TMI Blog1984 (7) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid, it is hereby enacted as follows: " The Act which was in force in the Andhra area of this State was extended to Telangana area, by the Madras Entertainments Tax (Andhra Pradesh Extension and Amendment) Act, 1958. It is necessary to notice certain relevant provisions of the Act. Section 3 is the interpretation clause containing certain definitions. The expression "admission" is defined by clause (1) in the following words: "'admission' includes admission as a spectator or as one of an audience to an entertainment." Clause (4) defines the expression "entertainment". According to it, "'entertainment' means cinematograph exhibition to which persons are admitted on payment ". The expression "payment for admission" is defined by clause (7) in the following words: "'payment for admission' includes- (a) any payment made by a person who, having been admitted to one part of a place of entertainment, is subsequently admitted to another part thereof for admission to which a payment involving a tax or a higher tax is required; (b) any payment for seats or other accommodation in a place of entertainment; and (c) any payment for any purpose whatsoever connected with an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise of the returns submitted by the proprietor, containing particulars of the number of persons admitted to each show and the amount of tax collected. It was obviously found impracticable and inconvenient to check the correctness of the collections reported by the proprietors of cinema theatres in villages and small towns with less than 25,000 population. Lack of proper supervision and verification would necessarily give room for evasion and abuse on the part of the proprietors. It was, therefore, thought convenient and appropriate to devise a new method of levy of entertainment tax, based upon the gross collection capacity per show. Explanation to sub-section (1) of section 4-C. prescribed the manner in which the gross collection capacity per show was to be calculated. Subsection (1) of section 4-C may now be set out: "4-C.-Tax on entertainment shows in places with population not exceeding 25,000.-(1) On the entertainments held within the jurisdiction of any local authority whose population does not exceed twenty-five thousand, there shall be levied and paid to the State Government, a tax for every entertainment show calculated at the following rates, namely: (i) entertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n what he collects on account of entertainment tax. But, the Legislature took into account the reality that all the seats or accommodation in the theatre may not be fully occupied for each show, or on each day, in a given week, month or the year, as the case may be. It is for this reason that lower percentages in section 4-C were prescribed. An illustration would bring home the point: if in a given theatre there are 1,000 seats and the total collection on account of payment for admission (excluding entertainment tax) was Rs. 1,000, the proprietor would have been liable, under section 4, to collect entertainment tax at 40 per cent (for the sake of convenience we are taking a mean figure between 35 per cent and 45 per cent prescribed by section 4(1). In other words, in addition to Rs. 1,000 collected on his own account, the proprietor would be obliged to collect Rs. 400 on account of the entertainment tax, and make over the said sum of Rs. 400 to the State; but, in a case where section 4-C applies, he would be liable to pay only 14 per cent (here again we are taking a mean figure between 13 per cent and 14 per cent prescribed by section 4-C(1) of the gross collection capacity, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cent to 14 per cent prescribed in section 4-C(1), section 5 prescribed the percentages at 8 per cent to 12 per cent. A proprietor opting for the scheme under section 5 was free to exhibit any number of shows he liked during that year. Whether he exhibited more number of shows or less than the prescribed number, the amount of tax payable by him remained constant In other words, while the authorities were rid of the verification of the number of shows held by a proprietor, the proprietor was rid of the obligation to satisfy the authorities about the number of shows held by him in a week/month/year. It may, however, be noted that this system of consolidated levy of entertainment tax was confined only to local authorities whose population did not exceed 25,000. Though the system was in vogue since 1976, not a single proprietor ever complained of this method of levy, and as we shall presently point out, the petitioners' contention has been that this system was beneficial to the proprietors, and for that reason they never complained of it. It may be pointed out that, in case of a proprietor opting under section 5, he did not stand to lose even if the average rate of occupancy of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the amount determined under section 5(1) can be raised in the case of increase in the gross collection capacity per show, but there was no provision for downward revision in case the gross collection capacity was decreased. Sub-section (1) of section 5 along with explanation I thereof read as follows: "5. Option to pay tax in lieu of tax payable under section 4.- (1) In lieu of the tax payable under section 4, in the case of entertainments held in the theatres specified in column(2) of the table below and located in the local areas specified in the corresponding entry in column (1) of the said table, the proprietor thereof may, at his option and subject to such conditions as may be prescribed, pay the amount of tax to the State Government every week as specified in the corresponding entry in column (3) thereof: THE TABLE --------------------------------------------------------------------------------- Local areas Theatres Amount of tax (1) (2) (3) --------------------------------------------------------------------------------- (a) Municipal corpora(i) Air-conditioned. 