# STATE OF PUNJAB v. M/S. ASSOCIATED HOTELS OF INDIA LTD

- **Citation:** [1972] 2 S.C.R. 937
- **Court:** Supreme Court of India
- **Decided:** 1972-01-04
- **Bench:** S . .M. S!Kri, J. M. Shelat, I. D. DuA, H. R. Khanna, G. K. Mitter
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-punjab-v-m-s-associated-hotels-of-india-ltd-5583
- **Pages:** 11

## Headnote

· S11les-rt1.t-Sale and contract of H'ork
and serl'ice-Distinction nnd
fC'SIS,
The respondent-company was running the business of a hotelier and
was registered as a dealer under the Punjab General Sales Tax Act 1948.
lt applied for a declaration that it was not liable to sales-tax in 'respect
of meals served to the guests staying in the hotel on the grounds that :
(1) the hotel receives guests primarily for the purpose of lodging;. (2)
when so receil"zd the management provides him with a number of amenities including· meals at fixed hours, incidental to such lodging and with
a view to render his stay comfortable; (3) the transaction between the
respondent and the guests is one for the latter to stay and not one of
sale of food stuffs supplied; ( 4) the bill given by the respondent and paid
by the guest is one and indivisible, being a fixed amount per day during
his stay in the hotel and does not consist of separate items in respect of
the several amenities furnished to him, and (5) the transaction does not
envisage any sale of food since the guest cannot demand a rebate or
deduction if he were to miss a meal or meals nor is he entitled to carry
a\vay or deal with. in any n1anner, the food sen1ed on his· table if a part
of it is not consumed.
The dcpartmi.:nt rejected the company·s npplication but the High Court
allowed its writ petition.
Disn1issing the appeal to this Court,
HELD : The transaction is one essentially of sorvice in the performance of which and as part of the amenities incidental to that service,
the
h~1teli'i!r se1ves n1eals at stated hours.
The Revenue, the'refore, was
not entitled to split up the transaction into two parts one of service and
the other of sale of food stuffs and to split up the bill charged as consisting of charges for lodging and charges for food stuffs sel'\"Od with a view
to bring the latter uml•" the Act.[947 F-G]
The distinction between a 'Contract of sale and a contract of work
and service is fine especially when the contract is a composite one iiivoTving both.
In considering whether a transaction is a sale falling within
the purview of sales-tax 1t is necessary to determine the nature of the
contract involved on the facts of each case.
A coniract of sale is one
whose main object is the transfer of property and delivery of possesi;ion
of a chattel to the buyer: but the mere passing of property in an arti-
(:}c or con1moditY during the course of .tlr- perfonnance of a tf'3nsaction
does not render It a transaction of sale when there is no intention to sdl
and purchase.· When the principal object of work undertaken bv the
payee of the p'rk,. is not the transfer of a chattel qua chattel tlie contract is one of work and labour. The test is whether or not the work or
labour bestowed ends in anything that can properly become the subject
,,f sak: neither the ownership of the matcriah nor the value of the skill
938
stlilltfii:E Ci'.l'UltT REPO!l TS
(1972] 2 S.C.R.
and labour as «;o_Jllpared with the value of materials is conclusive, although
such matters may be taken into consideration.
In every case the
court would M\re to find out what is the primary object of the transactibtl and the intention of the parties while cnbzring into it. L942 D-G:
944 F-G. HJ
The fransaction in the present case is one and indivisible, namely, one
of receiving .a customer in. the. hotel to stay. The bill is not capable of
being split up into one for residence and another for sale of meals.
Jl.ll!enities ittduding m<!al&, are μart and parcel of the ser\>ice which,
iri reality; is the transaction between the parties.
Even if it was. to be
disintegfatect the Stipplv of meals during such stav does not constitute
~ sepat'iite coiifr'_act of sale, since no intention on the part of the parties
ti> sell nl!d J)utchase the foild stuffs supplied durin.g meal time can be
spelt out. ~945 G-H; 946 A-CJ
. Mar/ras v. Gannon Dunkerley & Co. Ltd., i 1959] S.C.R. 379, Mohan/al
J'.D1iflil1 Rice & Atill Mills. v. Assdm [1953] 4 S:f.C. 1

## Text

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937
STATE OF PUNJAB
v.
