Full Judgment Text
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PETITIONER:
VENKATESHWARA THEATRE
Vs.
RESPONDENT:
STATE OF ANDHRA PRADESH AND ORS.
DATE OF JUDGMENT10/05/1993
BENCH:
AGRAWAL, S.C. (J)
BENCH:
AGRAWAL, S.C. (J)
PUNCHHI, M.M.
CITATION:
1993 AIR 1947 1993 SCR (3) 616
1993 SCC (3) 677 JT 1993 (3) 270
1993 SCALE (2)825
ACT:
Constitution of India, 1950--Seventh Schedule--List II,
Entry. 62--Taxes on entertainments--Andhra Pradesh
Entertainment Tax Act, 1039--Constitutional Validity
of--Question as to legislative competence of State
Legislature--Factors to be consiseres.
Andhra Pradesh Entertainment Tax Act 1939--Sections 4 and
5--Pre and post amendment to A.P.Act 24 of 1984--Levy of
tax--Modes of--Alteration in the mode whether has effect of
altering the nature of Tax--Legislative competency--Scope
of.
Constitution of India, 1950--Article 14--Equality before
law"--Construction--Law to operate differently on different
groups--Conditions for classification-Classifying items for
tax--Legislature’s discretion--Ambit of--Discrimination-when
becomes.
Andhra Pradesh Entertainment Tax Act.1939--Sections 4 and
5--Whether Ultra vires of Article 14, Constitution of India.
Andhra Pradesh Entretainment Tax Act, 1939--Section
5(6)--Opinion for payment of weekly consolidated
amount--Legality.
HEADNOTE:
Prior to January 1, 1984, the Andhra Pradesh Entertainment
Tax Act, 1989, in Section 4, provided for levy of
entertainment tax at a rate fixed on the has is of
percentage of payment made by a person for admission to any
entertainment. In section 4-C, in respect of entertainments
held within the jurisdiction (if any local authority where
population did n(it exceed 25, 000. tax was levied at a
certain percentage of the gross collection capacity per show
and the percentage for such levy were fixed according to the
population of the local authority within the jurisdiction of
which the entertainment held.
The Amending Act 24 of 1984, replaced the earlier mode of
levy of tax prescribed in Section 4 and introduced a mode of
levy of tax on the has is of a prescribed percentage of the
gross collection capacity per show. The rates
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were fixed on the basis of a percentage of the gross
collection capacity per show varying with the category of
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the local area in which the theatre was situated as well as
on the nature of the theatre, viz. air conditioned air
cooled or (other than air conditioned and air-cooled)or
permanent,semi-permanent including touring and temporary
the atres. The proprietor was given an option to pay a
weekly consolidated amount irrespective of the number of
shows actually held by him and the said amount was fixed on
the basis of the prescribed number of shows per week. The
number of show.-. varied with the nature of the theatre as
well as the category of the local area in which it was
situate. A fixed amount was also leviable by way of show
tax on each show.
Before the High Court, a number of writ petitions were filed
challenging the validity of sections 4,4-A and 5 of the
Andhra Pradesh Entertainments Tax Act, 1939, as amended by
Act 24 of 1984, on the grounds that (i) the levy of
entertainment tax on the basis of gross collection capacity
without reference to the actual amount collected or the
actual number of tickets sold or the number of persons
admitted was ultra vires the legislative power conferred on
the State Legislature under Entry 62 of List 11 of the
Seventh Schedule of the Constitution; (ii) section 4 was hit
by Article 14 of the Constitution, as it gave rise to
discrimination amongst different theatres situate within the
same local area; and that (iii) the levy of entertainment
tax under section 4 being exproprietory amounted to an
unreasonable restriction on the right guaranteed to the
petitioners by Article 19(1) (g) of the Constitution and was
not saved under Article 19(6).
Relying upon the decisions in Western India Theatres v.
Cantonment Board.. [1959] Supp. 2 SCR 63; Y.V.
Srinivasamurthy v. State of Mysor. AIR 1959 SC 894 and State
of bombay v. R.M.D. Chamarbaugwala. A. I. R. 1957 S.C. 699
the High Court dismissing the writ petitions held that the
State Legislature was competent to levy the tax under Entry
62 of List 11 of the Seventh Schedule; that as the tax
levied retained the character of entertainment tax, the
Legislature was competent to adopt such basis or such
measure, or such method of levy; that wide discretion was
allowed to the Legislature in the matter of classification
and in the matter of selection of persons to be taxed and
that the two-fold classification made by section 4 was
neither discriminatory nor arbitrary or it did not mete out
hostile discrimination to certain theatres; that the rates
of tax that were prescribed under section 4 based on an
average expected occupancy rate of less than 50 per cent to
66 per cent, was neither unreasonable nor expropriatory;
that section 5 was only optional and no) one was compelled
to be governed by it or to opt for the composition scheme
and if a person opted to be governed by section 5, he must
be deemed
618
to have accepted all the conditions and features of the
scheme.