25 per cent of the gross tions and the collection capacity per Secunderabad canshow multiplied b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 4-C had an option to enter into an agreement with the prescribed authority to be governed by the system of composition levy of tax as prescribed by section 5(1), now also the proprietor was given an option to opt to be governed by the weekly consolidated levy system, under section 5. By choosing to be governed by the weekly consolidated levy system under section 5, the proprietor was entitled to the same beneficial treatment as was available to a person choosing to be governed by old section 5. Of course, basic system of levy under section 4 remained as before. On December 29, 1983, the date on which the Ordinance No. 31 of 1983 was issued, the Government issued G.O. Ms. No. 615 enhancing the rates of admission. The new rates of admission ranged between Rs. 7 and paise 60. These rates were prescribed keeping in mind the percentage of tax as prescribed by section 4(1) of the Act, as amended by Ordinance 31 of 1983. For example, in case of a ticket of Rs. 7 denomination, the tax component was Rs. 3.10 and the admission fee Rs. 3.90. Similarly, in the case of a ticket of Rs. 5 denomination, it was Rs. 2.25 and Rs. 2.75, respectively. In the case of a ticket of Rs. 3, it was Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of levy of entertainment tax. Hitherto the tax was levied on each payment for admission to the entertainment at a certain percentage of the payment for admission (exclusive of the amount of tax); but, by the Amendment Act, the tax was levied at a certain percentage of the gross collection capacity per show. In other words, the consolidated levy system per show prevalent under old section 4-C but confined to local areas with less than 25,000 population, was now extended to the entire State. It may be remembered that, under section 4-C, the proprietors of theatres within the limits of local areas with less than 25,000 population, had no option but to be governed by the consolidated levy system. The only option they had was either to be governed by section 4-C, or section 5. In other words, they had an option either to pay the consolidated amount per show as prescribed in section 4-C(1), or to pay the weekly consolidated amount (composition amount) under section 5(1). The same system was now extended to the entire State, to wit, the consolidated levy system per show became obligatory, with an option to be governed by the weekly consolidated system (composition amount) under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he term 'gross collection capacity per show' shall mean the notional aggregate of all payments for admission, the proprietor would realise per show if all the seats or accommodation as determined by the licensing authority under the Andhra Pradesh Cinemas (Regulation) Act, 1955, in respect of the place of entertainment are occupied and calculated at the maximum rate of payments for admission as determined by the said licensing authority. (2) The amount of tax under sub-section (1) shall be payable by the proprietor on the actual number of shows held by him in a week. (3)................. (4)................. (5)................." "5. (1) In lieu of the tax payable under section 4, in the case of the entertainments held in the theatres specified in column (2) of the table below and located in the local areas specified in the corresponding entry in column (1) of the said table, the proprietor thereof may, at his option and subject to such conditions as may be prescribed, pay the amount of tax to the State Government every week as specified in the corresponding entry in column (3) thereof: THE TABLE ---------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per show multiplied by 7. --------------------------------------------------------------------------- Explanation.-For the purposes of computing the gross collection capacity per show in respect of any place of entertainment, the maximum seating capacity or accommodation and the maximum rate of payment for admission determined by the licensing authority under the Andhra Pradesh Cinemas (Regulation) Act, 1955, as on the date when the proprietor is permitted to pay tax under this section shall be taken into account. (2) The amount of tax under sub-section (1) shall be payable by the proprietor irrespective of the actual number of shows held by him in a week. (3) Any proprietor who opts to pay tax under this section shall apply in the prescribed form to the prescribed authority to be permitted to pay the tax under this section. (4) On being so permitted, such proprietor shall pay the tax for every week as specified in sub-section (1). (5) The option permitted under this section shall continue to be in force till the end of the financial year in which such option is permitted. (6) It shall be lawful for the prescribed authority to vary the amount of tax payable by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst grade municipalities. Below that, i.e., from second grade municipalities and downwards, this distinction is not maintained. But again, in the case of gram panchayats, a distinction is maintained between permanent and semi-permanent theatres on one hand, and touring and temporary theatres on the other. The explanation to sub-section (1) of section 4 defines the "gross collection capacity per show". It means the full collection per show, if all the seats or accommodation as determined by the licensing authority under the Andhra Pradesh Cinemas (Regulation) Act, 1955, are occupied, calculated at the maximum rate of payment for admission as determined by the licensing authority. This amount is payable every week, on the number of shows actually held during that week. Now coming to section 5, the proprietor is given an option to pay a weekly consolidated amount, which may be called, for the sake of convenience, "composition amount". In case a proprietor is governed by section 5, the number of shows actually held by him is irrelevant. It is open to him to hold any number of shows he likes; but, for the purpose of determining the composition amount, a particular number of shows is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Amendment Act, is arbitrary and discriminatory and is hit by article 14 of the Constitution. It seeks to treat unequals as equals, which itself is discriminatory and violative of article 14. Treating the air-conditioned, or air-cooled or ordinary theatres, as the case may be, within a local area, on the same par is unrealistic, unreasonable and arbitrary. An air-conditioned theatre situated in the heart of the city or municipality, will be better-off than an airconditioned theatre situated in a corner or on the outskirts of the city or municipality, as the case may be. Even the theatres situated within two kilometre-periphery of a local authority are included within that local authority. An air-conditioned theatre situated within two kilometreperiphery of a municipal corporation cannot be treated on the same par with an air-conditioned theatre situated in the heart of the city. Same would be the case with respect to air-cooled and ordinary theatres. The Legislature ought to have made some enquiry or must have called for objections and representations, and then devised a better and more comprehensive classification. The failure to do so is resulting in imposing unbearable a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... example when he contemplates a