M/S. ASSOCIATED HOTELS OF INDIA LTD.
January 4, 1972
[S . .M. S!KRI, C.J., J. M. SHELAT, I. D. DuA, H. R. KHANNA
AND G. K. MITTER, JJ.]
· S11les-rt1.t-Sale and contract of H'ork
and serl'ice-Distinction nnd
fC'SIS,
The respondent-company was running the business of a hotelier and
was registered as a dealer under the Punjab General Sales Tax Act 1948.
lt applied for a declaration that it was not liable to sales-tax in 'respect
of meals served to the guests staying in the hotel on the grounds that :
(1) the hotel receives guests primarily for the purpose of lodging;. (2)
when so receil"zd the management provides him with a number of amenities including· meals at fixed hours, incidental to such lodging and with
a view to render his stay comfortable; (3) the transaction between the
respondent and the guests is one for the latter to stay and not one of
sale of food stuffs supplied; ( 4) the bill given by the respondent and paid
by the guest is one and indivisible, being a fixed amount per day during
his stay in the hotel and does not consist of separate items in respect of
the several amenities furnished to him, and (5) the transaction does not
envisage any sale of food since the guest cannot demand a rebate or
deduction if he were to miss a meal or meals nor is he entitled to carry
a\vay or deal with. in any n1anner, the food sen1ed on his· table if a part
of it is not consumed.
The dcpartmi.:nt rejected the company·s npplication but the High Court
allowed its writ petition.
Disn1issing the appeal to this Court,
HELD : The transaction is one essentially of sorvice in the performance of which and as part of the amenities incidental to that service,
the
h~1teli'i!r se1ves n1eals at stated hours.
The Revenue, the'refore, was
not entitled to split up the transaction into two parts one of service and
the other of sale of food stuffs and to split up the bill charged as consisting of charges for lodging and charges for food stuffs sel'\"Od with a view
to bring the latter uml•" the Act.[947 F-G]
The distinction between a 'Contract of sale and a contract of work
and service is fine especially when the contract is a composite one iiivoTving both.
In considering whether a transaction is a sale falling within
the purview of sales-tax 1t is necessary to determine the nature of the
contract involved on the facts of each case.
A coniract of sale is one
whose main object is the transfer of property and delivery of possesi;ion
of a chattel to the buyer: but the mere passing of property in an arti-
(:}c or con1moditY during the course of .tlr- perfonnance of a tf'3nsaction
does not render It a transaction of sale when there is no intention to sdl
and purchase.· When the principal object of work undertaken bv the
payee of the p'rk,. is not the transfer of a chattel qua chattel tlie contract is one of work and labour. The test is whether or not the work or
labour bestowed ends in anything that can properly become the subject
,,f sak: neither the ownership of the matcriah nor the value of the skill
938
stlilltfii:E Ci'.l'UltT REPO!l TS
(1972] 2 S.C.R.
and labour as «;o_Jllpared with the value of materials is conclusive, although
such matters may be taken into consideration.
In every case the
court would M\re to find out what is the primary object of the transactibtl and the intention of the parties while cnbzring into it. L942 D-G:
944 F-G. HJ
The fransaction in the present case is one and indivisible, namely, one
of receiving .a customer in. the. hotel to stay. The bill is not capable of
being split up into one for residence and another for sale of meals.
Jl.ll!enities ittduding m<!al&, are μart and parcel of the ser\>ice which,
iri reality; is the transaction between the parties.
