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Petitioner: JAMAL DIN VS Respondent: GOVERNMENT OF SIND
P L D 1976 Karachi 424
P L D 1976 Karachi 424 Before Dorab Patel and M. A. Rashid, JJ Sh. JAMAL DIN AND OTHERS---Petitioners versus GOVERNMENT OF SIND AND 5 OTHERS--- Respondents
Constitutional Petitions Nos. 384 and 386 to 389 and 407 of 1964, decided on 5th December 1975.
(a) West Pakistan Finance Act (IX of 1963)---
-- S. 15 read with Constitution of Pakistan (1962), Art. 15-Constitu tionality of statutes-Equality before law-Primary education surcharge (tax levied on hotels equipped with liquor bars and posses sing not less than 25 rooms for lodging)-Not inconsistent with Fundamental Right 15-Right to equal protection of law-Does not present Legislature from making reasonable classification of hotels- Classification of hotels into those providing amenities for rich and poor and taxed higher in case of former and lesser in case of latter --In accord with concept of progressive taxation and too late in the day to be challenged-Legislature's view that hotels with minimum of 25 rooms able to bear heavier fiscal burden than hotels with less then 25 rooms and that possession of liquor bars a lucrative source of income justifying higher tax than on hotels without such bars -Classification, held, not unreasonably discriminative, hence, not hit by Fundamental Right 15.
(b) West Pakistan Finance Act ( IX of 1963)-
---- S. 15 read with Constitution of Pakistan (1962), Art. 132 &, Third Sched., item 43(f), Pakistan General Sales Tax Act (V of 1918), S. 2(6), (10), Sales Tax Act (III of 1951); S. 2(6). (15). Sale of Goods Act (III of 1930), S. 2(7), Contract Act (IX of 1872), S. 77, and Transfer of Property Act (IV of 1882), S. 54-Constitutionality of statutes-Supply of residential accommodation together with services-- Does not amount to sale within meaning of item 43(f), Third Sched., Constitution of Pakistan (1.962)-Tax on amenities and enter tainments provided by hotels-Not a tax on sales-Provincial Legisla ture not incompetent to levy tax on such amenities and entertain ments-Sale--Meaning and scope.-[Words and phrases].
The amenities and entertainment provided by any hotel would comprise the residential facilities, the services rendered by its staff and the provision of meals and drinks; so the real question or the pith and substance of the matter, is whether the use of these services by the customer of a hotel could amount to a purchase by him.
It is no one's case that a customer of a hotel, who was permitted to occupy a room in it, became the owner of that room. Nor can the meaning of the word "sale" be extended, on rather distorted to include the customer's licence to occupy a room in a hotel, which is always described by expressions, such as hire, or, licence.
The widest possible interpretation must be given to words in a constitutional document. The meaning of the word "sale" in the dictiona ries is given as follows. The concise Oxford Dictionary defines a sale as "exchange of a commodity for money or other valuable considerations, arrangement by which retailer takes quantity of good with right of returning all that he fails to sell". Webstor's new world dictionary defines sale as "the exchange of property of kind, or of some services, for an agreed sum of money or other valuable consideration".
Service means not merely the service of bearers, who clean a room, but in hotels in K and L, it would include the services of staff, who can speak to the foreign customer in English, or, in some European language. These are obviously highly paid services. Similarly, with reference to the question of catering, we should not overlook the employment of foreign chefs at fantastic salaries. Now, can the consumption of such services amount to sales by the hotel to the customer ? The answer must be in the negative, except in slave owning societies. The very concept of a sale is that property in the thing sold is transferred to the buyer, and when the customer of a hotel consumes. so to say, the services of the hotel staff, no right of ownership over the human beings, who are serving him, passes to that customer even for the period of the service rendered.
As a sale could only mean a transaction by which property in goods was transferred, it could not mean a contract for the hire of labour, whether skilled, or, unskilled.
A sale is confined to movable property, and the concept of a sale totally excludes those transactions in which a person's services are engaged, or, in which a person acquires the right to occupy temporarily some portion of immovable property.
