TMI Blog2001 (10) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... at we will be justified in granting these petitions as prayed. The petitions are rejected. - - - - - Dated:- 12-10-2001 - Judge(s) : V. S. SIRPURKAR., A. KULASEKARAN. JUDGMENT The judgment of the court was delivered by V.S. SIRPURKAR J.-This judgment will govern the above writ petitions, which are filed under article 226 of the Constitution of India. Out of the above writ petitions, while W.P.No. 8539 of 2000 is filed by the Indian Institute of Architects Association, Tamil Nadu Chapter on behalf of the architects in general, who are registered under it as practising architects, the rest of the writ petitions pertain to the chartered accountants and have been filed by the various representative bodies of which the practising chartered accountants are the members since the question involved is identical in all these petitions and they are being disposed of by this common judgment. Shortly stated, the architects and chartered accountants are challenging the constitutional validity of the provisions of the Finance Act by which the services offered by the architects and chartered accountants have been brought under the tax net, which is to be charged at five per cent. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in professional capacity in any manner; (r) in relation to the service provided by a practising chartered accountant to a client, shall be the gross amount charged by such accountant from the client for services rendered in professional capacity in any manner;" The main and the only challenge to the relevant provisions inflicting the tax liability is on the ground of lack of "legislative competence" on the part of Parliament. According to the petitioners, "architects" and "chartered accountants" are "professionals", which professions are governed and controlled by separate enactments and, therefore, considering the pith and substance of the present enactment, inflicting the tax, it is nothing but a "tax on profession", trade, business and calling, which is covered under entry 60 of the State List (List II). The petitioners further contend that the so-called "service tax" is presumably being inflicted under the "residuary entry", i.e., entry 97 of the Union List (List I) provided by article 248 of the Constitution and since the said challenged tax falls under entry 60 of the State List (List II), Parliament was not competent to legislate the present enactments. It will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional services has to be necessarily viewed as a tax "on" profession because if the concerned person was not engaged in that profession then, there would be no question of taxing the said person. Learned counsel argues that the aspect of service cannot be separated from the profession as the professional has no other task except providing his professional services. Our attention is then drawn to the language of the taxable service and it is pointed out that therein what is taxed is the service rendered by an architect or the chartered accountant in his "professional capacity". Both learned counsel argue that to offer a service in the professional capacity is the only thing that a professional can or be expected to do and, therefore, any tax in relation to that service has to be integrally connected to the profession. According to learned counsel once this position is clear then, if the legislative competence is being sought from the residuary power, i.e., entry 97 of the Union List (List I), that would be clear breach of article 248(1) as any tax "on" profession is already covered by entry 60. According to learned counsel, the true test would be to examine as to whether the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fuge. It is only when all the categories in the three lists are absolutely exhausted that one can think of falling back upon a non descript." Learned senior counsel on behalf of the respondents did not dispute the position that this tax was a "nondescript" because it has not so far been described anywhere. Learned counsel, however, contended that it is sui generis. We will consider the argument regarding the nature of the legislation and the tax a little later but before that, we must observe that the observations of the Federal Court quoted above related to the position under the Government of India Act, 1935, where the relevant section was in the same terms as article 248. In a celebrated decision of the Supreme Court in International Tourist Corporation v. State of Haryana, AIR 1981 SC 774, Justice Chinnappa Reddy observed as follows: "Before exclusive legislative competence can be claimed for Parliament by resort to the residuary power, the legislative incompetence of the State legislative must be clearly established. Entry 97 of List I in the Seventh Schedule itself is specific that a matter can be brought under that entry only if it is not enumerated in List II or Lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat a professional does for his client". Learned counsel Mr. Datar argued that the term "professional" has a specific connotation. He reminded us that both these professions are governed and controlled by specific enactments and there is a supervising or controlling body in both