Even if it was. to be
disintegfatect the Stipplv of meals during such stav does not constitute
~ sepat'iite coiifr'_act of sale, since no intention on the part of the parties
ti> sell nl!d J)utchase the foild stuffs supplied durin.g meal time can be
spelt out. ~945 G-H; 946 A-CJ
. Mar/ras v. Gannon Dunkerley & Co. Ltd., i 1959] S.C.R. 379, Mohan/al
J'.D1iflil1 Rice & Atill Mills. v. Assdm [1953] 4 S:f.C. 129, Masanda & Co. v.
IJ6tfllltf~Ofl~ of Saler-lax, f,1957] 8 S.T.C. 370, United Bleachers .Ltd. v.
Milifl"~. (1960) 9 S.'I'.C. 278, Krishna & Co. Ltd. v. Andhra Pradesh.
[1956] 7 S.T.C. 26, Palllaik & Co. v.
Oris~a. [19651 16 S.T.C. 364,
Andhra Pradesh v. Grmtur Tobaccos Ltd. [1%5] 2 S.C.R. 167 and English
Law atld United States Law, referrea to.
CIVIL APPELLATE JURISOICTION : Civil Appeal No. 1207 of
1968.
Appeal by special leave from the judgment and order dated
May I 0, 1967 of the PunjaQ and Haryana High Court in Letters
Patent Appeal No. 159 of 1966.
V. C. Mahajan and R. N. Sachthey., for the appellants.
M. C. Setalvad, M. C. Bha11dare, Rameshwar Nath, T. R.
Bhasin and Lalit Bhasin, for the respondent.
The Judgment of the Court was delivered by
Slf'el:tt; J,
The respondent-company carries on . business as
ff()tl!li~rs and conducts several hotels including lhe 'Cecil Hotel'
dt Simla.
mSides cohducting hotels, it also carries on restaurant
6ttsiness. Ag part of its business as
hoteliers,
the
company
receives guests in its several hotels to whom, besides furnishing
fodging, it also serves se~eral other amenities, such as public and
f}rivate room, brtth with liot and cold running water, linen, meals
during ·stated hours etc.
The bill tendered to the guest is an all
inclusive olte, that is to say, a fixed amount for the stay in the
hotel for each day and does not contain different items of each of
the aforesaid amenities.
That is, however, not the case in its
i'estnill'i!nt. busilte~ where a cusfolner takes his meal consisting
either of it'errts or fobd of liis clioice or a fixed menu. The primary functfoh of such a restautiltlt is to ~etve meals desifed 6~ a
cllstonl.et, alllltiu!lft rtlbttg witH ttle foot!, tile cuktbmer gl'its ceffllih
othet amenities also, such as seNil:e, litten ek, tlie bill \~icli
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PUNJAB v. ASSOCIATED HOTELS (She/at, I.)
939
the customer pays is for the various food items which he consumes or at a definite rate for the fixed menu, as the case may
be, which presumably takes into account service and other related amenities.
The respondent-company, as such hoteliers, has been registered as a dealer under the Punjab General Sales Tax Act, XL VI
of 1948 and has been filing quarterly returns and paying sales
tax under that Act.
On September 2, 1958 the company applied for a declaration that it was not liable to pay sales tax in respect of meals
served in the said Cecil Hotel to the guests coming there for stay.
In support of its plea, the company raised the following contentions : ( 1) that the hotel receives guests primarily for the purpose of lodging, ( 2) that when so received, the management provides him with a number of amenities incidental to such lodging
and with a view to render his stay in the hotel comfortable in·
.uding meals at fixed hours, ( 3) that the transaction between the
c<Jmpany and such a guest is one for the latter to stay and not
one of sale of food stuffs supplied as one of the incidental amenities, ( 4) that the bill given by the company and paid by the
guest is one and indivisible, that is, a fixed amount per day during his stay in the hotel and does not consist of separate items in
respect of the several amenities furnished to him including meals
served to him, and ( 5) that the transaction so entered into does
not envisage any sale of food since the guest cannot demand a
rebate or deduction if he were to miss a meal or meals, nor is he
entitled to carry away or deal with in any manner the food served
at his table, if a part of it remains unconsumed.
It is, on the
other hand, the management which has the right to deal with such
unconsumed remainder as it likes.