Even a cursory reference to the relevant statutes shows that, for almost a century before the: promulgation of the Constitution, the Central Legisla ture had itself defined a sale in a manner which excluded the type of amenities and entertainment provided by hotels, and, the word "sales" in item 43 of the Third Schedule to the Constitution must be given the same meaning. The Legislature is not only presumed to be aware of the law, but it is presumed not to make sweeping departures from the law lightly. Accord ingly, if it had intended to give to the word "sales" a meaning different from that which it had itself given to it for almost a hundred years, it would have made express provision in this respect, and, as it has not, it must be held that the supply or residential accommodation, together with service, by a hotel does not amount to a sale within the meaning of item 43(f) of the Third Schedule to the Constitution.
The price charged for a meal by a hotel is not only for the quantity of food estimated to have been consumed, but also for the place, the service, the culsine and other circumstances.
(c) Interpretation of statutes-
-----Rules under statutes-Command of Legislature-Could be given effect to even without framing Regulations-Legislature commanding Provincial Government to levy tax at a fixed rate and specifying both persons liable to pay and manner in which such persons could reimburse themselves-Mandate, held, clear and could be enforced even without Rules-West Pakistan Finance Act (IX of 1963), S. 15.
M. U. A. Khan v. Rana M. Sultan and another P L D 1974 S C 228 ref.
A. K. Brohi (in Petition No. 388/64), Mohsin Tayab Ali (in Petition No. 387/64), A. R. Kazi (in Petition No. 389/64), and Munawar Abbas (in Petition No. 407/64), for Petitioners.
Usman Ghani Rashid, Asstt. A.-G. for Respondent No. 1 (in all Petitions).
Wajihuddin Ahmed for the Remaining Respondents (in all the Petitions).
Dates of hearing t 18th and 19th November 1975.
JUDGMENT DORAB PATEL, J.--Section 15 of the West Pakistan Finance Act, 1963 (hereinafter called the said section), introduced a new tax described as the primary education surcharge. This was for the financial year 1963-64 and was levied on and collected from all persons "who used the amenities and enter tainment provided by any residential hotel." Further, a residential hotel was defined as a hotel "as is equipped with a liquor bar and possesses not less than twenty-five rooms for lodging." In due course, hotels, in Karachi received notices from the Director of Excise and Taxation, Karachi, to pay the primary education surcharge due from them. And having paid this tax, the six petitioners before us, who are all hoteliers, filed constitutional petitions to challenge the legality of the tax imposed by the said section, and the common prayer in all these petitions is that the respondents should be restrained from recovering the tax. The respondents naturally contested these petitions, and the learned Assistant Advocate-General appeared on behalf of the Provincial Government, whilst Mr. Wajihuddin Ahmed appeared on behalf of the Director of Excise and Taxation. The petitioners on the other hand, were represented by their learned counsel, but arguments on their behalf were advanced by Mr. A. K. Brohi. As arguments were advanced on behalf of the petitioners only by Mr. A. K. Brohi, I may explain here that, although Mr. A. K. Brohi was engaged only by the petitioners in Petition No. 388/1964, the petitions were adjourned on many occasions by the learned counsel of the other petitioners on the ground that Mr. A. K. Brohi was out of Karachi and would argue on behalf of all of them. I have to refer to this aspect of the case, because the learned counsel for the petitioners in Petitions 384/64 and 386/64 were not present at the time of argu ments.
2. Mr. A. K. Brohi advanced several submissions on behalf of the petitioners, which were endorsed by the other learned counsel, but the main submissions were that the said section was ultra vires of the powers of the Provincial Legislature under the 1962 Constitution, and that, for the period during which Fundamental Rights were in force, the said section could not be enforced, because it was inconsistent with Fundamental Right 15, according to which, all citizens were equal before law and entitled to equal protection of law. Mr. Wajihuddin Ahmed and the learned Assistant Advocate-General disputed these contentions, and, with regard to the first submission, they relied on the bar contained in Article 133 of the 1962 Constitution. But, in view of clause (3) of Article 133, this bar would not extend to a challenge to any provincial legislation on the ground that it was inconsistent with Fundamental Rights; therefore I will examine first Mr. A. K. Brohi's second principal submission.
