TaxTMI 
TaxTMI 
2005 (3) TMI 438
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....challenge was passed. 2.. The above appeal is directed against the final judgment and order dated August 4, 2000 passed by the High Court at Calcutta in W.P.T.T. No. 338 of 2000 whereby the High Court allowed the writ petition filed by respondent Nos. 1 and 2 and declared clause (ii) of sub-section (4a) of section 4A of the West Bengal Entertainment-cum- Amusement Tax Act, 1982 (as amended by the West Bengal Finance Act, 1998) is ultra vires to the Constitution. 3.. Respondent No. 1 carries on business as a Multi System Operator (hereinafter referred to as "MSO") and is engaged in receiving and providing TV signals to individual cable operators of various localities. The respondents are receiving communication signals known as TV signals broadcast by various satellite channels and are distributing the same to the sub-cable operators. The process involved in the business consists of establishment of state of the art control rooms and spreading the cable network. The said network signals are being given to various sub-cable operators with whom the respondents have franchise agreement. According to the respondents, there is a significant and qualitative difference between the fu....
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.... exceeding twenty-five per centum of the monthly gross receipt, as may be specified by the State Government by notification published in the Official Gazette." 6.. Entry 62 of List II of the Seventh Schedule to the Constitution is also reproduced hereunder: "Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling." 7.. Section 4A reads thus: "4A. Levy and collection of tax for exhibition.-(1) Subject to the provisions of sub-section (2) and other provisions elsewhere contained in this Act, there shall be levied on, and collected from, a holder of a video cassette recorder set or sets or a holder of a video cassette player set or sets a tax, in addition to the tax referred to in section 4, where such holder makes any public performance or exhibition of film through a video cassette recorder set or a video cassette player set against payments made or to be made by persons admitted to witness such performance or exhibition at the rates specified below...................." 8.. Some of the relevant definitions are reproduced hereunder for the proper understanding and adjudication of the case: " 'cable operator' means any person who provid....
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....aid local operators who have direct contractual nexus with the consumers/viewers/households are taxed for the purpose of entertainment tax and it is only in West Bengal that such a situation has been created. 11.. Aggrieved by the imposition of entertainment tax and the demand notices issued, the respondents challenged the vires of 1998 amendment in the 1992 Act as well as these demand notices before the West Bengal Taxation Tribunal. The case was heard by a three-Member Bench. The Chairman of the Tribunal was of the opinion that the State Legislature was not competent to levy the tax on the "entertainer ", i.e., the "sub-cable operator" and/or the "entertainee", namely, the viewer or the customer having regard to the administrative convenience and other relevant factors. The Chairman declared that clause (ii) of sub-section (4a) of section 4A is ultra vires to the Constitution because the Legislature of the State of West Bengal is not competent to enact the provisions under entry 62 of List II of the Seventh Schedule to the Constitution. 12.. Another Technical Member and Judicial Member took the opposite view. According to them, the cable operator is the exhibitor and that h....
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....nce, film or any other programme telecast and thereafter transmits such signals to a sub-cable operator against payment received and receivable by him is liable to pay tax on his monthly gross receipt for transmitting such signals of any performance, film or any other programme telecast to a sub-cable operator. It was submitted that respondent No. 1 is a multi-system operator who receives TV signals and transmits such signals to his sub-cable operators through his cable television network, is a cable operator within the meaning assigned by the Explanation of sub-section (4a) of section 4A of the Act. After transmission of such signal by respondent No.1 to their sub-cable operator they, in turn, provide cable service for exhibition of such performance, film or programme to individual customers and entertain them. 16.. It was further submitted that respondent No. 1 admittedly controls and is responsible for the management and operation of the cable television network. 17.. Our attention was also invited to certain terms and conditions of the franchise agreement entered into between the cable operator and sub-cable operator. According to Mr. V.R. Reddy, learned Senior Counsel, t....
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....hold. Thus the ready entertainment in the form of audio visual signal, which is transmitted by the cable operator, reaches instantly in fact from them to the threshold of the television of the viewer. Therefore, the signal of the sub-cable operator, which reaches television as the entertainment itself, is the very signal, i.e., the ready entertainment, which has been transmitted by the cable operator. Thus, providing the cable link up to the viewer's end is the only role sub-cable operator has to play. It is, therefore, inconceivable that, despite putting forth the ready entertainment in the form of signal on the cable line, the cable operator cannot be said to be providing the entertainment within the meaning of entry 62 of List II of the Seventh Schedule of the Constitution of India. 19.. It was submitted that sub-cable operators are not independent of, or can act contrary to, any terms and conditions laid down in the agreement. A franchisee is merely an executor within the meaning given by respondent Nos. 1 and 2 themselves in the agreement. It was further submitted that no viewers could be entertained by the sub-cable operators alone. 20.. Elaborating further, Mr. V.R. Re....