show being held even when not a single soul is present. An entertainment held is an entertainment held, whether the theatre is full to its capacity, or whether its capacity is not fully occupied. It is difficult to conceive of a show being held with no one present; no proprietor would do that. The consolidated levy system does not envisage-nor did it envisage in the past, when it applied to areas with less than 25,000 population-full capacity occupancy for each show held; had it done so, it would have prescribed tax at such percentage of gross collection capacity as would equal the amount of tax collected in case of full capacity occupancy. The Legislature has been realistic; it has taken the same rate of occupancy as the basis of levy as was in vogue under section 4-C in the case of gram panchayats and townships. The rate prescribed by section 4-C was never complained of as either unreasonable or arbitrary. Indeed, according to Mr. Babul Reddy, it was quite advantageous to the proprietors. If it was advantageous then, it would continue to be advantageous even now in the case of gram panchayats and townships, falling under clause (g) in the table in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught to our notice which conceives, or imposes any such restriction, as contended for, upon the plenary power of the Legislature. Indeed, a similar contention was rejected by the Supreme Court in Western India Theatres v. Cantonment Board AIR 1959 SC 582. Entry 50 in List II of the Seventh Schedule of the Government of India Act, 1935, empowered the Provincial Legislatures to levy "taxes on luxuries including taxes on entertainments, amusements betting and gambling". Section 60 of the Cantonments Act, 1924, empowered the Board to levy taxes with the previous sanction of the Central Government. It was empowered to levy the same taxes which the State Legislature was entitled to levy under the Government of India Act. By a notification dated 17th June, 1948, taxes were levied in the Cantonment, Poona, in the following manner: "V. Tax on entertainments: 1.. Cinemas, talkies or dramas: In the case of the West-End and Capitol per show ... Rs. 10 In other cases ... Rs. 5 per show 2. Circus ... Rs. 2 per show 3. Horse races ... Rs. 100 per day of race meeting 4. Amusement park ... Rs. 20 per day ." The levy was challenged by the proprietor of West End and Capitol Theatres, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on moneys spent on luxuries, entertainments, or amusements. The entry, as we have said, contemplates a law with respect to these matters regarded as objects and a law which imposes tax on the act of entertaining is within the entry whether it falls on the giver or the receiver of that entertainment. Nor is the impugned tax a tax imposed for the privilege of carrying on any trade or calling. It is a tax imposed on every show, that is to say, on every instance of the exercise of the particular trade, calling or employment. If there is no show, there is no tax." We may also refer to another decision of the Supreme Court in Y.V. Srinivasamurthy v. State of Mysore AIR 1959 SC 894. Section 3 of the Mysore Cinematograph Shows Tax Act, 1951, levied entertainment tax "in a rising scale according to the seating accommodation and the cities where the cinematograph show is held"-as extracted in the decision of the Supreme Court. (It may be noticed that the basis of levy is the same as is adopted in section 4 of the Amendment Act). The levy was challenged as travelling beyond entry 62 in List II of the Seventh Schedule, and as constituting a tax within the meaning of entry 60 of List I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is on the basis of payments for admission made by a person seeking entertainment. So also is the case of entertainment other than touring cinemas, video exhibition and video games. These are provided in clauses (a) and (b) of section 3(1) of the Act. In the case of touring cinemas and video exhibitions by the amending provisions different basis for the levy of entertainment duty have been adopted. We do not see why such different basis cannot be adopted for the levy of entertainment duty if the duty in substance is on entertainment. Neither the Constitution nor any other provision of law prohibits the adoption of a basis other than the 'payment for admission to entertainment' for levying entertainment duty. It is conceivable, for example, that entertainment duty could be levied on the number of shows held in a place of entertainment. It is, therefore, not possible for us to accept the contention urged on behalf of the petitioners that the provisions contained in clauses (c) and (d) of section 3(1) as amended by the Ordinance are invalid on the ground that they do not adopt 'payments for admission to entertainment' as the basis for levy of entertainment duty............." What ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on each entry fee received from each individual competitor who remits it from the State of Bombay......... It is a kind of tax which, in the language of J.S. Mill quoted by Lord Hobhouse in Bank of Toronto v. Lambe (1887) 12 AC 575 (D), is demanded from the promoter in the expectation and intention that he shall indemnify himself at the expense of the gamblers who sent entrance fees to him. That, we think, is the general tendency of the tax according to the common understanding of men." Another limb of the same argument advanced by Mr. B. Subhashan Reddy is that, inasmuch as section 4-A of the Act levies entertainment tax per show-what may be conveniently called "show tax", the power of the Legislature to enact a law under entry 62 got exhausted with it. If so, the learned counsel argues, the levy of entertainment tax under section 4 on the gross collection capacity basis, is not an "entertainment tax" but either a profession tax or a property tax, or an income-tax, as the case may be. We are unable to appreciate this contention. There is no principle that a tax which a Legislature is competent to impose should be levied under only one section. The show tax itself could have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Secunderabad, Vijayawada, Visakhapatnam and the Secunderabad cantonment area, and the contiguous area of 2 kilometres thereof, are classified into one category, whereas the theatres situated within the selection grade municipalities and the contiguous area of 2 kilometres thereof, are classified into another group. Similarly, a distinction is made between special grade, first grade, second grade and third grade municipalities, and gram panchayats. For theatres within the lower grade municipalities, lower percentages are prescribed in a descending order. Then again, within each local authority area up to and inclusive of first grade municipalities, a distinction is made between air-conditioned, air-cooled and ordinary theatres, and for them different rates are provided-again in a descending order. A look at the table contained in section 4(1) bears out this aspect. Thus, the Act has made a two-fold classification of theatres for the purpose of tax under section 4(1). The contention of the petitioners, however, is that this classification is not sufficient to ensure equality. It is submitted that unequals cannot be treated equally, since that by itself amounts to discrimination. