TMI Blog2001 (4) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... tax-net, which is to be charged at five per cent of the value of the taxable service provided to any person by the Architects or the Chartered Accountants. Sec.116 of the Finance Act No. 2 of 1998 is in challenge, as amended by Act 32 of 1994, and has first defined the said services and included them in the tax-net. The relevant portions of the Finance Act are as under : 65. Definitions In this context, unless the context otherwise requires, (5) "architect" means any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architects Act, 1972 (20 of 1972) and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture. (31) Practising "Chartered Accountant" means a person who is a member of the Institute of Chartered Accountants of India and is holding a certificate of practice granted under the provisions of the Chartered Accountants Act, 1949 (38 of 1949) and includes any concern engaged in rendering services in the field of chartered accountancy. (48) "taxable service" means any service provided, (p) to a client, by an arc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent enactments. 4. It will be better to see the wordings of Art. 248 and Entry 60 of the State List (List II), which read as under : "60. Taxes on professions, trades, callings and employments." 5. Before we venture upon to consider the rival contentions, it will be better to see the legislative history of the Finance Act providing taxation on the various "services". 6. In the Budget presented in February, 1994, "service tax" was sought to be levied on stock brokers, non-life insurance agents and telephone bills. The provisions came into being with effect from 1-7-1994. It was during that budget presentation speech that the need for taxing the service sector was reiterated realising that the service sector constitutes about 40% of the National GDP which till then was tax-free. The need was all the more felt to tax the service sector because while the "goods" manufactured were taxed, the "service sector", which was growing rapidly and was bound to grow further was, however, generally ignored. The tax-net was then widened by Finance Act No. 2 of 1996 to include some other service sectors. By Finance Act, 1997, twelve additional services were introduced and included as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e true test would be to examine as to whether the State Government could have legitimately legislated the impugned legislation. The learned counsel argues that if the answer is "yes" then, the impugned legistation is clearly beyond the legislative competence of the Parliament owing to the positive language of Art. 248(1). For this purpose, Mr. Datar argues that Secs. 65, 66 and 67 should be bodily lifted from the central enactment and treated as if it is a State enactments. The learned counsel argues that that there would be no impediment or fetter against the State Government as such the enactment would have to be held within the legislative competence of the State legislature with the aid of entry 60. Mr. Mohan Parasaran also supported the said argument by pointing out that the language of the impugned legislation itself was clear enough to suggest that the legislation was integrally connected with the profession. 10. Mr. Chandrasekaran, learned senior counsel appearing on behalf of the respondents, however, defended the constitutionality of the enactment and the legislative competence of the Parliament contending that in pith and substance this legislation could not be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf is specific that a matter can be brought under that entry only if it is not enumerated in List II or List III and in the case of tax if it is not mentioned in either of those lists. In a Federal Constitution like ours where there is a division of legislative subjects but the residuary power is vested in Parliament, such residuary power cannot be so expansively interpreted as to whittle down the power of the State legislature. That might affect and jeopardies the very federal principle. The federal nature of the constitution demands that an interpretation which would allow the exercise of legislative power by Parliament pursuant to the residuary powers vested in it to trench upon State legislation and which would thereby destroy the little state autonomy must be rejected." 13. In H.S. Dhillon's case (AIR 1972 SC 1061), the Supreme Court observes : "Be that as it may. We have three lists and a residuary power and, therefore, it seems to us that in this context if a Central Act is challenged as being beyond the legislative competence of Parliament, it is enough to enquire if it is a law with respect to matters or taxes enumerated in List II. If it is not, no further ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made taxable and, therefore, such service cannot be considered to be separate from the profession itself because the professionals have no other task to do excepting to provide the professional services and it is only on account of that, they become taxable even under the "professional tax" inflicted under entry 60. The argument goes further and says that, therefore, the tax levied against the "professional services" given in a professional capacity, i.e. as an architect or as a chartered accountant, has to be viewed as a tax on profession itself. The learned counsel pointed out that the terms "services rendered in a professional capacity" is not made applicable to any other services covered in Sec. 65(48) barring the above mentioned four services, which services are governed by specific enactments. The learned counsel also point out that while valuing the said services, Sec. 67(r) and (s) provide that the "gross amount" charged for the services rendered in the professional capacity has been viewed as the valuation of the taxable service rendered. In short, the argument is that the service offered which has been made taxable cannot be different from the profession itself because th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices to begin with, the scope there