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....ually acts as the nodal, technical and scientific receptionist and supplier of signals and that the signals provided to the sub-cable operators are utilised by the said sub-cable operators for providing information and entertainment to their customers. According to Mr. Dushyant Dave there is a significant and qualitative difference between the functions performed by respondent No. 1 cable operator and the activities of the local sub-cable operators who are the franchisees of the respondent-company. He would further submit that it is particularly important to note that due to recent technological developments, the MSOs like the respondent-company are not only providing the input to the localised cable operators in their business of providing cable TV connections and transmission of programme through cables, but the MSOs are also concerned with the value added services like internet, telephony, and transmission of data. The respondent-company by the use of the state of art bi-directional network of 550 MHZ bandwidth is able to receive and transmit signals telecast on about 40 to 50 channels as at present. 22.. According to Mr. Dushyant Dave, under sub-section (4a) of section 4A of....
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....inment. An activity, which is remotely connected with such entertainment, cannot come within the ambit of the said legislative entry. It was submitted that until and unless such a direct and proximate nexus between the transaction sought to be taxed and the person who is required to pay the tax is clearly established, the levy cannot be held to be constitutionally valid. 24.. It was submitted that for the purpose of levy of entertainment tax it is the person who directly and ultimately provides the entertainment by exhibition to the viewers, is liable to pay the entertainment tax. In the case of exhibition of a movie in the cinema hall, it is the proprietor of the hall, who is taxed, as he obviously is the person who provides the entertainment by charging the necessary monetary compensation. All other persons who had participated in the production and distribution of the movie are not liable to pay entertainment tax. Similarly, the cable operator in a locality who is actually providing the entertainment to this subscribers may be liable to pay tax but those who function at an intermediary stage, cannot be held liable to pay the said tax. 25.. Explaining further, Mr. Dave subm....
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....ss receipts and/ or gross income of the respondent-company which has no direct and proximate relationship with the provision of entertainments make the impost ultra vires the Constitution as the State Legislature has no power to impose a tax on income. 31.. Dr. A.M. Singhvi, learned Senior Counsel appearing on behalf of the intervener made the following submissions: (A) Assuming without conceding that Multi System Operators (MSOs) are also Cable Operators (COs), the impugned levy is unconPage No: 166 stitutional because it travels beyond the very concept and scope of the word "entertainment" under entry 62, List II. (B) Any State levy on entertainment and/or amusement, to be valid, must necessarily fall within entry 62, List II, which gives exclusive State competence, in so far as taxation on these subjects is concerned. (C) The taxable event is thus the act or activity of entertainment. This taxable event must have a direct and proximate connection with the assessee on which it falls and must itself constitute entertainment. The activity in question must be examined and unless it qualifies as entertainment itself, the taxable event of entertainment cannot arise. In the....
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.... gives it to the subscriber. There is neither intent to entertain nor the taxable fact of entertainment. Both animus and factum are thus missing. (I) Indeed, in view of the MSOs role as a conduit, the impugned levy would de facto amount to a tax upon expenditure in the hands of the assessee. Admittedly, the aggregate of all collection by MSOs from cable operator or sub-cable operators is passed back to the broadcaster and what is retained in the hands of MSO is only a service charge. The impugned levy is a tax on the gross receipt of the assessee/MSO. It is not a tax on the aforesaid service charge only. Since the overwhelming proportion is given back by the MSO to the broadcaster, such a tax constitutes a tax on expenditure of the MSO and is therefore perverse, unreasonable and unconstitutional. (J) In view of the foregoing, a tax on mere receiving and/or transmitting of signals will not fall under entry 62, List II at all and would be the subject of exclusive parliamentary competence under entry 31 read with entry 97 of List I. (K) Without prejudice, in the alternative, in any event the respondent-assessees are MSOs and not cable operators and do not fall under the....
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....ork through the sub-cable operator. 33.. We have very carefully considered the rival submissions made by learned counsel appearing on either side. Even though the arguments advanced by Mr. Dushyant Dave and Dr. A.M. Singhvi, the Intervenor appear to be very attractive at the first blush, yet on deeper examination, it does not appear to be correct and sustainable. 34.. In the instant case, respondent No. 1 engaged in receiving and providing TV signals to individual cable operators is liable to pay tax under sub-section (4a) of section 4A the Act. The expression "cable operator" has been defined by the explanation to sub-section (4a) of section 4A as aforesaid for the purpose of the sub-section only. Similarly, the meaning of sub-cable operator is given in the said Explanation. There is no dispute that the respondent No. 1, being a cable operator within the meaning assigned by the Explanation to sub-section (4a) of section 4A, receives TV signals and transmits such signals to their sub-cable operator through their multi-system operator which is, in other words, a cable television network. There is also no dispute that after transmission of such signals by respondent No. 1 to....
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....o cassette recorder. The purpose of sub-section (4a) of section 4A of the Act is to levy and collection of tax from any person who provide cable service directly to consumers or transmits to a sub-cable operator through a cable television network and otherwise controls or is responsible for the management and operation of a cable television network and such person has been defined as "cable operator" being a taxable person exclusively for the purpose of levy and collection of entertainment tax only when a cable operator so defined receives through any electrical, electronic and mechanic device the signal of any performance, film or any other programme telecast and provides cable service directly to consumers or transmits signals to a sub-cable operator through a cable television network and otherwise controls or is responsible for the management and operation of a cable television network. The person who has been defined as cable operator exclusively for the purpose of levy and collection of entertainments tax has a direct and proximate nexus with the amusements and entertainments to the viewers at every home or place inasmuch as he is the person directly connected with presentatio....