3. However, before I turn to this submission, I may point out that the primary education surcharge was continued for the next financial year by the Provincial Finance Act, 1964. But in 1965, section 12 of the West Pakistan Finance Act, 1965. made material changes in this tax, and thereafter this tax, as modified in 1965, continued until the Sind Finance Act, 1974. Strangely enough, although the tax continues and has been paid, none of the petitioners amended their petitions to challenge the legality of the tax imposed under Finance Acts subsequent to the West Pakistan Finance Act of 1963 ; therefore I would have been reluctant even to refer to the Finance Act of 1965. However, as I will presently show, it is directly relevant to the arguments advanced by Mr. A. K. Brohi on the effect of Fundamental Right 15 of the 1962 Constitution. And as the question before us is only of this Consti tution, I will refer in this judgment to the 1962 Constitution as the Constitution.
4. I observed earlier that the said section was applicable to hotels with a minimum of twenty-five rooms and a liquor bar; therefore Mr. A. K. Brohi submitted that this provision amounted to discrimination against hotels with twenty-five rooms or more, to discrimination against hotels equipped with liquor bars and finally to discrimination against all persons who used such hotels, and, according to learned counsel, this discrimination infringed Fundamental Right 15. But as learned counsel very fairly conceded that the right to equal protection of law would not prevent the Legislature from making a reasonable classification of hotels, the real point for determination is, whether the definition of a residential hotel in the said section amounts to an unreasonable classification, and as the question is of a classification of hotel for the purpose of taxation, I would observe that it is too late in the day to challenge the concept of progressive taxation, by which I mean a system of taxation in which the rate of tax is higher for amenities consumed by the rich than for amenities consumed by the poor. This was also not disputed by Mr. A. K. Brohi. But the classification of hotels in the said section is, in my humble opinion, in accordance with the concept of progressive taxation.
5. I am aware that a hotel with more than twenty-five rooms can also be a hotel patronised by the very poor, but is it generally so? In any case, it was for the Legislature to draw a line between classes of hotels. It has drawn such a line, and, as the petitioners challenge it, it was for them to show that the classification, thus made, of hotels with twenty-five rooms and hotels with fewer rooms was arbitrary. But they have not produced a shred of evidence in support of their allegation. Then, as to the question of a liquor bar, obviously it is a luxury ; therefore it is not surprising that the petitioners have not been able to produce evidence to challenge the distinction thus drawn between hotels with liquor bars and hotels without liquor bars. Nor am I impressed by the submission that 'the facilities of hotel are used by non residents. They are used by non-residents, but by and large the hotels made liable for the tax under the said section would, in my humble opinion, be hotels patronised by those who are not poor.
6. I observed earlier that Mr. A. K. Brohi, in support of his submission relied on the provisions of section 12 of the West Pakistan Finance Act, 1965 ; so I would explain here that, as this Act was passed after the respondents had been served with notice of these petitions, learned counsel's submission was that section 12 had been enacted in order to meet the objections raised by the petitioners on the ground that the said section infringed Fundamental Right 15. As Mr. A. K. Brohi further stated that he could not possibly challenge the classification of hotels under this section 12; I would explain here that tax under the said section was at a rate of 13J per cent. on the consumption of all amenities in the residential hotels, as defined in the said section. On the other hand, by section 12 of the West Pakistan Finance Act of 1965, the tax was confined to a tax on the residential accommodation only, and, Mr. A. K. Brohi relied on this difference in support of his first main sub mission about the vires of the said section. However, reverting to the question of Fundamental Rights, as, according to Mr. A. K. Brohi, the classification of hotels in section 12 of the 1965 Act was a reasonable classification, I would explain here that, according to this section, hotels were divided into several categories. There were first class hotels, second class hotels, hotels at hill stations and third class hotels, though not described as such. The tax on first class hotels was limited to rupee one per day per lodging unit, whilst the tax on second class hotels was limited to fifty Paisas per day per lodging unit. But no tax could be levied on hotels, in which the charge for a lodging unit did not exceed rupees seven. This was obviously because such hotels catered for the poor and the needy. Finally, section 12 also stated that assessments of hotels at hill stations would be at half the rate "applicable to its class of hotels".
