TaxTMI 
TaxTMI 
1992 (3) TMI 308
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.... common. So are the relevant facts. For the sake of convenience, we shall take the facts in Civil Appeal No. 2008 of 1992 arising from Writ Petition No. 8748 of 1989 (filed by Raja Theatre, represented by its licensee-Parasuram Petty village, Madurai). Tamil Nadu Entertainments Tax Act, 1939, provides for levy of entertainment tax on admission to cinema theatres, among others. The rates of admission to cinema theatres in the State of Tamil Nadu are prescribed under the Tamil Nadu Cinemas (Regulation) Act, 1955 and the Rules made thereunder. Different rates of admission are prescribed depending upon the locality in which the theatre is situated and the amenities provided therein. Entertainment tax is prescribed at a particular percentage of the rate of admission, which percentage again differs from locality to locality. Entertainment tax, thus, constitutes a component of the total amount charged for admission to a cinema theatre. Until the year 1978, entertainment tax was collected on the actual number of tickets sold. The owners/exhibitors of cinema theatres were required to make over the actual amount of entertainment tax collected by them for each show to the Governme....
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....tition No. 8748 of 1989 is situated in village Parasuram Petty and was governed by composition system but since it falls within the five kilometre belt abutting Madurai Corporation area, it is brought over to admission system. This change is brought about by substitution of sub-section (1) of section 5-A, and in particular, by virtue of the two provisos appended to sub- section 5-A(1). However, the temporary (tourist) and open-air theatres even though located in the belt are excluded from this switch-over. Petitioners-appellants impugned the validity of section 5-A(1) on several grounds all of which have been negatived by the High Court. S/Sri B.R.L. Iyengar, K. Parasaran and Sampath urged the following contentions before us: 1.. The Act classifies the theatres in the State with reference to their location, i.e., with reference to the local area wherein they are situated. The theatres situated within the municipal corporation limits are subjected to a higher rate of tax than the theatres situated in the selection grade municipalities. Similarly, the theatres situated within the area of selection grade municipalities are subjected to a higher rate of tax than the theatres situ....
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....t Petition No. 8748 of 1989 is governed by and permitted to charge rates of admission prescribed for a panchayat-which are much lower than the rates of admission prescribed for similar theatres situated in Madurai Corporation area-while in the matter of method of taxation it is equated with the theatres in the said corporation area. This is a clear case of hostile discrimination. 4.. The petitioners had come to entertain a legitimate expectation, based on legislative practice, that they would not be treated on par with the theatres situated in municipal corporation and special grade municipality areas and had adjusted their affairs accordingly. The sudden change brought about by the impugned Act has dealt a severe blow to them and has put their very continued existence in peril. 5.. The impugned provisions are confiscatory in nature. They constitute an unreasonable restriction upon the fundamental right to trade guaranteed to them by article 19(1)(g) of the Constitution of India. Article 14 of the Constitution enjoins upon the State not to deny to any person "equality before law" or "the equal protection of laws" within the territory of India. The two expressions do not me....
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....as to bear. Indeed, a few years ago, the Income-tax Act taxed 94 paise out of every rupee earned by an individual over and above rupees one lakh. The Estate Duty Act, no doubt since repealed, Wealth Tax Act and Gift Tax Act are all measures in the same direction. It is for this reason that while applying the doctrine of classification-developed mainly with reference to and under the concept of "equal protection of laws"-Parliament is allowed more freedom of choice in the matter of taxation vis-a-vis other laws. If this be the situation in the case of direct taxes, it should be more so in the case of indirect taxes, since in the case of such taxes the real incidence is upon some other than upon the person who actually makes it over to the State, though, it is true, he cannot avoid the liability on the ground that he has not passed it on. In the matter of taxation it is, thus, not a question of power but one of constraints of policy-the interests of economy, of trade, profession and industry, the justness of the burden, its "acceptability" and other similar considerations. We do not mean to say that taxation laws are immune from attack based upon article 14. It is only that Parliamen....