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....ment with full name, address and other information of relevance as required by the NETWORK. Subsequently any change in the subscriber list would be communicated to the NETWORK within seven days. The FRANCHISEE would submit complete information and not withhold the name of subscribers or declare less number of subscribers to the NETWORK. (d) The FRANCHISEE is authorised to receive and immediately re-transmit and/or communicate the signals of the NETWORK. Recording and then retransmission of the signals by the FRANCHISEE is not allowed. However for any such intentions the FRANCHISEE will have to take written permission from the NETWORK. (j) The FRANCHISEE shall not transmit or restraint any signals to his subscribers which are not transmitted by the NETWORK without the prior written consent of the NETWORK. (m) The FRANCHISEE shall be liable to pay all applicable taxes, charges, etc., levied or imposed by the Government or which may be imposed in future by the Government or any other statutory or regulatory body of the region. 36.. Therefore, the respondents as a cable operator have direct and proximate nexus with the entertainments provided by them through their ca....
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....ts and of sending the visual or audio visual signals to sub-cable operators, and instantly re-transmitting such signals to individual subscribers for entertaining them through their franchise. The respondents' act is, no doubt, an act of offering entertainment to the subscribers and/or viewers. The respondent is very much directly and closely involved in the act of offering or providing entertainment to subscribers who are on his record. For the fact of offering or providing entertainment to the subscribers and/or viewers, the respondents receive charges, which are realised or collected by their franchisee from the ultimate subscribers. Their franchisee, called as sub-cable operator under the said 1982 Act, having no independent role to offer or provide entertainments to the subscribers inasmuch as franchisees have to depend entirely on the respondents communication network and this communication network of the respondents consists of receiving and sending visual images and audio and other information for preparation of the subscribers and/or viewers, without the communication network service of the respondents, no entertainments can be offered or provided to the subscribers and/or....
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.... rates of tax have been sought to be specified by the notification. The measure of tax is the "gross receipt" on the basis of which the person is saddled with the liability to pay tax. There is no uncertainty or vagueness of the legislative scheme. The tax levied by sub-section (4a) of section 4A of the said 1982 Act does not interfere with the fundamental rights guaranteed under article 19(1)(g) of the Constitution or is violative of article 19(1)(g). 41.. We also see no substance in the submission that the impugned legislation impinges on the field occupied by the Central legislation. The aforesaid central legislation has been enacted to regulate the operation of cable television network in the country and matters connected therewith or incidental thereto whereas the State Legislation is for levy of entertainment tax on entertainment within the legislative field exclusively assigned to the State Legislature under entry 62 of List II of the Seventh Schedule to the Constitution. Thus the objects sought to be achieved by two different Acts enacted under two different legislative fields exclusively assigned to the respective Legislatures are entirely distinct and separate. The ....
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....rices or amounts is the gross receipt of the respondent No.1 in relation to any month or part thereof. 43.. Who will be considered the giver of the entertainment-the cable operator or the sub-cable operator. We do not find any reason to consider the sub-cable operator as the only giver. Even though the sub-cable operator may be the giver of the entertainment in as much as he has a direct connection with the viewer, still in cases like the present where he does not select the show, or make the show ready, or does not put the show on and the exhibition is done by the cable operator through mere franchisees, it cannot be said that the cable operator is not the giver. It is true that the cable used to get in touch with the TV set of the consumer has been provided by the sub-cable operator, but that fact alone by itself cannot make the sub-cable operator, the only exhibitor or the giver, of the entertainment. In a world of indirect links between individuals made possible by the electronic age, the indirect meeting between the cable operator and the consumer through a technical link has been made possible. 44.. Sub-section (4a) of section 4A of the Act recognizes the reality tha....
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....support of the contention that unless there is actual utilisation of luxury no tax can be levied on the mere existence of the provisions made, for the prospective or the potential utilisation of the luxury (para 24) 48.. The counsel in the above case further relied on decision of High Court of Bombay in Ramesh Waman Toke's case See AIR 1984 Bom 345. where in the context of levy on entertainment it was observed that the levy can be only on entertainment which is actually held and not on entertainment which is theoretically capable of being sold. 49.. The Constitution Bench did not accept the counsel's understanding of the ratio in Western India Theatres case See [1959] Supp. 2 SCR 63. and did not also approve the reasoning of the High Court at Bombay. (See page 692, para 24, 25). 50.. Therefore, there is no substance in the contention that taxable event is entertainment and there can be no tax if there is no entertainment. As held by Constitution Bench existence of means of providing entertainment would be sufficient to support a law imposing tax thereon and that means of providing entertainment provides the nexus between the taxing power and the subject of tax.....