1984 (7) TMI 353 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Competence of the State Legislature to levy entertainment tax.
2. Alleged arbitrariness and discrimination in the levy of entertainment tax under Article 14.
3. Alleged unreasonable restriction on the right to carry on business under Article 19(1)(g).
4. Interpretation and application of specific provisions of the Andhra Pradesh Entertainments Tax Act, 1939, as amended.

Detailed Analysis:

1. Competence of the State Legislature:
The petitioners argued that levying entertainment tax based on gross collection capacity without reference to actual collections or tickets sold is ultra vires the State Legislature's power. They contended that the levy should be based on the number of persons entertained and the amount collected from them, and that the current method transforms the tax into a tax on profession, property, or income, which is beyond the State Legislature's competence.

Court's Analysis:
- The court held that Entry 62 of List II of the Seventh Schedule to the Constitution empowers the State Legislature to levy taxes on entertainments and amusements. The tax is on the entertainment held, not on the persons entertained.
- The court rejected the argument that the tax must be calculated with reference to the number of persons entertained. It emphasized that the Legislature can adopt any basis or method of levy as long as the tax retains its character as an entertainment tax.
- The court cited Supreme Court precedents, including Western India Theatres v. Cantonment Board and Y.V. Srinivasamurthy v. State of Mysore, to support its conclusion that the method of levy does not make the tax ultra vires.

2. Alleged Arbitrariness and Discrimination under Article 14:
The petitioners contended that the classification of theatres for tax purposes was inadequate and resulted in treating unequally situated proprietors equally, violating Article 14.

Court's Analysis:
- The court noted that the Act made a two-fold classification of theatres: local authority-wise and theatre-wise (air-conditioned, air-cooled, and ordinary theatres).
- The court found this classification reasonable and related to the object of the legislation. It acknowledged that various factors influence the rate of occupancy in theatres and that absolute equality is not required.
- The court emphasized that in taxation laws, the Legislature has wide discretion in classification and selection of persons to be taxed. It referred to Supreme Court decisions in East India Tobacco Co. v. State of Andhra Pradesh and Twyford Tea Co. Ltd. v. State of Kerala to support its conclusion.
- The court rejected the argument that the classification was discriminatory, noting that it was based on realistic considerations and that the Legislature cannot be expected to devise a classification that meets every conceivable situation.

3. Alleged Unreasonable Restriction under Article 19(1)(g):
The petitioners argued that the levy of entertainment tax based on gross collection capacity without reference to actual collections is an unreasonable restriction on their right to carry on business, as it could drive them out of business.

Court's Analysis:
- The court examined the consolidated levy system and found it beneficial to proprietors, as it simplified the tax structure and reduced the scope for evasion and corruption.
- The court provided illustrations to demonstrate that the expected average occupancy rates underlying the tax rates were reasonable and not expropriatory.
- The court noted that the rates of tax were based on realistic expectations of occupancy rates, and that higher rates for bigger local authority areas were justified.
- The court emphasized that the new system aimed to simplify tax collection and enhance public revenue, and that the unintended consequence of benefiting some theatres while prejudicing others did not affect the reasonableness of the levy.
- The court rejected the argument that the absence of a power to exempt renders the Act harsh and expropriatory, noting that proprietors could apply for reduction of seating capacity or rates of admission.

4. Interpretation and Application of Specific Provisions:
The court addressed several specific contentions regarding the interpretation and application of the Act's provisions, including the determination of seating capacity, the validity of existing agreements under the old section 5, and the impact of reduced rates of admission.

Court's Analysis:
- The court clarified that the maximum number of seats and rates of admission determined by the licensing authority under the Andhra Pradesh Cinemas (Regulation) Rules should be taken into account for the purpose of the explanation to section 4.
- The court held that existing agreements under the old section 5 remain valid for their term, and that the absence of prescribed forms or authorities for exercising options under the new section 5 does not affect its enforceability.
- The court directed the authorities to consider applications for reduction of seating capacity promptly and to take such reductions into account for determining tax liability under section 4.

Conclusion:
The court dismissed the writ petitions, upholding the validity of the Andhra Pradesh Entertainments Tax (Amendment) Act, 1984. The court found that the Act did not violate the petitioners' constitutional rights under Articles 14 and 19(1)(g) and that the State Legislature was competent to levy the tax as prescribed. The court provided clarifications and directions to address specific grievances raised by the petitioners.