Such a position, therefore, is
inconsistent with a sale under which the property in the whole
must pass to the purchaser, and who can deal with the remainder in any manner he likes.
The Sales Tax Officer rejected the company's application on
the ground that the transaction which takes place between the
manasement and a resident guest takes in both lodging and boarding and the hotel charges include consideration for both.
A revision under s. 21 of the Act by the company to the Commissioner
met the same fate.
The company then filed a writ petition for
an order quas'.\ing the said decision as also the notices issued by
the Sale.s Tax authorities under the Act.
The grounds put forward in the writ petition were almost the same which the company had previously urged in its application for declaration.
There was no dispute regarding the facts stated in the writ
petition and particularly with regard to the fact that the transac-
940
SUPREME COURT REPORTS
(1972) 2 S.C.R.
tion whic~ a. ".i~iting re~ident e.nters into with the management is
one !111~ !nd1v1S1ble, that the bill charged ori him is likewise one
and m~1v1s1ble, that .the cha~ges are for each day of stay, and that
that bemg so, the bill was mcapable of being split up into separate chai:g~~ for e~ch of the am~nities furnished and availed of by
such a VISltmg resident.
The dispute was as to the nature of the
transaction and whether such transaction included sale of food
stuff supplied at various meals supplied to such a customer.
The High Court, on a consideration of the arguments urged
before it and relying mainly upon the decision of ·this Court in
Madras v. Gannon Dunkerley and Ccr. Ltd.('), to the effect that
where a transaction is one and indivisible it cannot be split up
so as to attract the Sales Tax Act to a part of it, allowed the writ
petition.
It held that a transaction between a hotelier and his
resident visitor did not involve a sale of food when the fonner
supplied meals to the latter as one .of the. amenities during his
residence, and that if there was one inclusive bill, it was incapable of being split up in the absence of any rates for the meals
agreed to between the parties as part of the transaction between
the two.
The High Comt also held that the transaction was
primarily one for lodging, that the board supplied by the management amounted to an amenity considered essential in these days
in all properly conducted hotels, and that when so supplied, it
could not be said to constitute a sale every time a meal was served to such a resident visitor.
This appeal, by special leave, is
filed against this view of the High Court.
The question in this appeal, it would appear, arises in the present form for the first time.
There are, therefore, no previous
decisions to guide its detennination.
It would, however, be helpful to consider certain decisions both of this Court as also of
the High Courts, in which different types of transactions which
came up before them for consideration in sales tax cases have
been dealt with and which might throw some light upon the problem before us.
·
, In a case arising under the Assam Sales Tax Act, 194 7
though there was no express sale in respect of gunny bags in
which rice, an exempted commodity, was supplied to Government, they were held to form assessable turnover.
There was,
however, in that case evidence that the assessees had charged the
Government for those bags (Mohan/al Jogani Rice & Atta Mills
v. Assam)(").
In D. Masanda and Co.
v.
Commissioner of Sales Tax( 8 ),
the question was whether photographic materials imported and
(l) [1959] S.C.R. 379.
(2) [1953J 4 S.T.C. 129.
(3) [195 -.11 s S.T.C. 370.
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PUNJAB v. ASSOCIATED HOTELS (She/al, J.)
941
used in the process of manufacturing photographic work, copies
of which were supplied by the assessee to a customer, was a
transaction involving sale of those materials.
The High Court
held that such a transaction did not cease to be a sale merely
because the materials were not sold directly in their original form
but in another fom1, forming the components of the finished product, namely, the copies of the photograph, and that the transaction was not merely the performance of skilled services but the
supply of finished goods.
This was, however, a border line case.
The transaction might well be coosidered as one of service, during
performance of which, a transfer of certain materials, in respect
of which there was no contract for sale, either express or implied,
may be said to have taken place.
An illustration of such a kind
is furnished by the case of United Bleachers Ltd. v. Madras(').
In that case the assessee bleached and dyed, calendered, pressed
and folded unbleached yarn and cloth manufactured by his customer textile mills.