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....ything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably." Similarly it was observed in the other case by one of us (Venkatachaliah, J.): "It is now well-settled that a very wide latitude is available to the Legislature in the matter of classification of objects, persons and things for purposes of taxation. It must need, to be so, having regard to the complexities involved in the formulation of a taxation policy. Taxation is not now a mere source of raising money to defray expenses of Government. It is a recognized fiscal tool to achieve fiscal and social objectives. The differentia of classification presupposes and proceeds on the premise that it distinguishes and keeps apart as a distinct class hotels with higher economic status reflected in one of the indicia of such economic superiority. The presumption of constitutionality has not been dislodged by the petitioners by demonstrating how even hotels, not brought into the class, have also equal or higher chargeable receipts and how the assumption of economic superiority of hotels to which the Act is applied is erroneous ....
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....method of taxation as the theatres situated within the said areas? It is true that the Act adopts the local areas declared under the Tamil Nadu Municipal Corporation Act, Tamil Nadu Municipalities Act and Tamil Nadu Gram Panchayats Act as the basis for prescribing the rate of taxation. But it must be remembered that it was not obligatory upon the Legislature to do so. It could have adopted any other basis. It is only for the sake of convenience that the existing local areas,-convenient existing units of reference,-were adopted. It is not a question of power but one of convenience. There was nothing precluding the Legislature to have declared in the very first instance (i.e., at the time of 1978 Amendment Act) that the admission system was to continue in force not only in the corporation areas but also in five kilometre radius (belt) abutting each of those areas. The only question then would have been, as now it is, whether such a course brings about an unreasonable classification or whether it amounts to treating unequals on a uniform basis. It is urged for the appellants that as a result of creation of such belts, theatres situated in a given local areas, be it a gram panchayat....
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.... interior areas of such abutting panchayats (i.e., outside the five kilometre radius) the theatres exhibit only second run pictures and there is definitely less population in and around such theatres. In those areas, it is stated, there is practically no floating population, whereas in the theatres within the five kilometre belt, mostly first run pictures are exhibited and there is considerable floating population. It is also submitted by the respondents that a number of housing colonies have sprung up just outside the corporation limits and the limits of special grade municipalities, the inhabitants whereof patronise theatres within the belt. All this shows that the classification or the distinction made between theatres situated within the belt and the theatres outside the belt is not an unreasonable one. It also establishes that the theatres within the belt are akin to and comparable to the theatres situated within the areas of corporations and special grade municipalities. It is not disputed that the admission system fetches more revenue to the State. It is precisely for this reason that the said system is continued in the major cities. It cannot be said that the classification....
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....7 per cent or any other percentage-is upon the gross collection capacity irrespective of the actual number of tickets sold for a show or over a week. Thirdly, the rates of admission are prescribed under a different enactment. If the petitioners are so advised they can always apply to the appropriate authority for revision of rates of admission. It is not submitted by the" petitioners that any of them has applied and have been refused. The contention, therefore, is unacceptable. We may also mention in this connection that the petitioners are not suffering any real prejudice. Whichever the system of taxation, the amount collected by way of entertainment tax is to be made over to the State. Even under the composition system, the formula evolved is supposed to represent the amount really collected by way of entertainment tax. It may be that in a given case or probably in many cases-the exhibitors may be saving a part of the amount collected by way of entertainment tax by paying only the compounded amount. But it may not necessarily be so. There may be theatres where the formula may work to their prejudice because of their low occupancy rate. In any event, the mere fact that an exhib....
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.... the theatres all over the State were governed by admission system alone. Even after introduction of sections 5-A and 5-B it was made applicable to several local areas in two stages, i.e., in 1978 and 1982. Indeed by Amendment Act 20 of 1983 and 48 of 1986 certain local areas governed by sections 5-A and 5-B were removed from their purview and brought back to admission system. The entire experiment has been spread over a period of only about 14 years. We cannot say that this period is sufficient to establish, what may be called, a "legislative practice." Even otherwise, we are not satisfied that the said theory can be brought in to defeat or invalidate a legislation. It may at the most be used against an administrative action, and even there it may not be an indefeasible right. No case has been brought to our notice where a legislation has been invalidated on the basis that it offends the legitimate expectation of the persons affected thereby. We may in this connection refer to the decision of the House of Lords in Council of Civil Service Unions v. Minister for the Civil Service [1985] AC 374, wherein this theory is referred to. In this case, the staff of Government Communications....