Full Judgment Text
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PETITIONER:
SECUNDERABAD HYDERABAD HOTEL OWNERS ASSOCIATION & ORS.
Vs.
RESPONDENT:
HYDERABAD MUNICIPAL CORPORATION, HYDERABAD & ANR.
DATE OF JUDGMENT: 20/01/1999
BENCH:
Sujata V. Manohar, A.P.Misra
JUDGMENT:
Mrs. Sujata V. Manohar,J.
In 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.
Under 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
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 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 Rs.1,000/-.
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The 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 premises.
The rates so prescribed were higher than the rates in force
earlier. This increase was challenged, but was upheld by
the High Court.
Thereafter 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.
The 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 6.4.1981.
The 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 High
Court.
In 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.
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:-
I.......T.......T.......T.......T.......T.......T.......T..J
------------------------------------------------------------
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
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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/- 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
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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.
The 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.
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 parking of cycles, motor
cars or other vehicles of the persons visiting the hotel.
The licensee shall provide suitable means of drainage,
ventilation and lighting of such premises. The licensee
shall provide in the kitchen suitable outlets for smoke.
The 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.
Undoubtedly, 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.
Nevertheless, hotels and eating houses by reason of the
nature of their occupation, do impose an additional burden
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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 tax.
It is, 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.
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 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.
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In the case of Corporation of Calcutta and Another v.
Liberty Cinema ([1965] 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. ([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 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. & Ors.
([1996] 5 SCC 670 in paragraph 36) as well as State of
Tripura & Ors. v. Sudhir Ranjan Nath ([1997] 3 SCC 665 at
673).
The 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) .............
(c) .............
(d) all moneys raised by any tax levied for the
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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) .............
(g) ............., 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.
(2)..........."
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.
This Court, however, in the case of Sirsilk Ltd. & Anr. v.
Textiles Committee & Ors. ([1988] 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:
(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
besustainable.
It is, however, contended by the petitioners that if
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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.
In the 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.
It is 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,
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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.
The 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.
The 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.
These 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.
Aggrieved 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.
Agreement 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 a fee.
The 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
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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.
We, 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.