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... better rate of occupancy than an airconditioned theatre in the heart of the city. It is thus evident that location alone cannot constitute the basis for classification. It may be that the proprietor or lessee of a cinema-theatre situated in the outskirts of the city is better and well-connected with the distributors or the producers of films, and gets better pictures, while the proprietor/lessee of a cinema theatre in the heart of the city may not be so well-connected, with the result that he does not get good or fetching pictures. Indeed, instances are not lacking where the distributors who are powerful people in the film industry, themselves own theatres. They would prefer their own theatres, even though they are situated afar, to other theatres which may be situated in the heart of the city. Then again, the question arises "what do you mean by heart of the city?" There may be several equally important or busy centres in a given city, or town. Then again, there is another factor. A person constructing an air-conditioned theatre with a large investment would necessarily assess the audience, or the type of audience, which he will get. He would modulate his investment having reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of article 14. The following statement of the law in Willis on 'Constitutional Law', page 587, would correctly represent the position with reference to taxing statutes under our Constitution: 'A State does not have to tax everything 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............The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation.' In the light of these principles, we may now proceed to discuss whether the impugned Act is repugnant to article 14 of the Constitution. The point for consideration is whether there is in fact a real distinction between Virginia tobacco and other tobacco called country tobacco 'Nattu tobac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fication. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it. " Indeed, in Twyford Tea Co. Ltd. v. State of Kerala AIR 1970 SC 1133, the Supreme Court had an occasion to point out that it is impossible to conceive of absolute equality between two persons at any given point of time, and if so, it is not reasonable to expect the Legislature to ensure absolute equal treatment. Hidayatullah, C.J., speaking for the majority, observed: "The burden is on a person complaining of discrimination. The burden is proving not possible 'inequality' but hostile 'unequal' treatment. This is more so when uniform taxes are levied. It is not proved to us how the different plantations can be said to be 'hostilely or unequally' treated. A uniform wheel tax on cars does not take into account the value of the car, the mileage it runs, or in the case of taxis, the profits it makes and the miles per gallon it delivers. An Ambassador taxi and a Fiat taxi give different outturns in terms of money and mileage. Cinemas pay the same show fee. We do not take a doctrinnaire view of equality. The Legislature has obviously thought of equali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for that purpose, classified the plantations into seven categories, and imposed a uniform rate of Rs. 50 per hectare. In the case of cocoanut, arecanut, rubber, coffee, and pepper plantations, the plants capable of yielding produce were to be counted and then the hectares determined by dividing the total number of plants by a certain figure, while in the case of other plantations, the extent of land yielding crop was itself taken as the measure of tax. The Supreme Court justified the said difference in the method of taxation as fair and just, since the idea behind the said classification was to treat one actual hectare of crop-yielding plantation in the latter category as equal to the other areas converted into hectares on the basis of the number of plants or trees, in the former category. It was also observed that the differences in yield between one plantation and another having the same crop, no doubt, arise from situation, altitude and rainfall, but they are not the only factors making the difference. Inasmuch as the law there did not single out any particular plantation for hostile or unequal treatment, it was held that there was no discrimination, notwithstanding the unifor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and, therefore, it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out by the United States Supreme Court in Secretary of Agriculture v. Central Roig. Refining Company (1950) 94 L Ed 381, be converted into Tribunals for relief from such crudities and inequities. There may even be possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any Legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The court must, therefore, adjudge the constitutionality of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditioned theatres, is either unreasonable or unrelated to the object. Accordingly, we see no reason to hold the said classification either bad, or inadequate. Before, however, concluding this aspect, it is necessary to deal with certain cases cited by the counsel for the petitioners. The first one is the decision of the Supreme Court in Kunnathat Thathunni Moopil Nair v. State of Kerala AIR 1961 SC 552. In this case, the Travancore-Cochin Land Tax Act, 1955, as amended by Act 10 of 1957, was attacked on the ground, inter alia, of violation of article 14 of the Constitution. The Act levied a tax called "land tax" at a flat rate of Rs. 2 per acre in all the forests in the State of Kerala. The said tax was payable irrespective of the fact whether the owner of the forest derived any income, or whether the property is capable of yielding any income, or not. No classification whatsoever was made in this case among the several forests in the State for the purpose of levy of the said tax. It was struck down by the Supreme Court holding that, ordinarily a tax on land, or land revenue is assessed on the actual or potential productivity of the land sought to be taxed, whereas no attempt wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses have been referred to and distinguished in the case of Twyford Tea Company v. Kerala