The bills issued by the assessee contained, (a)
bleaching charges, and (b) charges for stitching, folding, stamping, baling etc., but did not contain separately charges for the
materials used for those purposes.
The Revenue contended that
there was transfer of those materials and separately assessed the
charges of those materials holding that though the assessee did
not specifically deal in those materials, a portion of the profit
earned in the business of bleaching and calendering could legitimately be attributed to the packing materials and the transaction
involved a sale of them for consideration.
On a reference, the
High Court held that the case was one of contract of service as
distinguished from a sale of a principal commodity, such as rice
in Assam case (supra) and salt in Varasuki and Co. v. Madras(').
On the other hand, where a contract is to supply such commodity
in a packed condition, it coufd be inferred, though the contract
might not be express that the intention of the parties was to give
and accept delivery of the goods in a packed condition and not
to take the principal commodity alone so that in the contract of
sale of such a commodity there was implicit the sale of packing
material as well.
Even in a contract of service such as bleaching and calendering where the goods after such processing are
delivered packed a sale of packing materials is possible,
quite
apart from the contract of service.
The question in such cases
would be one of evidence, whether there is such a contract besides
the one of service.
Where however there are no such distinct
contracts and the contract is one and indivisible, the essential part
of which is one of service, packing would be part of or incidental
to the service, and unless an intention to charge for the materials
used in the packing can be spelt out, the Revenue would not be
(I) [1960] 9 S.T.C. 278.
(2)
[1950] 2 S.T.C. 1.
942
SUPREME COURT REPORTS
[ 1972] 2 S.C.R.
entitled to split up the contract, estimate
approximately the
charges for such materials and treat them as chargeable on the
mere ground that the transaction involved transfer of packing
materials, whose value must have been taken into consideration
while fixing charges for the service.
Such an implied contract of
supply of packing materials was inferred in a contract of service,
namely. drying raw tobacco in Krishna and Co. Ltd. v. A ndhra
Pradesh ('1). But the decision in that case did not rest on there
being a transfer of packing materials in favour of the customer.
There was evidence that such a transfer was for consideration,
inasmuch as the amounts charged as remuneration for service also
contained charges for the packing materials though such charges
were not separately shown in the assessee's accounts.
In such a
state of evidence it would be possible for the Court to infer a
separate implied contract of sale of packing materials and not as
part of the service of drying raw tobacco and delivering it in
packed condition.
The difficulty which the Courts have often to meet with in
construing a contract of work and labour, on the one hand, and
a contract for sale, on the other, arises because the distinction
between the two is very often a fine one.
This is particularly so
when the contract is a composite one involving both a contract
of work and labour and a contr<ict of sale.
Nevertheless, the distinction between the two rests on a clear principle.
A contract
of sale is one whose main object is the transfer of property in,
and the delivery of the possession of, ,i chattel as a chattel to the
buyer.
Where the principal object of work undertaken by the
payee of the price is not the transfer of a chattel qua chattel, the
contract is one of work and labour.
The test is whether or not
the work and labour bestowed end in anything that can properly
become the subject of sale; neither the ownership of materials,
nor the value of the skill and labour as compared with the value
of the rnhterials, is conclusive, although such matters may be
taken into consideration ir. determining. in the circumstances of
a particular case, whether the contract- is in substance one for
work and labour or one for. the sale o.f a chattel( 2 ).
In Pa!naik and Co.
v.
Orissa('). a difference of opi:nion
arose because of the fine distinction between the two types of
contract.
The contract there was for constructing and fixing bus
bodies on the chassis supplied by the Orissa Govermnent.
The
contract, inter alia, provided that the appellants were to constr11ct
the bus bodies in the ·most substantial and workmanlike manner
(1) [1956) 7 S.T.C. 26.
(1) • Halsbury's Lah's of E11g/1111d. 3rd Ed. Vol. 34, 6-7.
(J) [1965] 16 S.T.C. 364.