the professions which issues licences to the members and then alone, the concerned persons can practice as an architect or chartered accountant. From this, learned counsel pointed out that though the other services are made taxable services they are not services provided by professionals stricto sensu. Learned counsel also pointed out that what would apply to section 65(48)(p) and (s) would apply in the same manner to sub-clauses (t) and (u) of section 65(48) which are in respect of practising cost accountants and practising company secretaries. Then again it is pointed out that even these two can be called "professions". Learned counsel argues that it is only in these four professions, which are governed and controlled by separate enactments that the services rendered to the client in the professional capacity have been made taxable and, therefore, such service cannot be considered to be separate from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act, the charge of the tax is on the person who is responsible for collecting the service tax. It is he who by virtue of the provisions of section 65(5) is regarded as an assessee. He is the person who provides the services. After taking the resume of the machinery under the Finance Act, this is what the Supreme Court says about the service tax in paragraph 9: "The service tax is levied by reason of the services which are offered. The imposition is on the person rendering the service. Of course, it may be an indirect tax, it may be possible that the same is passed on to the customer but as far as the levy and assessment is concerned it is the person rendering the service who alone can be regarded as an assessee and not the customer. This is the only way in which the provisions can be read, harmoniously." From this learned counsel pointed out the unique nature of this Act. We are in complete agreement with learned counsel considering the fact that so far the "service sector" was almost ignored for the purposes of the tax and the present Finance Act aims at that service sector. The taxation which aimed at three services to begin with, the scope thereof has now been broadened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icence irrespective of whether or not he actually practises. That tax is a tax for the privilege of having the right to exercise the profession if and when the person taking out the license chooses to do so. The impugned tax is a tax on the act of entertainment resulting in a show." Identical enough if a chartered accountant or an architect who is paying professional tax does not give any service, though he chooses to be on the roll of architects or chartered accountants he would not be required to pay the present tax. The aforementioned judgment in Western India Theatres' case, AIR 1959 SC 582, has remained undisturbed throughout. In Kamta Prasad Aggarwal v. Executive Officer, AIR 1974 SC 685, the Supreme Court observed: "A tax on profession is not necessarily connected with income. This is clear from the tax on professions imposed by several municipal authorities at certain rates mentioned in the relevant statutes. A tax on income can be imposed if there is income. A tax on profession can be imposed if a person carries on a profession. Such a tax on profession is irrespective of the question of income." The significance of Kamta Prasad Aggarwal's case, AIR 1974 SC 685 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1997] 1 SCC 203 and more particularly the observations made in paragraph 8 in that case to the effect that a decision cannot be relied upon in support of a proposition which was not decided by that decision. It was, therefore, urged that Western India Theatres' case, AIR 1959 SC 582 and Kamta Prasad Aggarwal's case, AIR 1974 SC 685, were not authorities for the proposition that entry 60 in List II will be confined only to levying tax on the right or the privilege to carry on a particular profession. According to learned counsel, the decisions only made it clear that the tax on professions could be levied irrespective of whether the professionals earned any income out of that profession or not. According to learned counsel, these decisions did not take away the powers of the State to levy professional tax based on income. We are unable to agree with all these contentions. In Western India Theatres' case, AIR 1959 SC 582, the Supreme Court was considering the "entertainment tax", which was payable per show. We have already quoted the relevant observations in our judgment which clearly go to show that the observations made regarding the professional tax are not as restrictive as le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very clearly stated that a tax on profession is irrespective of the question of income and it can be imposed if a person carries on a profession. Therefore, the nature of the profession tax is clearly held by the Supreme Court to be a tax on account of the fact that the particular professional carries on that profession and nothing more than that. The judgments of the Allahabad High Court and the Kerala High Court cannot be relied upon to wipe out the observations made in the Supreme Court judgments and, therefore, have to be ignored. As it is learned counsel had relied upon those judgments just to show