered by the Corporation.
first place it is not necessary that a fee should only be in the form of a lump
sum fee. A fee can also be graded as in the present case. The Corporation has
chosen the quantum of rent paid as the criterion for the quantum of fee to be
charged. The rent under the relevant provisions of law in that connection, does
have a nexus with the area in the occupation of the lodging house or eating
house. In the case of activities carried on by these lodging houses and eating
houses, the area in their possession has a direct nexus with the extent of
business activities. The need for cleanliness and hygiene, the generation of
garbage and the extent of regulation that may be required depend upon the size
of the premises which in turn control the extent of activity. Undoubtedly in a
given case if the premises are old, the rent may be less but that does not mean
that classifying premises on the basis of the rent paid has no connection with
the quantum of fee charged.
also contended that the fees charged are excessive. The respondents in their
counter affidavit filed in the writ petition have given general figures to show
that the total income from trade licence fees on the basis of the 1987 rates
was Rs.1,08,25,588/- as per the revised estimates. With the increase in the licence
fees in 1992 the income would be doubled to Rs.2,16,51,176/-. This would not be
sufficient for the sanitary and public health services including lifting of
garbage, cleaning of roads, sanitation, medical centres, salaries of the staff
employed and so on. The public health budget for the relevant period of the
Corporation is to the tune of nearly Rs.13,95,40,000/-. Of course, these
figures do not indicate separately the extent of fees collected from eating and
lodging houses or the amount expended for regulating the activities of eating
and lodging houses and rendering them services. 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
Rs.37,89,627/- while the expenditure on license section and sanitary section of
the Corporation was Rs.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 Rs.40,45,585/-. The annual
salary of the same staff in 1992 was Rs.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 dealing with health
services, sanitation, licencing section and so on. In the budget estimates for
1988-89 the licence fees from hotels, for example, are estimated at Rs.25,00,000/-.
Revenue expenditure for the year 1988-89 as per budget estimates under
sanitary, conservancy and scavenging section including establishment expenses,
salaries and allowances are to the tune of Rs.10,14,61,100/-; while under the
health office section, these are to the tune of Rs.31,30,400/-. Under
prevention of food adulteration and municipal laboratory section, the estimated
expenditure is to the tune of Rs.7,66,200/-. Undoubtedly, this expenditure
covers not just the services rendered to the trades in question. It also covers
services rendered to various other trades, to individuals and organisations and
all other members of the public who benefit from such services rendered by the
municipal corporation. Nevertheless, looking to the fact that the licence fees
collected form only a very small part of the total expenditure incurred by the
municipal corporation, we are not inclined to hold the levy of these fees as
excessive. It is also necessary to note that the impugned increase in 1981 was
the first increase after 1972.
High Court has rightly considered that looking to the increase in the cost of
the various activities carried on by the Hyderabad Municipal Corporation,
doubling of licence fees after nine years can not be considered as an excessive
increase. In respect of the increase from the 1987 level of licence fees to the
1992 level of licence fees, the initial increase could have been viewed as excessive.
But after the representations were made to the respondent-Corporation by the
various traders affected by the increase in the licence fees, the municipal
corporation reduced the increase and kept it at twice the licence fees charged
in 1987. The respondents in this connection had meetings and detailed
negotiations with the various trade organisations connected with the conducting
of eating houses and lodging houses.
respondents have annexed the minutes of the proceedings before the Commissioner,
Municipal Corporation of Hyderabad, dated 25.7.1992. The meeting of 25.7.1992
dealt with enhancement of licence fee of certain trades and operations.
cover the present trades and occupations. The proceedings record that the
traders viewed the increase from the existing rates as on the high side and the
increase in many cases was four to five times the existing rates.
by the increase in the licence fee, the traders formed a Twin Cities Traders
Joint Action Committee and made representations at various levels. Joint
meetings were held on 22nd April, 4th, 6th, 11th and 12th of May, 1992 and
after a great deal of exchange of views, it was unanimously resolved to
increase the trade licence fee by 100% over the rates prevailing prior to the
increase in October, 1991.
was reached to this effect. These proposals were accepted by the Standing
Committee and the General Body of the Corporation. Accordingly, the revised
rates were implemented. The petitioners contend that their members did not
agree to this increase. Nevertheless, the Traders Joint Action Committee which
covered a number of other traders carrying on the same trade did agree to this
increase as reasonable. It would not, therefore, be proper to term this agreed
increase as excessive or as indicating that it was a taxing measure rather than
petitioners had also contended that if this increased levy is viewed as a tax
then the provisions for imposing a tax under the Hyderabad Municipal
Corporations Act, 1955 have not been complied with. Since we have come to a
conclusion that the licence fee which is charged is a regulatory-cum-
compensatory fee, and it is not a tax, we are not examining this question since
it is not necessary to view this levy as a tax.
therefore, agree with the conclusions reached by the High Court. The appeals as
well as the writ petition are, therefore, dismissed. There will, however, be no
order as to costs.