of has now been broadened and various services, including the professional services, have now been taken into fold. The Supreme Court observed in paragraph 8 as follows : "Now it is true that the speeches made by the members of the legislature on the floor of the House when a bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of the meaning, every thing which is logically relevant should be admissible." The Supreme Court, in this case, was considering the scope of Sec. 52(2) of the Income-tax Act. We have referred to what was said by the Finance Minister in 1994 during the budget session. The whole thrust of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no reference to the earlier decision in Western India Theatre case, cited supra. Even the Kamtaprasad case, cited supra, has remained uncontradicted so' far. 18. The learned senior Counsel however contended that the observations regarding the professional tax made in Western India Theatre case cited supra, could not be said to be the ratio decidendi of that decision. The learned counsel urges that the judgment cannot be interpreted to mean that the tax on profession must be only on the privilege of carrying on a particular profession. The further argument that it is open to the State Government or the Local Boards to law the tax on professions with reference to his "gross income" as a measure of tax. Even as regards the observations in Kamtaprasad case, cited supra, the contention was the decision is not an authority for the proposition that tax on profession cannot have reference to gross professional receipts. 19. We do not think that the comment about the Kamtaprasad case, cited supra or the Western India Theatre case, cited supra, is correct. We have pointed out that the observations in Western India Theatre case have remained undisturbed right from 1959 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that if there was no show, there was no tax while the professional tax, which a professional has to pay, is irrespective of whether he actually practices that profession or not. In describing the professional tax, the Supreme Court very clearly brought out the distinction between "professonal tax" and "entertainment tax". 22. Similar is the position in Kamtaprasad case, cited supra. In that case the Supreme Court said a tax on profession is not necessarily connected with income and pointed out that even as per the Supreme Court, a tax on profession could not be connected or linked with the income. The learned counsel also argued that there are other instances where the courts have viewed that the professional tax could be connected with income. 23. Reliance was placed on the decisions in Sudhir Chander Anand v. State of U.P. (AIR 9169 ACC 317) and K. Abraham v. State of Kerala (AIR 1958 Ker. 129). First is the Full Bench decision where it was observed in paragraph 7 of the judgment that the subject matter of the tax in case of "professions" is not the income and that the reference to income is only as a measure of tax and that the ceiling of Rs. 2,500/- only sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntants can give nothing except their "services" and if those services are made taxable then, there would be a link between those services and the profession and in effect, it would be a tax on profession. 26. We do not agree because we are completely convinced that the Apex Court has been looking at the professional tax as the tax for having a privilege to carry on that profession in that State. In both the earlier referred cases of Western India Theatre case and Kamtaprasad case, the Supreme Court has very clearly said that the professional tax has no connection or link with the income thereof. It virtually means that a privilege to practice a profession has got no relation or link with the income thereof, which comes only as a result of the services provided by the professionals. Therefore, there is a clear distinction between the privilege to carry on profession and the services offered as professional. Which result into the income from that profession. Therefore in our opinion, the argument that he service tax could have been legitimately charged by the State Government under a State enactment is clearly incorrect and it has to be held that while the profession tax deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountants and Company Secretaries, which say that only the professional services offered by them were made taxable. So also, the argument was directed by the learned counsel for the petitioners that for evaluation purposes, Sec.67(l) and (s) provide that the gross amount charged for the services rendered by a professional in his "professional capacity" would be the valuation of the "taxable service". It was on this backdrop that we have proceeded firstly to consider as to what is the implication of a professional tax as covered by the Entry 60 of List II. We have then pointed out as to what is the view taken by the Supreme Court regarding the professional tax and how it would be different from the service tax, which essentially is not qua the profession but qua the services provided by the professionals in their "professional capacity". However, the argument of the learned counsel went further and proceeded on the lines that by the very language of the impugned provisions, the aspect of profession could not be separately viewed from this service tax and the profession or the income there from, which was specifically referred to in the impugned provisions, was bound to be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n luxuries or sale of goods falling within the State power, must in our opinion, be accepted. As contended by the learned Attorney General the distinct aspect namely, "the expenditure aspect" of the transaction falling within the Union power must be distinguished and the legislative competence to impose a tax thereon sustained...". 