7. I agree with Mr. A. K. Brohi's submission to the extent only that the classification of hotels in this section 12 is much more elaborate than in the said section, and total relief has been given to hotels whose daily lodging charges did not exceed rupees seven per day, but it was not Mr. A. K. Brohi's case that such hotels had liquor bars. And it was the classification of first class and second class hotels, on which Mr. A. K. Brohi relied ; so I would explain here that first class hotels were defined as "all hotels which are licensed to sell liquor . . . . . . . .and which possess not less than twenty-five lodging units." Second class hotels were defined as "all hotels other than first class hotels licensed to sell liquor" and also all hotels not licenced to sell liquor, which had not less than twenty-five lodging units. Thus, hotels, which have been classified as first class hotels in the 1965 Finance Act, were the hotels described as residential hotels in the said section. On the other hand, unlike the said section, the tax at a lower rate was extended in 1965 to the smaller hotels with liquor bars and to all hotels without liquor bars, which were of the same minimum size as residential hotels in the said section. This means that the Legislature has consistently been of the view that a hotel' with a minimum of twenty-five rooms would be able to bear a heavier fiscal burden than a hotel with less than twenty-five rooms. Similarly, it has consistently taken the view teat the possession of a liquor bar by a hotel was a lucrative source of income for that hotel, which justified a higher tax on such a hotel than on a hotel without a liquor bar. In my humble opinion, there is nothing unreasonable in this view. It is true that small hotels with a liquor bar were not liable to tax under the said section, whereas they became liable to tax under section 12 of the 9965 West Pakistan Finance Act. But hotels apply for licenses for liquor bars, because the running of a liquor bar is very profitable and, in my humble opinion, the extension of the tax to small hotels with liquor bars only amounted to a withdrawal of the privilege, which had been allowed to such hotels under the said section. I am, therefore, not able to accept Mr. A. K. Brohi's submission that the definition of a residential hotel in the said section amounted to an unreasonable classification, which was hit by Fundamental Right 15.
8. I now turn to Mr. A. K. Brohi's submission that the said section was ultra vires of the powers of the Provincial Legislature under Articles 132 of the Constitution. Learned counsel rightly pointed out that, in view of Article 132, the Provincial Legislature could not make laws with respect to any matter "enumerated in the Third Schedule" and similarly, he submitted the Central Legislature had "exclusive power to make laws with respect to any matter enumerated in the Third Schedule." Now, item 43 (f) of the Third Schedule read : "Taxes on sales and purchases". The word "sales" has mot been defined anywhere in the Constitution. But, according to Mr. A. K. Brohi, the tax on the amenities and entertainment provided by hotels, which was imposed by the said section, was a tax on the sales; therefore, according to learned counsel, the tax could only have been levied by the Central Legislature and was ultra sires of the powers of the Provincial Legislature. In view of this submission, it becomes necessary to examine in some detail the nature of the tax imposed by the said section. Accordingly, T would quote it, and it read;
"15. Primary Education Surcharge.-(1) For the Financial year 1963-64, a tax, called the Primary Education Surcharge. shall be levied on and collected from all persons who use the amenities and entertainment provided by any residential hotel.
Explanation.----For the purposes of this section residential hotel shall mean a hotel as is equipped with a liquor bar and possesses not less than twenty-five rooms for lodging.
(2) (a) The surcharge shall be calculated at 13 per cent. of the amount charged by the management on account of the amenities and entertain ment provided by the hotel.
(b) The charge on account of amenities and entertainment shall include the charge on account of sale of liquor consumed in the hotel, and service charges, if any.
(c) The charge on account of amenities and entertainment shall be calculated at 75 per cent. of the gross amount charged by the hotel, and remaining 25 per cent. being deemed to be the charge on account, of foodstuffs and manufactured goods sold.
(3) The surcharge shall be shown as a separate item in the hotel bill and shall be collected by the owner or the management of the hotel and paid to Government.
(4) For the purposes of this section Government may notify a list of such hotels as fulfil the conditions mentioned in the explanation below subsection (1).
(5) Government may from time to time by notification add to, delete or modify the entries in the list mentioned in subsection (4).".