During the pendency of these appeals Special leave petition
in this court the Act of 1939 was amended by A.P. Act 23 of
1988 and A.I. Act 16 of 1991, whereby the Tables below
sections 4, 4-A and 5 were substituted and subsection (6A)
was inserted in section 5.
Before this Court the appellants and the petitioners
reiterated two contentions raised before the High Court
while assailing the constitutional validity of sections 4
and 5 of the Act, namely, (1) that the impugned provisions
did not fall within the ambit of the legislavite power
conferred on the St-.Ate Legislature under Entry 62 of List
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11 of the Seventh Schedule of the Constitution; (ii) that
the impugned provisions were violative of Article 14 of the
Constitution, as they provided for imposing tax at a uniform
rate (in a particular class of Cinema theaters irrespective
of their location and occupancy.
Dismissing the appeal and the Special Leave petition, this
Court,
HELD: 1.1. While considering the question as to legislative
competence of the State Legislature, it is necessary to bear
in mind that the impugned provisions provide for imposition
of a tax and a tax has two distinct elements viz., subject
of the tax and the measure of the tax. The subject of the
tax is the person, think or activity on which the tax is
imposed, and the measure of the tax is the standard by which
the amount of tax is measured. (632-1))
1.2. The competence of the Legislature to enact a law
imposing a tax under a particular head of the legislative
list has to be examined in the context of the subject of the
tax. It the subject of the tax falls within the ambit of
the legislative power conferred by the head of legislative
entry, it would be within the competence of the Legislature
to impose such as tax. (632-E)
1.3. Prior to the enactment of Act 24 of 1984, there were
two modes for levy of the tax, one on the basis of the
actual number of persons admitted to each show and the other
on the basis of the percentage of the grows collection
capacity per show. As a result of the amendments introduced
by Act 24 of 1984, the system for levy of tax on the basis
of number (of persons actually admitted to each show was
dispensed with and the tax was to be levied on the basis of
the percentage of the gross collection capacity per show and
different percentages were prescribed depending on the type
of the theatre and the
619
nature of the local area where it was situated. (633-F-H)
1.4. The question whether the alteration in the said mode of
levy of tax by Act 24 of 1984 has the effect of altering the
nature of the tax in a way that it has ceased to he a tax on
entertainments and falls beyond the field of legislative
competence conferred (in the State Legislature by Entry 62
of List 11, must he answered in the negative. ’The fact
that instead of tax being levied on the basis of the payment
for admission made by the persons actually admitted in the
theater it is being levied on the basis of the gross
collection capacity per show calculated on the basis of the
notional aggregate of all the payments fair admission which
the proprietor would realise per show if all the seats or
accommodation in respect of the place of entertainment are
(occupied and calculated at the maximum rate of payments for
admission, would not alter the nature of the tax or the
subject-matter of the tax which continues to he a tax on
entertainment. (634-B-D)
1.5. The mode of levy based on ’per payment for admission’
proscribed under Section 4(1) prior to amendment by Act 24
of 1984 necessitated enquiry into the number of shows held
at the theatre and the number of persons admitted to a
cinema theatre for each show and gave room for abuse both on
the part of proprietor as well as other officers incharge of
assessment and collection of tax. The mode of levy or
measure of the tax prescribed under section 4(1),as
substituted by Act24 of 1984, is a more convenient mode of
levy of the tax inasmuch as it dispenses with the need to
verify or enquire into the number of persons admitted to
each show and to verify the correctness or otherwise of the
returns submitted by the proprietor containing the number of
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persons admitted (A) each show and the amount of tax
collected. (634-E)
1.6. On an examination of the rates prescribed under both
the modes it is found that under the system (of consolidated
levy prescribed under Section 4-C, the proprietor could
break even if the average rate of occupancy was 40%. As
regards the rates prescribed under Sections 4 and 5 as
amended by Act 24 of 1984 they are based on an average
expected occupancy rate of less than 50% or 66% depending
upon the area in which the theatre is situated. This would
mean that the entertainment tax that would be collected over
and above the average occupancy rate would constitute the
profit of the proprietor. In the circumstances, it cannot
be said that the adoption of the system of consolidated levy
in Section 4(1) as amended by Act 24 of 1984 alters the
nature of tax and it has ceased to be a tax on
entertainments. (634-F-H)
620
1.7. Once it is held that tax #in entertainment could be
levied either of the two modes, viz., per payments of
admission or gross collection capacity per show, it is for
the legislature to decide the particular mode or modes of
levy to be adopted and whether a choice should he available
to the proprietor of the cinema theatre in this regard. The
legislature does not transgress the limit: of its
legislative power confer red on it under Entry 62 of List 11
if it decides that consolidated levy on the basis of gross
collection capacity per show shall be the only mode for levy
of tax on entertainments (635-C)
1.8. The impugned provisions contained in Sections 4 and 5
as amended by Act 24 of 1984 are not ultra vires the
legislative power conferred on tile State Legislature under
Entry 62 of List 11. (635-D)
Western India Theatres v. Cantonment Board, [1959] Supp. 2
SCR 63 and Y. V Srinivasamurthy v. State of Mysore AIR 1959
SC 894, explained.