that the profession tax could be linked with the income. What would ensue if the profession tax is linked with the income would be considered by us when we discuss the scope of article 276 of the Constitution of India. Learned counsel also contended that we must read sections 65, 66 and 67 differently and in case they were bodily lifted from the Central enactment and treated as if they were a part of the State enactment, they would have certainly been within the competence of the State Legislature because of entry 60 of List I1. For this purpose, learned counsel relied on the lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... touchstone of article 276(2) which provides a ceiling to the tax of Rs. 2,500. Now, as proposed by learned senior counsel, if the measure of the tax had been linked with the income, there could not have been any limit provided by the State and if the tax had exceeded Rs. 2,500 then such provision would hit by article 276(2). Therefore, any provision which was likely or capable of committing a breach of article 276(2) would clearly be void and, therefore, vitiated. In our opinion, article 276(2) itself creates a fiction that though a tax on profession relates to an income therefrom, it will not be so and the creation of a limit to the profession tax in clause (2) of article 276 itself suggests that income from the profession is irrelevant in the matter of tax on profession. It is only with that idea that clause (2) creates a limit. The creation of the limit itself gives a distinct character to the tax on profession and, therefore, a tax which is not fettered by a limit like the one created by article 276(2) and which relates to the professional income cannot be viewed as a profession tax. The contention raised by learned senior counsel for the petitioners regarding the language ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " for any unit of residential accommodation are rupees four hundred or more per day per individual. The "chargeable expenditure" was defined by section 5 of that Act and included the expenditure incurred in or payments made in such class of hotels in connection with the provisions of any accommodation, residential or otherwise, food or drink whether at or outside the hotel; or for any accommodation in such hotel on hire or lease; or any other services envisaged in that section. The challenge was on the ground that this tax, which was being imposed under entry 97 of List I under article 248 was beyond the legislative competence as, in fact, this expenditure tax was squarely covered under entry 62 of List II which pertained to the tax on luxuries including the tax on entertainments, amusements, betting and gambling and also could be covered under entry 54 of List II as the transaction in question also amounted to sale of foodstuff (goods) to the customers. The Supreme Court upheld the validity of the levy of the tax. It held that the said tax could have had distinct aspects. It recognised the said distinct aspect, viz., the expenditure aspect of the transaction and held the same to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rliament under entry 97 of List I as has been done in the present case. Mr. Chandrasekaran, the learned senior standing counsel appearing on behalf of the respondents criticised the argument of the petitioners suggesting that the nature of the tax must be separately identified and the measure of the tax should not be confused with the nature of the tax. He pointed out that though section 67(o) and (r) which provided the measure of the tax related to the professional charges, that could not decide the real nature of this tax, which was purely a tax on service where such taxable service was clearly defined and where the measure of the tax was also specifically defined. The learned senior counsel also suggested further that the petitioners were confusing between the tax on profession as covered by entry 60 and the service tax introduced by the impugned legislation. Heavily relying on the observations made by the apex court in paragraphs 42 to 49 of the Federation of Hotel and Restaurant Association of India [1989] 178 ITR 97, learned counsel pointed out that there could not be any confusion in this case between the service tax and the professional tax. The Supreme Court in that ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale thereof. In the light of these legislative entries, the two different activities could properly be regarded as two different matters for taxation and the relevant legislation was held to be one concerned with 'sale' and not with 'manufacture'. In other words, there could be two enactments 'each in one aspect, conferring the power to impose a tax upon goods'. The legislation was held not to be vitiated merely because there was an element of overlapping in that both excise duty and sales tax became leviable on the same assessee in respect of the same goods and by reference to the same sale price when the first sale after manufacture occurs, one by reference to the 'manufacture' aspect and the other by reference to the 'sales' aspect. This bifurcation of the two different aspects pertaining to goods was justified by the language of the legislative entries themselves which referred separately to the different sets