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PUNJAB v. ASSOCIATED HOTELS (She/at, J,)
943'
both as regards materials and otherwise in every respect in strict
compliance with the specifications and should deliver them to the
Governor on or before the dates specified therin.
The majority
rejected the contention that that was a contract of work and
labour and held that the transaction was one of sale.
The question primarily was one of construction of the contract, and the
majority held that both the agreement and the .sale related to one
kind of property, namely, the bus bodies.
The reason for so
holding was stated to be that it was clear from the contract that
the property in the bus bodies did not pass on their being constructed on the chassis, but only when the vehicles including the
bus bodies were delivered.
Such a contract was unlike a building contract or a contract under which a movable is to be fixed
on to another chattel or on the land, where the intention plaioly
is not to sell that article but to improve the land or the other
chattel and the consideration is not for the transfer of the chattel
but for the work and labour done and the materials furnished.
The contract in question was to manufacture a bus body and fix
it on the chassis supplied and transfer the bus body so constructed for consideration.
In Madras v. Gannon Dunkerley and Co. Ltd.(') the main
question was as regards the vires of the Madras General Sales
Tax Act, 1939. as amended by Madras Act XXV of 1947 which
widened the definition of 'sale' by including, inter alia, in it a
transfer of property in the goods involved in the execution of a
works contract.
Under this definition, the Sales Tax authority
bniught into chargeable turnover the materials used in the construction works carried out by the company.
This Court held
that a power to enact a law with respect to tax on sale of goods
under entry 48 of List II in the 1935 Constitution Act must, to
be inJra vires, be one relating in fact to a sale of goods and that
a Provmcial Legislature could not, in the purported exercise of
its power, tax transaciions which were not sale·;, by enacting that
they should be deemed to sales, that to construe a transaction as
sale there should be an agreement relating to goods to be supplied
by passing title in those goods, and that it was of the essence of
such a concept that both the agreement and the sale should relate
to one and the same subject matter.
The conclusion arrived at
was that in a building contract, even if it were to be disintegrated.
there was no passing of title in the materials as movables in favour
of the other party of the contract.
The contract was one and
indivisible, there was no sale of materials, and consequently, there
was no question ot title to the materials used by the builders
passing to the other party to the contract.
Even where the thing
produced under a contract is movable property, the materials in-
(ll !1959]1.S.C.R. 379.
944
SUPREME COURT REPORTS
(1972) 2 S.C.R.
.corporated into it might pass as a movable.
But there would be
no taxable sale if there was no agreement to sell the materials as
such.
In arriving at this conclus10n, the Court relied upon
Appleby v. Myres( 11 ), and the. observations of Blackbum, J., at
659-660 of the report to show that thread stitchetl into a coat
which is under repair becomes part of the coat, but in a contract
for repairing the coat the P'!rties surely did not enter into an
agreement of sale of that thread. In Andhra Pradesh v. Guntur
Tobaccos Ltd. (2). the transaction was
for
redrying
tobacco
entrusted to the respondent-company by its customers.
The process involved the keeping of the moisture content of tobacco
leaf at a .particular level and for that purpose the leaf had to be
packed in bales, in water-proof packing material, as it emerged
from the reconditioning plant.
The tobacco was then returned
to the customer packed in costly packing material.
In the company's charges for redrying there was no separate charge for the
value of such packing material.
It was held that the redrying
process could not be completed without the use of the packing
material, that packing formed an integral part of that process,
.and that although the redried tobacco wa! returned together with
the packing materials there was no sale of those materials as there
was no intention on the part of the parties to enter into any
transaction of sale as regards those materials.
The mere fact
that in such a contract of work or service property in goods which
belonged to the party performing service or executing the work
stands transferred to the other party is not enough.
To constitute a taxable sale, the Revenue has to establish that there was a
sale, distinct from the contract of work or service, of the property
so passing to the other party.
Thus, in considering wheth~r a transaction falls within the
purview of sales tax, ·it becomes necessary at the threshold to
determine the nature of the contract involved in such a transac-
·tion for the purpose of ascertaining whether it constitutes a contract of sale or a contract of work or service. If it is of the latter
kind it obviously would not attract the tax.