2.01. The right conferred by Article 14 postulates that all
persons similarly circumstanced shall he treated alike both
in privileges conferred and liabilities imposed, Since the
State, in exercise of its governmental power, has, of
necessity, to make laws operating differently on different
groups of persons within its territory to attain particular
ends in giving effect to its policies, it is recognised that
the State must possess the power of distinguishing and
classifying persons or things to be subjected to such laws.
It is, however, required that the classification must
satisfy two conditions, namely, (i)it is founded on an
intelligible different is which distinguishes those that are
grouped together from others; and (ii) the differential must
have a rational relation to the object sought to be achieved
by the Act.It is not the requirement that the classification
should be scientifically perfect or logically complete.
Classification would be justified if it is not palpable
arbitrary. (636-A-C)
Re-Special Courts Bill, (1979) 2 SCR 476 at pp. 534-536 and
Khandige Sham Bhat v. Agricultural Income-Tax Officer,
[1963] 3 SCR 809 at p. 817. followed.
2.02. In the field of taxation the legislature exercises an
extremely wide discretion in classifying items for the
purposes, so long as it refrains from clear and hostile
discrimination against particular persons or classes. (636-
E)
621
East India Tobacco Co v. State of A.P. [1963] 1 SCR 404 at
p. 411; P.M. Ashwathanarayana Shetty v. State of Karnataka.
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[1988] Supp.3 SCR 155 at p.m 188; Federation of Hotel &
Restaurant Association of India v. Union of India, [1989] 2
SCR 918 at p. 949, Kerala Hotel & Restaurant Association v.
State of Kerala, [1990] 1 SCR 516 at p. 530: Gannon
Dunkerley, and Co. v. State of Rajasthan, [1993] 1 SCC 364
at 397; and San Antonio Independent School District v.
Bodriques, 411 US 1 at p. 41, referred to.
2.03. just as a difference in the treatment of persons
similarly situate leads to discrimination’, so also
discrimination can arise if persons who are unequals, i.e.
differently placed. are treated similarly. In such a case
failure on the part of the legislature to classify the
persons who are dissimilar in separate categories and
applying the same law, irrespective of the differences
brings about the same consequence as in a case where the law
makes a distinction between persons who are similarly
placed. A law providing for equal treatment of unequal
objects transactions or persons would he condemned as
discriminatory if there is absence of rational relation to
the object intended to he achieved by the law. (637-A-B)
K. T Moopil Nair v. The State of Kerala & Anr., [1961] 3 SCR
77, distinguished.
Jalan Trading Co. (pvt.) Ltd. v. Mill Mazdoor Union, [1967]
1 SCR 15 and Twyford Tea Co. Ltd. & Anr v. The State of
Kerala & Anr., [1970] 3 SCR 383, referred to.
2.04. In the instant case, the legislature has prescribed
different rates of tax by classifying theatres in the
different classes, namely, air-conditioned,air-cooled,
ordinary (other than air-conditioned and air-cooled),
permanent and semi-permanent and touring and temporary. The
theatre% have further been categorized on the basis (of the
type of the local area in which they are situate. It
cannot, therefore, be said that there has been no attempt on
the part of the legislature to classify the cinema theatres
taking into consideration the differentiating circumstances
for the purpose of imposition of tax. (638-G-H)
2.05. In relation to cinema theatres it can he said that the
attendance in the various cinema theatres within a local
area would not be uniform and would depend on factors which
may vary from time to time. But this does not mean that
cinema theatres in a particular category of local area will
always
622
be at a disadvantage so as to be prejudicially affected by a
uniform rate as compared to cinema theatres having a better
location in the same local area. The contention that the
impugned provisions are violative of right to equality
guaranteed under Article 14 (if the Constitution on the
basis that unequals are being treated equally cannot be
accepted. (639-B-C)
3. The provision for enhancement contained in sub-section
(16) of section 5 relates to the cases. There the proprietor
of a cinema theatre opts for payment of weekly consolidated
amount. Since the proprietor has the option to opt for the
said scheme he cannot complain that the scheme suffers from
inequality. on account of absence of a corresponding
provision for reduction of amount of tax. (639-E)
JUDGMENT:
CIVIL APPELLATE JURISDICTION: of 1986 etc. etc. Civil Appeal
No. 1527
from the Judgment and Order dated 7.8.1984 of the Andhra
Pradesh High Court in Writ petition No. 8173 of 1984.