of activities and put them down in different legislative lists. Again, on the same principle, the manufacture of electricity may attract excise duty at the point of its captive consumption (under entry 84 of List I) and also a tax on the consumption or sale of electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the petitioners against the aforementioned judgments of the Gujarat High Court and the Bombay High Court. As regards the Gujarat High Court judgment, it was said that the contention raised by the Union of India was accepted only with reference to entry 52 of List II suggesting that the trader would be subject to the tax under entry 60 as a professional and also a tax for sale under entry 56. It was suggested that the High Court failed to note that the sales tax aspect was under entry 54, whereas the aspect relating to goods came under different entries. Entry 60 herein covers all the aspects of the taxes on profession. We do not agree with the criticism for the simple reason that that is not the only ground on which the Gujarat High Court has taken the view. The High Court has also relied on the decisions in Western India Theatres' case, AIR 1959 SC 582 and Kamta Prasad Aggarwal's case, AIR 1974 SC 685 as also the Federation of Hotel and Restaurant's case [1989] 178 ITR 97 (SC), which in reality clinch the issue. As regards the decision of the Bombay High Court, it was tried to be suggested that it also had wrongly given a restricted interpretation to entry 60 of List II hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Tourist Corporation's case, AIR 1981 SC 774. In our opinion, the criticism against the judgments. of the Gujarat High Court and the Bombay High Court, cited supra, cannot be upheld. There is one more aspect which we must consider before we close. Mr. Mohan Parasaran while supporting the arguments of learned senior counsel appearing on behalf of the petitioners argued that the provisions of section 65(48) and section 67(r) and (s) are confusing and arbitrary. The contention in short is that the services which the chartered accountants give is a bundle of service. It is akin to the services rendered by any professional including a medical practitioner and a lawyer and the relationship between a chartered accountant and his clients is like that of a lawyer and his client and it cannot be merely construed as a 'service" under the Finance Act 32 of 1990. Though learned counsel did not specifically argue, the tone of the argument was that the Legislature has picked and chosen chartered accountants or cost accountants and left out other professionals like doctors and lawyers. This argument is obviously incorrect because it is for the Legislature to select any particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same decision, the following observations in H.H. Kesavananda Bharati Sripadagalvaru v. State of Kerala [1973] 4 SCC 225, 821; AIR 1973 SC 1461, 1901 were also approved. The observations are quoted in paragraph 88 of the judgment. They are: "In exercising the power of judicial review, the courts cannot be oblivious of the practical needs of the Government. The door has to be left open for trial and error. Constitutional law like other mortal contrivances has to take some chances. Opportunity must be allowed for vindicating reasonable belief by experience." Therefore, there would be no question of finding any fault with the Legislature for picking up chartered accountants or cost accountants or architects also for taxing their services. The further argument of Mr. Mohan Parasaran was that the concerned provisions are confusing. According to him, chartered accountants provide various kinds of services, including the maintenance of accounts, auditing of the accounts, drawing up of balance-sheets, preparing annual reports, representing their clients before the tax authorities like representing the case before the higher authorities under section 144A of the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r appeal within the machinery of the Act and, therefore, it cannot be said that there could be confusion about the services offered by chartered accountants or cost accountants. In our opinion, the spirit of the pronouncements of the Supreme Court in Mafatlal Industries Ltd.'s case [1997] 5 SCC 536 and R.K. Garg's case [1982] 133 ITR 239; [1981] 4 SCC 675 and H.H. Kesavananda Bharati's case, AIR 1973 SC 1461, the challenge under article 14 cannot stand. We are again fortified in our view as the Bombay High Court has also taken a similar view. In paragraphs 37 to 41 of its judgment, the Bombay High Court has repelled the attack on these provisions in relation to article 14. We, accordingly, hold that the impugned provisions do not in any manner offend article 14 of the Constitution of India. We, accordingly, hold that all the petitions have no merit and must fail. They are, accordingly, dismissed but without any orders as to the costs. Connected W. M. P. Nos. 26985 and 26986 of 1998 and 518, 28852 and 28853 of 2000 are closed. Before we part with the judgment, we must put on record our appreciation for the services of teamed senior counsel, Mr. Arvind P. Datar as also learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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