As the tax is described as a primary education surcharge, Mr. A. K. Brohi stressed the reference to the words "a tax", which come immediately after the opening words' of the section; "for the financial year 1963-64." And Mr. A. K. Brohi also relied on the fact that the tax was to be calculated at a fixed percentage, whilst Mr. Wajihuddin Ahmed and the learned Assistant Advocate-General stressed the fact that the tax was only on "the amenities and entertainment provided by any residential hotel." As the learned counsel for the respondents submitted that the use of the amenities and entertainments provided by a hotel could not amount to a sale, Mr. A. K. Brohi's reply was that we should not go merely by the words in the statute, but that we should try to determine the pith and substance of the tax imposed. Mr. A. K. Brohi's submission is correct, but what is the pith and substance of the tax? Just as the words "use the amenities and entertainment" may not be decisive so also the words "a tax" and the fact that a tax is on an ad valorem basis are not decisive also. And, in my humble opinion, in order to determine the pith and substance of the tax, we have to see what is taxed. In terms the tax falls only on the use of the amenities and entertainment provided by the hotels, which fell under the said section; therefore the question is of the meaning of the words "the amenities and entertainment provided by any residential hotel."
9. The amenities and entertainment provided by any hotel would comprise the residential facilities, the services rendered by its staff and the provision of meals and drinks; so the real question or the pith and substance of the matter, to use Mr. A. K. Brohi s expression, is whether the use of these service by the customer of a hotel could amount to a purchase by him.
10. There was no controversy about the use of the residential facilities provided by hotels. It is no one's case that a customer of a hotel, who was permitted to occupy a room in it, becomes the owner of that room. Nor can the meaning of the word "sale" be extended, or, rather distorted to include the customer's licence to occupy a room in a hotel, which is always described by expressions, such as hire, or, licence. And here both Mr. Wajihuddin Ahmad and Mr. Usman Ghani Rashid submitted that we should not construe item 43 (f ) of the Third Schedule in such a manner as to make the concept of provincial autonomy meaningless. There is force in this sub mission, but I need not go into it, because, if we equate the customer's right to occupy a room in a hotel with a sale, as submitted by Mr. A. K. Brohi, we would be giving a new meaning to the word "sale". Again as we have to give the widest possible interpretation to words in a constitutional document, let me give the meaning of the word "sale" in the dictionaries. The Concise Oxford dictionary defines a sale as "exchange of a commodity for money of other valuable consideration, arrangement by which retailer takes quantity of goods with right of returning all that he fails to sell" Webster's New World Dictionary defines sale as "the exchange of property of any kind, or of some services, for an agreed sum of money or other valuable consideration." Mr. A. K. Brohi, therefore, very properly did not attempt to argue that the right, which the customer of a hotel bad to occupy a room on payment, amounted to a sale, but he referred us to the Central Finance Ordinance of 1970, which I will presently consider.
11. The next item in the amenities provided by a hotel is the item of service. Service means not merely the service of bearers, who clean a room, but in hotels in Karachi and Lahore, it would include the services of staff, who can speak to the foreign customer in English, or, in some European language. These are obviously highly paid services. Similarly, with reference to the question of catering, we should not overlook the employment of foreign chefs at fantastic salaries. Now, can the consumption of such services amount to sales by the hotel to the customer? In my humble opinion, the answer must be in the negative, except in slave owning societies. The very concept of a sale is that property in the thing sold is transferred to the buyer, and when the customer of a hotel consumes so to say, the services of the hotel staff, no right of ownership over the human beings, who are serving him, passes to that customer even for the period of the service rendered.
12. I would also refer here to some other considerations which are not irrelevant to the construction of the meaning of the words "purchase" and "sale". Long before the said section was enacted, a sales tax had been in force, and the Central Legislature had enacted the Pakistan General Sales Tax Act in 1948. The tax was on the sale of goods, and the definitions in clauses (6) and (10) both of the words "goods" and "sale" in section 2 are interesting. They read;
(6) "goods" means all kinds of movable property other than actionable claims, money, stocks, shares and securities and includes all materials, commodities and articles including those to be used in the constructions, fitting out, improvement or repair of movable property and also includes all growing crops, grass and things attached to or forming part of the land which…
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