30. This decision of the Supreme Court is very clear to support a proposition that even if this service tax was linked with the professional income or the professional services even then, it had a "distinct aspect" of services. The tax was not on the basis that a professional was carrying on his profession like a Chartered Accountant or a Cost Accountant. The tax was, on the other hand, on the "professional services" offered by him to the clients and the service aspect was a distinct aspect and could not be confused with the aspect of a tax which arose only on account of the fact that a professional was having the privilege of carrying on his profession. A tax which the professional had to pay because he has had the privilege to carry on the profession or because he was carrying on the profession in a particular State is totally distinct and separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bservations of the Federal Court in C.P. and Berar Act case [1978 (2) E.L.T. (J 269) (F.C.) = 1939 FCR 18] which touched upon the "aspect" theory. It referred to the following observations : "Here are two separate enactments each in one aspect conferring the power to impose a tax upon goods; and it would accord with sound principles of construction to take the more general power that which extends to the whole of India as subject to an exception created by the particular power, that which extends to the province only". The Court also referred to the observations made in Kerala State Electricity Board v. Indian Aluminium Co . (1976) 1 SCR 552 to the following effect : "...one thing that has always got to be kept clear in one's mind is that there may be more than one aspect with regard to a particular subject-matter." The Supreme Court further observed in paragraph 45 as follows : "At first blush, the argument of the learned Attorney General may sound a little subtle and somewhat artificial but, on some reflection, legislative competence will indeed be seen to vary with different aspects of a subject-matter as understood in a wide sense. This can be seen from some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the land and buildings (generally, but not necessarily, measurable by reference to the income derived or capable of being derived) and the other on the income (actually or notionally) derived from it. Similar kind of observations were made in respect of the decision in Sanik Motors case (AIR 1961 SC 1480) in respect of the tax on passengers. We have already commented upon the Sanik Motors case (AIR 1961 SC 1980) in our separate judgment in W.P. No. 20 of 1998 [2001 (134) E.L.T. 618 (Mad.)] etc. while we were dealing with the similar kind of challenge in respect of the service tax levied on "tour operators". The challenge there was that the tax was in relation to the profession or calling by the tour operators and, therefore, was beyond the legislative competence. We have taken a view that such challenge could not be entertained much less on the ground indicated above. There also, we have dealt with the question relying on the aforementioned judgment in Federation of Hotels and entirely a distinct aspect from the aspect of the profession though there could be some latest overlapping, in our opinion, there is no overlapping in law. 32. Learned Counsel for the respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the States. Once there were clear observations available in the Apex Court judgments to the effect that the professional tax was for the carrying out of a profession, there would be no question of giving any other interpretation not warranted by the entry. Again, in rendering this criticism, the petitioners are ignoring Art. 276(2) of the Constitution of India which suggests that the taxes on profession would be irrespective of the income in the sense that whatever the income, there would be a limit to a tax and thus it will not be linked with the income. In viewing the present tax as the tax on profession and in suggesting that the tax on profession cannot be linked with the income from the profession violence is being made to the spirit and language of Art. 276 of the Constitution of India. 35. Further criticism was made of Bombay High Court judgment that it did not take into consideration the observations by Justice Chinnappa Reddy in International Tourist Corporation case (AIR 1981 SC 774) in suggesting rejection of the interpretation which would allow the legislative exercise of power by Parliament pursuant to the residuary powers vested in it to trench upon the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less rigorous. In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. 38. In the decision reported in [1999 (89) E.L.T. 247 (S.C.) = 1997 (5) SCC 536] ( Mafatlal Industries case) also the Apex Court has approved the "theory of discretion" in the legislature. There, the observations in the reported decision of R.K. Garg v. Union of India [1981 (4) SCC 675] have been approved in paragraph 87. The observations are : - "laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Chartered Accountants perform have been enumerated. It is then pointed out that there are no guidelines in the impugned legislation to suggest as to which precisely is the service which is a taxable service out of the multifarious services offered by the Chartered Accountants. 40. A practical difficulty was pointed out by the learned counsel that the Chartered Accountants normally issue a composite bill for all these services and such bill cannot be split up with regard to the multifarious services offered by the Chartered Accountants. From this it was suggested that the concerned provisions suffer from the "vagueness" and are confusing and as such, can be labelled as "arbitrary provisions". 41 .We have already pointed out the observations in Federation of Hotels and Restaurants case, cited supra, as also the observations made in Mafatlal Industries Ltd. case [1997 (89) E.L.T. 247 (SC) = 1997 (5) SCC 536] and R.K. Garg case [1981 (4) SCC 675]. We wish to point out that it is only the services offered by the Chartered Accountants in their "professional capacity" which are made taxable and the services other than of auditing and accounting provided by the pract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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