State AIR 1970 SC 1133, referred to supra. We may indicate that, unreasonableness of the levy was argued before us both under article 14, as well as under article 19. With a view to avoid repetition, we would deal with the reasonableness of the levy while dealing with the attack based on article 19(1)(g). G. Challenge based on article 19(1)(g): The reasoning on this count is that, the petitioners being citizens of India have a fundamental right to carry on business and that, levying the entertainment tax at a certain percentage of the gross collection capacity, without reference to the actual collection of entertainment tax, or the actual total collections, as the case may be, amounts to an unreasonable restriction upon the said fundamental right. It is argued that the said levy is expropriatory, inasmuch as the petitioners would be obliged to pay more amount towards tax than what they collect. Necessarily, therefore-it is argued-the petitioners would have to dip into their own revenues to pay the said tax. In some cases, it is pointed out, the total collection made by a theatre in a we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross collection capacity. In other words, if a cinema theatre in a gram panchayat or township is having 1,000 seats and the rate of admission, excluding the entertainment tax is, say, Rs. 2,000, the proprietor would be collecting an amount of Rs. 1,500 by way of entertainment tax (we are taking a mean figure of 75 per cent in the range of 65 per cent-80 per cent prescribed by Ordinance 31 of 1983, and which rates continue to obtain even today). Thus, the total gross collection of the proprietor would be Rs. 3,500 out of which Rs. 1,500 represents the amount collected on account of entertainment tax. As against this, he would be paying, under section 4(1) of the Amendment Act, 20 per cent of the gross collection, i.e., 20 per cent of Rs. 3,500 towards entertainment tax, which comes to Rs. 700, which is less than 50 per cent of the amount he collects. The Legislature has fixed this lower rate of tax because of the realisation that the proprietor may not have full occupancy for each show of the day, or each day of the week, or each week of the month, as the case may be. But, the above illustration proves that less than 50 per cent average occupancy rate would be sufficient to enable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssumption that, while the average occupancy rate in a village will be lower, the rate of occupancy will ascend higher and higher corresponding to the level or grade of the local authority. A look at the rates prescribed in section 4(1) bears out this analysis. We shall now refer to certain definite figures supplied to us by the counsel for the petitioners in this behalf. Mr. E. Raja Rao, the learned counsel for the petitioner in W.P. No. 7014 of 1984 has supplied us the figures relating to the "Padma Priya" theatre, an air-conditioned theatre situated at Kakinada. Kakinada is a selection grade municipality. The following table of particulars has been furnished by the learned counsel: --------------------------------------------------------------------------- At the rate Gross Net approx. Tax under Tax under Tax under of occupa57percent Ordinance section section5(1) tion (per31 of 1983 4(1) of of Act 241 centage) approx. Act 24 of of 1984 43 percent 1984 --------------------------------------------------------------------------- Rs. Ps. Rs. Ps. Rs. Ps. Rs. Ps. Rs. Ps. 100 per cent 3,845.50 2,179.50 1,666.00 1,077.00 885.00 90 per cent 3,461.00 1,973.00 1,488.00 1,077.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient for the proprietor to break even under section 4 of the Amendment Act, whereas in the case of his opting under section 5, even less than 50 per cent average occupancy rate would do. Of course, according to the particulars furnished, his rate of occupancy is only 22.89 per cent during the period March 26, 1984 to May 13, 1984. While we do not wish to burden this judgment with the particulars of several theatres furnished to us, we would refer to the particulars furnished with respect to a theatre, "Sree Venkateswara Picture Palace, Ongole" to demonstrate the unacceptability of the actual occupancy figures placed before us by the petitioners. According to the statistics furnished by Sri M.R.K. Choudhary, the learned counsel for the petitioner in W.P. No. 6827 of 1984, the average occupancy rate was 44 per cent during the year 1981-82 (financial year), 35 per cent during 1982-83, and only 28 per cent during 1983-84. It is stated that, on account of this low occupancy rate, the petitioner applied for reduction of the seating capacity in his theatre. He requested that, from the total seating capacity of 922, it may be reduced to 779, i.e., he asked for a reduction of only 15 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onalise and simplify the system of levy of entertainments tax and to reduce the possibility of evasion of tax and to ensure realisation of proper tax revenue under the Entertainments Tax Act. In this regard the Government also held discussions with the Film Chamber of Commerce, Film Exhibitors' Association and also film producers. Thereupon, the Government introduced the L.A. Bill No. 14 of 1984 to amend the Andhra Pradesh Entertainments Tax Act, 1939, in the A.P. Legislative Assembly on March 16, 1984." In the above circumstances, we view with scepticism the actual occupancy figures furnished by the petitioners. There is also the allegation of large scale evasion of tax pleaded by the Government. If the average rate of occupancy is 10 per cent, then the situation must be that the occupancy rate never goes beyond 20 per cent, and in some cases it falls to as low as 1 per cent or 2 per cent. These appear to be wholly unrealistic figures. It is difficult to believe that when the theatres in villages are having not less than 50 per cent average occupancy, the theatres in bigger towns and cities would be having only 10 per cent or 15 per cent average occupancy. In fact, they should h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g you, Yours faithfully, Sd/- G.V. RAGHAVENDRA RAO), President." A reading of the letter shows that the rates suggested by the Association are the percentages of the gross collection capacity only. Indeed, the said figures cannot be understood otherwise. The consolidated levy system was already in vogue, but confined to local authorities with less than 25,000 population; there the tax was levied at a certain percentage of gross collection capacity. The Association was asking for extension of the said system to the entire State, and also suggested the rates. The expression "compulsory" in the table contained in the said letter, means the rates under section 4, while the expression "compounding" means