2004 (9) TMI 657 - HC - Income Tax

Summary

Issues Involved:
1. Liability to pay entertainment tax on cover charges/fixed fee for entry into discotheques.
2. Definition and scope of "entertainment" under the U.P. Entertainment and Betting Tax Act, 1937.
3. Validity of the notice issued after a decade of operations.
4. Segregation of charges for food and drinks from the fixed entry fee.
5. Applicability of judgments from other jurisdictions and cases.

Detailed Analysis:

1. Liability to Pay Entertainment Tax:
The petitioner, owner of two hotels with discotheques, challenged the liability to pay entertainment tax on cover charges/fixed fees for entry into the discotheques under the U.P. Entertainment and Betting Tax Act, 1937. The petitioner argued that the discotheques were primarily restaurants with dance floors and did not provide entertainment as defined under the Act.

2. Definition and Scope of "Entertainment":
The court examined the definition of "entertainment" under Section 2(3) of the Act, which includes any exhibition, performance, amusement, game, or sport to which persons are admitted for payment. The respondents argued that the wide definition of entertainment covered the activities in the discotheques, as patrons derived pleasure from dancing and watching others dance, making it a public exhibition.

3. Validity of Notice Issued After a Decade:
The petitioner contended that the notice was issued almost a decade after the discotheques began operating, indicating uncertainty on the part of the respondents regarding the applicability of the tax. The court noted the undue delay and the respondents' own legal uncertainties, applying principles from the Employees State Insurance Corporation case to limit the tax liability retrospectively.

4. Segregation of Charges for Food and Drinks:
The court considered whether the entire fixed charge should be taxed or only the portion not corresponding to the consumption of food and drinks. Referring to the Bombay High Court judgment in East India Hotels Ltd., it was concluded that only the unadjusted portion of the fixed charge, which was not used for food and drinks, should be subject to entertainment tax.

5. Applicability of Judgments from Other Jurisdictions:
The petitioner cited various judgments, including Northern India Caterers and Geeta Enterprises, to argue against the tax liability. However, the court found the Bombay High Court's judgment in East India Hotels Ltd. persuasive, as it dealt with similar circumstances involving the same petitioner.

Conclusion:
The court allowed the writ petition to the extent that only the unadjusted portion of the fixed charge should be taxed. For the Oberoi Maidens discotheque, the court calculated the taxable amount based on the ratio of unadjusted charges in the Sensation discotheque. The petitioner was directed to deposit the specified amounts towards entertainment tax, and the bank guarantee was to be discharged upon payment. The writ petition was allowed, with each party bearing its own costs.