From the decisions
earlier cited it clearly emerges that such determination depends
in each case upon its facts and circumstances.
Mere passing of
property in an article or commodity during the course of the performance of the transaction in question does not render it a
transaction of sale.
For, even in a contract purely of .work or
service, it is possible that articles may have to be used by the
person executing the work and property in such articles or materials may pass to the other party.
That would not necessarily
convert the contract into one of sale of these materials.
Jn
every case the Court would have to find out what was the prima.ry
(!) (1867) L.R. 2 C.P. ~<1
(2) [1965] 2 S.C.R. 167.
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PUNJAB v. ASSOCIATED HOTELS (She/at, J.)
945
object of the transaction and the intention of the parties while
entering into it. It may in some cases be that even while entering into a contract of work or even service, parties might enter
into separate agreements, one of work and service and the other
of sale and purchase of materials to be used in the course of
executing the work or performing the service.
But, then in such
cases the transaction would not be one and indivisible, but would
fall into two separate agreements, one of work or service and the
other of sale.
What precisely then is the nature of the transaction and the
intention of the parties wheQ a hotelier receives a guest in his
hotel ? Is there in that transaction an intention to sell him food
contained in the meals served to him during his stay in the hotel ?
It stands to reason that during such stay a well equipped hotel
would have to furnish a number of amenities to render the customer's stay comfortable.
In the supply of such amenities do the
hotelier and his customer enter into several contracts every time
an amenity is furnished ? When a traveller, by plane or by
steam-ship, purchases his passage-ticket, the transaction is
one
for his passage from one place to another.
If, in the course of
carrying out that transaction, the traveller is supplied with drinks
or meals or cigarettes, no one would think that the transaction
involyes separate sales each time any of those things is supplied.
The transaction is essentially one of carrying the passenger to his
destination and if in performance of the contract of carriage
something is supplied to him, such supply is only incidental to that
services, not changing either the pattern or the nature of the contract.
Similarly, when clothes are given for washing to a Iaundery, there is a transaction which essentially ·involves work or
service, and if the launderyman stitches a button to a garment
which has fallen off, there is no sale of the button or the thread.
A number of such cases involving incidental uses of materials
can be cited, none of which can be said to involve a sale as part
of the main transaction ..
The transaction in question is es_sentially one and indivisible.
namely, one of receiving a customer in the hotel to stay.
Even
if the transaction is to be disintegrated, there is no question of the
supply of meals durirrg such stay constituting a separate contract
of sale, since no intention on the part of the parties to sell and
purchase food stuff supplied during meal times can be realistically
spelt out.
No doubt, the customer, during his stay, consumes a
number of food stuffs. It may be possible to say that the pro·
perty in those food stuffs passes from the hotelier to the customer
at least to the extent of the food stuffs consumed by him.
Even
if that be so, mere transfer of property," as aforesaid, is not conclusive and does not render the event of snch supply and con-
946
SUt'REME COURT REPORTS
[1972] 2 S.C.R.
sumption a sale, since there is no intention to sell and pur-
~hase. The transaction essentially is one of service
by ·the
hotelier in the performance of which meals are served as part of
and incidental to that service, such amenities being regarded as
essential in all well conducted modern hotels.
The bill prepared
by the hotelier is one and indivisible, not being capable by approximation of being split up into one for residence and the other for
meals.
No doubt, such a bill would be prepa~ed after consideration of the costs of meals, but that would be so for all the other
amenities given to the customer.
For example, when the customer uses a fan in the room allotted to him, there is surely no sale
of electricity, nor a hire of the fan.
Such amenities, including
that of meals, are part and parcel of service which is in reality
the transaction between the parties.
Even in the case of restaurants and other such places where
customers go to be served with food. and drink for
immediate
consumption at the premises, two conflicting views appear to prevail in the American courts.
According to one view, an implied
warranty of wholesomeness and fitness for human consumption
arises in the case of food served by a public eating place.