the tax under section 5, of the Amendment Act. It would also be seen that, while the Association has not suggested "compulsory" rates for air-conditioned, aircooled and ordinary theatres within the municipal corporations, but suggested only the compounding rates, it has suggested both compulsory and compounding rates for theatres situated within other municipalities and gram panchayats. Uniformly they have maintained a difference of 5 per cent between the compulsory and compou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Association. If the rates now prescribed by section 4 of the Amendment Act contemplate an occupancy ratio of 66 per cent to 50 per cent, it would follow that the rates suggested by the Association contemplate, and are based upon, a slightly lower rate of occupancy, by about 5 per cent to 10 per cent. If, according to the picture painted before us, a large number of theatres except a few fortunate ones, are having an average occupancy rate far below 50 per cent, it is inconceivable as to why the A.P. Film Chamber of Commerce suggested the above rates; (iii) that, there ought to be a distinction between the theatres situated within the municipal corporations, and the theatres situated within the selection grade and special grade municipalities, and so on was an idea put forward by the A.P. Film Chamber of Commerce itself. The letter itself suggests a descending rate of tax for theatres situated in the lesser level of local authorities. What is very significant is that, in this letter it is not suggested that, as between the theatres situated in the same local authority area, there should be a distinction depending upon their location, viz., whether they are situated in the heart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners, nor are we saying that, because of the said representation, the petitioners are not entitled to urge their contentions. We are relying upon the said letter only to examine the reasonableness of the rates prescribed by the Amendment Act and the distinction made local authoritywise. According to us, it is an important circumstance relevant on the above aspects, and not that it is conclusive against the petitioners. Therefore, it is really immaterial which particular theatre concerned in this batch of writ petitions was, or was not a member of the A.P. Film Chamber of Commerce. It was argued by the counsel for the petitioners that, whereas in the case of an attack upon the statute based upon article 14 of the Constitution, the burden is upon the petitioners to establish the vice, in the case of attack based on article 19, it is for the State to justify that the restrictions imposed by it are reasonable. It was contended that, in this case, the State has failed to discharge the said burden, inasmuch as it has not placed any material before the Court to show how, and why the rates prescribed by it are reasonable. It is argued that, no enquiry was made either by the Government, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry and, in the very nature of things, it was impracticable and inconvenient, and gave room for any amount of abuse both on the part of the proprietors, as well as the officers incharge of assessment and collection of tax. Under the new system, all these enquiries are eliminated to a very large extent. If it is a case of section 5, practically no enquiry is necessary. The tax payable has to be determined having regard to the seating capacity, rates of admission, and percentage, and the number of shows prescribed in the section. In the case of section 4, the only verification that now needs to be done is the number of shows held by a proprietor. No other investigation or verification is necessary. If a show is held, a particular amount of tax is payable, which is arrived at on the basis of the formula prescribed in the section. It is in the interest of the State and the public at large that such laws are made eliminate, as far as possible, room for evasion and corruption. We must, accordingly, hold that the impugned enactment does not constitute an unreasonable restriction upon the petitioners' fundamental right, guaranteed to them by article 19(1)(g) of the Constitution, and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n per se, and (ii) entertainment tax. Section 4 of the Amendment Act devises a new method of levy, designed to collect that amount from the proprietor which he collects on account of entertainment tax. The only difference between the old system and the new system is that, instead of tacking on the tax to each payment for admission, the tax is now tacked on to the gross collection capacity, providing a lesser rate, for the reasons explained at length hereinbefore. H. Minor and specific submissions: (i) A controversy was raised before us as to the meaning of the words "seats or accommodation as determined by the licensing authority under the Andhra Pradesh Cinemas (Regulation) Act, 1955, in respect of the place of entertainment", occurring in explanation 1 to section 4. The explanation says " 'gross collection capacity per show' shall mean the notional aggregate of all payments for admission, the proprietor would realise per show, if all the seats or accommodation as determined by the licensing authority under the Andhra Pradesh Cinemas (Regulation) Act, 1955, in respect of the place of entertainment are occupied and calculated at the maximum rate of payments for admission as det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------------------------------------------------------------------------- Class of accomMaximum number of Maximum rates of modation persons permitted admission allowed ---------------------------------------------------------------------------- (1) (2) (3) ---------------------------------------------------------------------------- Note.