Entertainment tax compounding scheme upheld where gross collection capacity and theatre classification were found rational and within legislative competence.

Sections 5-A and 5-B of the Tamil Nadu Entertainments Tax Act, 1939, as amended, were challenged as ultra vires and arbitrary because the compounding scheme taxed theatres on gross collection capacity rather than actual collections. The Madras HC held that the compounding method had already been upheld in earlier decisions, that the Legislature and Government were competent to prescribe such a tax model, and that the theatre classifications had a rational basis. The constitutional challenge therefore failed, and the provisions were upheld as valid.

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Issues: Whether sections 5-A and 5-B of the Tamil Nadu Entertainments Tax Act, 1939, as amended, were ultra vires, unconstitutional, or unreasonable in their application to the petitioner's theatre.

Analysis: The petition challenged the compounding scheme on the ground that tax was fixed on gross collection capacity and on a notional basis, without regard to actual collections, and that the classification between different categories of theatres was arbitrary. The Court noted that the compounding method had already been upheld in earlier decisions and that the Legislature and Government were competent to prescribe such a method of taxation. The Court found no merit in the contention that the scheme was unconstitutional or that the classification lacked a rational basis.

Conclusion: The challenge to sections 5-A and 5-B failed and the provisions were upheld as valid.

Ratio Decidendi: A statutory compounding scheme for entertainment tax, fixed on gross collection capacity and supported by a rational classification, is valid where it falls within legislative competence and is not shown to be arbitrary or unconstitutional.

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