The
transaction, in this view, constitutes a sale within the rules giving
rise to such a warranty.
The nature of the contract in the sale
of food by a restaurant to customers implies a reliance, it is said,
on the skill and judgment of the restaurant-keeper to furnish food
fit for human consumption.
The other view is
that such an
implied warranty does not arise in such transactions.
This view
is based on the theory that the transaction does not constitute a
sale inasmuch as the proprietor of an eating place does not sell
but "utters" provisions, and that it is the service that is predomill!lnt, the passing of title being merely incidental (11). The two
conflicting views present a choice between liability arising from a
contract of implied warranty and for negligence in tort, a choice
ihdicative of a conflict, in the words of Dean Pound, between
social interest in the safety of an individual and the
individu~l
interest of the supplier of food.
The principle accepted in cases
where warranty has been spelt out was that even though the
transaction is not a sale, the basis for an implied warranty is the
justifiable reliance on the judgment or skill of the warrantor and
that a sale is not the only transaction in which such a warranty
can be implied.
The relationship between the dispenser of food
and one who consumes it on the premises is one of contractual
relationship, a relationship of such a nature that an implied
warranty of wholesomeness reflects the reality of the transaction
involved and an express obligation understood by the parties in
the sense that the customer does, in fact, rel~' upon such dispenser
(I) Corpus Juri~ Sccundu111, VoJ. 77, 1215~1216.
A
B
c
D
E
F
G
II
A
11
c
D
E
F
G
PUNJAB v. A&sOCIATED HOTELS (She[at, J.)
947
of food for more than the use of due care.
(see Cushing v
Rodman('). A representative case propoundin~ the opposite view
is the case of F. W. Woolworth Co. v. Wilson( ), citing Nisley v.
Childs Co.('), wherein the principle accepted was that such cases
involved no sales but only service and that the dispenser of food,
such as a restaurant or a drug store keeper serving food for
consumption at the premises did not sell and warrant food but
uttered and served it and was liable in negligence, the rule in
such cases being caveat emptor.
In England, a hotel under the Hotel Proprietors Act, 1956 is
an establishment held out by the proprietor as
offering food,
drink, and if so required, sleeping accommodation, without special
contract, to any traveller presenting himself and who
appears
able and willing to pay a reasonable sum for the services and
facilities provided. This definition, which is also the definition
of an inn, still excludes, as formerly, boarding houses,
lodging
houses and public houses which are merely alehouses and in none
of which there is the obligation to receive and entertain guests.
An innkeeper, that is to say, in the present days a hotel proprietor, m his capacity as an inkeeper is, on the other hand, bound by
the common law or the custom of the realm to receive and lodge in
his inn all comers who are travellers and to entertain them at
reasonable prices without any special or previous contract unless
he has some reasonable ground of refusal ( •). The rights and
obligations of hotel proprietors are governed by statute which has
more or less incorporated the common Jaw.
The contract between such a hotel proprietor and a traveller presenting himself to
him for lodging is one which is essentially a contract of
s~rvice
and facilities provided at reasonable price.
The transaction between a hotelier and a visitor to his hotel
is thus one essentially of service in the performance of which and
as part of the amenities incidental to that service, the hotelier
serves meals at stated hours.
The Revenue, therefore, was not
entitled to split up the transaction into two parts, one of service
and the other of sale of food stuffs and to split up also the bill
charged by the hotelier as consisting of charges for lodging and
charges for food stuffs served to him with a view to bring the
latter under the Act.
The conclusion arrived at by the High Court is one with
w~ich we agree.
Consequently, the appeal fails and is dismissed
mth costs.
V.P.S.
H
Appeal dismissed.
ill 104 American LR. 1023; 82 T.R. 2nd Srs. 864, 868. (2) 74 F.R. 2nd Srs. 439.
Ol 103 N.J. Law 464.
i_4)
Hals/Jury's Law.1<0/ England, 3rd EJ., Vol. 11. 445-446.