-These rates of admission shall not be increased during the currency of this licence without an order in writing by the licensing authority permitting such increase. --------------------------------------------------------------------------- ............". It would be evident from a reading of the above provisions that what the law prescribes is only the maximum number of seats and maximum number of persons admitted within a theatre, as also the maximum rates of payment for admission. For example, while granting the permission for construction of a cinema, the prescribed authority may provide the maximum number of seats to be provided in the auditorium, at 1,000. In such a case, it is not open to the proprietor to instal more than 1,000 seats; but, he can certainly instal less number of seats than 1,000. If he instals only 900 seats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons opting for that system were obliged to enter into an agreement with the prescribed authority. Once the agreement is entered into, the rights of the parties are governed by the agreement. There is no express provision in the Amendment Act terminating such agreements. The only question is, whether the said consequence follows by necessary implication. The contention of the learned Government Pleader is that, inasmuch as the very statutory provision under which the agreements were entered into has since been repealed, the agreements too come to an end automatically. We are not prepared to agree with the learned Government Pleader. The old section 5 has been repealed by re-enacting it. Even now, it continues to apply to areas to which old section 5 applied. No doubt, there would be difference in rates of tax; but, that is no ground for saying that, by necessary implication, the agreements are put an end to. Section 8 of the A.P. General Clauses Act, 1981, has the effect of saving such agreements. Section 8, in so far as it is relevant for the purpose of this case, says: "8. Where any Act, to which this chapter applies, repeals any other enactment, then the repeal shall not- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m section 18 that, all agreements entered into under the repealed law stand abrogated, if not consistent with the re-enacted law in every particular. We, therefore, hold that the agreements already entered into under section 5, prior to January 1, 1984, will be effective and valid for the period for which they are entered into. On the expiry of the said agreements, however, the proprietors would be governed by the law in force on that date. (iii) Another argument advanced by certain counsel is that, whereas sub-section (3) of section 5 contemplates rules to be made prescribing the form in which the option should be exercised, and also prescribing the authority who shall permit the proprietor to be governed by section 5, they have not been made and no such form or authority has been prescribed so far. The contention is that, because the form is not prescribed and the authority also is not prescribed as contemplated by sub-section (3) of section 5, section 5 itself must be deemed not to have come into force. We are unable to accept this argument. So far as the prescribed authority is concerned, section 18 of the A.P. General Clauses Act furnishes a complete answer. According to it, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the forms to be prescribed by rules are not prescribed, the Act cannot be said to have not come into operation, or to be ineffective or unenforceable. (iv) Mr. M.R.K. Choudhary raised a further contention to the effect that, section 5, in so far as it does not provide for reduction of the composition amount in case of reduction of seating capacity of a theatre, during the period of one year (for which the option is exercised), is discriminatory. The contention is that, once an option is exercised under section 5 of the Amendment Act, it is effective and valid till the end of the financial year in which such option is permitted [vide sub-section (5)]. While subsection (6), it is contended, provides for enhancement of the composition amount in case the seating capacity/accommodation or the rates of payment for admission are enhanced, there is no provision in section 5 which provides for a decrease in the composition amount in case of either reduction of seating capacity/accommodation, or the rates of payment for admission. We are unable to agree. Section 5 is only optional; no one is compelled to be governed by it, or to opt for the composition scheme contained in section 5. Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is clear that the petitioner was permitted to be governed by section 5. In other words, his option was permitted. Having availed of the beneficial rate contained in section 5, since April 7, 1984, it is not open to the petitioner now to argue that he is not governed by section 5 and that, he will exercise a fresh option now. The option exercised by him on April 7, 1984, is good and valid till the end of the financial year 1984-85, i.e., till March 31, 1985, and the amount determined under section 5 as on that date, cannot be reduced for any reason. Normally, however, the authority must send a communication signifying his permission. (v) Another contention raised with reference to section 5, by Mr. Channabasappa Desai in W.P. Nos. 7448, 7450, 7452 and 7443 of 1984, is to the following effect: The petitioner in W.P. No. 7448 of 1984 applied to the licensing authority under the A.P. Cinemas (Regulation) Act, 1955, for reduction in the rates of admission. According to G.O. Ms. No. 615, the authority has no power to refuse the reduction for any reason whatsoever. The proprietor is given the liberty to adopt such rates as he chooses, subject to the maximum rates prescribed for di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponse within one week from the date of receipt of application, it shall be deemed that, with effect from the expiry of seventh day from the date of receipt of the application by the licensing authority, the proposed reduced rates have come into existance, so long as the rates are those which are prescribed by G.O. Ms. No. 615. It is open to the petitioners to satisfy the prescribed authority under section 5 of the Amendment Act about the aforesaid facts, and the authority shall pass appropriate orders on that basis, keeping in mind the observations made herein. If it is found that the rates of admission must be deemed to have been reduced with effect from the date, on or before the date on which the petitioners exercised their option under section 5, the composition amount under section 5 shall be determined with reference to such reduced rates. (vi) Another reason the impugned levy was said to be expropriatory is that, in some cases it may not be possible to pass on the tax burden to the consumer. This contention is based on the premise that the tax is levied upon the person entertained and that, therefore, the exhibitor must always be able to pass on the tax burden to the consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7659 of 1984 and some other writ petitions is that, the higher rate of tax imposed on airconditioned, and air-cooled theatres as compared to ordinary theatres, is discriminatory against the air-conditioned and air-cooled theatres and is, therefore, void. We are wholly unable to appreciate this contention. The air-conditioned and air-cooled theatres form a distinct category from the ordinary theatres. Indeed, there is a distinction as between air-conditioned and air-cooled theatres. People would prefer to go to an air-conditioned or air-cooled theatre, than an ordinary theatre. Particularly during summer and other hot days, many people would prefer not to go to ordinary theatres. On the contrary, the very air-conditioned or air-cooled comfort may attract some, on such hot days. It is the contention of the petitioners themselves that an air-conditioned or air-cooled theatre requires a huge extra investment, over and above what is required for an ordinary theatre. The distributors and producers of pictures also naturally prefer air-conditioned and/or air-cooled theatres, as against ordinary theatres for their better and first-run pictures. Thus, the classification made between them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpress any opinion on the correctness or otherwise of the facts alleged by the petitioner, except to reiterate our scepticism about the correctness of such low occupancy figures as 10 per cent or 12 per cent. This scepticism of ours is based upon our opinion that a theatre with such a low rate of occupancy cannot survive in business and that, the simple law of economics would drive it out of the market. But, even if the said figures are taken to be correct in the cases of this particular theatre, even then it would not affect the validity of sections 4 and 5, for the reasons given hereinbefore. The only question to be dealt with is, whether the absence of a power to exempt renders the Act harsh and expropriatory. Section 19-A of the Act, before its amendment by the Amendment Act, read as follows: "19-A. Power to exempt tax payable under section 4-C or sum payable under section 5.-The State Government may, by notification in the Andhra Pradesh Gazette, and for reasons to be specified therein, exempt, whether prospectively or retrospectively, any proprietor or class of proprietors from the levy of tax payable under section 4-C or the fixed sum referred to in sub-section (1) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the petitioners including the petitioner concerned in W.P. No. 7676 of 1984, the appropriate authorities under the A.P. Cinemas (Regulation) Act and the Rules, would not consider the same according to law and taking into account the relevant facts and circumstances of the case. (ix) Mr. G.R. Subbarayan, the learned counsel appearing in some of the writ petitions, contended that though the petitioners have applied for reduction of seating capacity, the authorities are not taking any action thereon while, at the same time, taking into account the existing seating capacity both for the purpose of section 4, as well as section 5. A similar submission was dealt with by a Bench of this Court, to which one of us (Jeevan Reddy, J.) was a party, in State of Andhra Pradesh v. A.P. Cinema Exhibitors (1978) 2 APLJ 442 in the following words: "The seating capacity is fixed in accordance with the provisions of the Andhra Pradesh Cinemas (Regulation) Act and the Rules made thereunder. The seating capacity and other particulars can be revised only with the permission of the competent authority under those provisions. It is to be presumed that whenever an exhibitor applies for reduction in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount during the financial year, during which the option has already been exercised and permitted. In case, however, the option is exercised for the first time after reduction of the seating capacity, the prescribed authority shall determine the composition amount taking into account the said reduced capacity, and also the open accommodation, if any, as explained herein. (x) Another contention raised is to the effect that, as between the gram panchayats, there ought to have been a further classification, viz., between major and minor panchayats, and again between panchayats and townships, all of which are now grouped together under clause (g) of the table in section 4(1). We are unable to appreciate this contention. We have already dealt with a similar contention while dealing with the attack upon the constitutionality of the Act, based on article 14, and it is not necessary to repeat ourselves. For the same reasons, this contention is rejected. (xi) Yet another contention urged was that, where a proprietor opts for the scheme under section 5, the show tax imposed by section 4-A should not be levied. Reliance is placed upon clause (ii) in sub-section (1) of section 5, as it o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all these writ petitions uniform interim orders were passed permitting the proprietors to pay tax at the rate they were paying under and in accordance with the Ordinance 31 of 1983 and that stay was granted for the difference of amount, i.e., difference between the tax payable as per the Amendment Act and the tax payable under Ordinance 31 of 1983 on condition of the petitioners furnishing bank guarantee for such difference in amount. Mr. Subhashan Reddy stated that after April 1, 1984 some of the proprietors have opted to be governed by the composition scheme under section 5 as introduced by the Amendment Act. He says that inspite of the "proprietors" opting to the composition scheme under section 5, the authorities are calling upon them to pay the tax only in accordance with section 4 of the Amendment Act and not in accordance with section 5 of the Amendment Act. In view of this representation and also because the matter pertains to what happened during the pendency of these writ petitions, the following clarification is made: During the period intervening January 1, 1984 and March 23, 1984, the proprietors will be governed by section 4 as introduced by Ordinance 31 of 1983. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in such cases we should direct the furnishing of bank guarantee as a condition for suspending the order. But inasmuch as it is only for a limited period of four weeks, we are not inclined to impose the said condition. It is made further clear that this order will enure only to the benefit of those proprietors who have been regularly complying with the conditions already imposed by this Court in their respective stay orders till today. It is made clear that in no circumstances, the above period of four weeks shall be extended. ORDER (W.P. Nos. 6948 of 1984 and batch) (Order of the Bench delivered by JEEVAN REDDY, J.) October 12, 1984 It is complained by several learned counsel appearing for the petitioners that the copies of judgment in W.P. Nos. 6948 of 1984 and batch, have not so far been supplied to them, in spite of our directions to supply, within two weeks. The office explains that copies could not be furnished because of the curfew which was imposed in this area and the consequent disturbance in the working of the office, soon after passing of the said judgment. Be that as it may, we direct the office to furnish copies to the petitioners, within ten days from t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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