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A.K. Ganguly. M.B. Shetye, A. Subha Rao, B, Kanta Rao,
T.V.S.N. Chari, Ms. Bharathi Reddy and Ms. Promila for the
appearing parties.
The Judgment of the Court was delivered by
S.C. AGRAWAL ,J : These appeal and special leave petitions
raise Common questions relating, to the constitutional
validity of Sections 4 and 5 of the Andhra Pradesh
Entertainments Tax, 1939 (hereinafter referred to as ’the
Act’). as amended by Act 24 of 1994, providing for
imposition of entertainments tax it) respect of
entertainments held in cinema theatres located in the State
of Andhra Pradesh.
The Act has been enacted to provide for the levy of taxes on
amusements and other attainments. Prior to January 1. 1984,
Section 4 of the Act provided for levy of entertainment tax
at a rate fixed on the basis of percentage of the payment
made by a person for admission to any entertainment. In
addition, there was a provision in Section 4-A for levy of a
fixed amount, by way of "show tax", for each show. By Act
59 of 1976, Section 4-C was introduced in the Act and
Section 5 of the Act was substituted. under Section 4-C, it
was provided that in respect of entertain-
623
ments held within tile jurisdiction of any local authority
whose population did not exceed 25,000, a tax for every
entertainment show would be levied, not on the basis of each
payment for admission, but at a certain percentage of the
gross collection capacity per show. The percentages for
such levy were fixed according to the population of the
local authority within the jurisdiction of which the
entertainments were held. ’Gross collection capacity per
show was defined in the Explanation to Section 4-C to 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, 1966 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. The levy of tax in the
manner as prescribed under Section 4-C could be dispensed
with if the proprietor of the theatre opted for the
composition scheme contemplated by Section 5 whereunder it
was open to a proprietor to enter into an agreement with the
prescribed authority to compound the tax payable under
Section 4-C for a fixed sum which was to be arrived at in
accordance with the formula prescribed under Section 5.
According to this formula, the tax was payable on the basis
of a percentage of the gross collection capacity per show
for the fixed rounds of shows for the whole year and the
number of shows was fixed on the basis of the number of
shows exhibited in the previous year. This arrangement
continued till December 31, 1983, whereafter the provisions
of Sections 4.4-A and 5 were amended by Act No. 24 of 1984.
The provisions of Sections 4,4-A and 5, as amended by Act 24
of 1984, were as follows
"Section 4. (1) There shall be levied and paid
to the State Government a tax on the gross
collection capacity on every show (hereinafter
referred to as the entertainments tax) in
respect of entertainments held in the theatres
specified in column (2) of the table below and
located in the located areas specified in the
corresponding entry in column (1) of the said
table, calculated at the rates specified in
the corresponding entry in column (3) thereof.
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THE TABLE
__________________________________________________________
Local Area. Theatre Rate of tax on the
gross collection ca-
pacity per show
_________________________________________________________
(1) (2) (3)
_________________________________________________________
624
(a) Municipal corporations (i)Air-conditioned 29 per cent
and the Secunderabad
Cantonment area and (ii) Air-cooled 28 per cent
the contiguous area (iii)Ordinary 25 per cent
thereof. (other than air-
conditioned and air-
cooled)
(b) Selection grade muni- (i) Air-conditioned 28 per cent
cipalities and
contiguors area of (ii)Air-cooled 27 per cent
two Kilometres (iii)ordinary (other 24 per cent
thereof. than air-conditioned 27 per cent
and air-cooled)
(c) Special tirade munici- (i) Air-conditioned 27 per cent
palities and contiguous (ii) Air- cooled 26 per cent
area of two Kilometres (iii) Ordinary 23 per cent
thereof. (other than air-
conditioned and
air-cooled)
(d) First grade munici-
palities and conti.- (i) Air-conditioned 26 per cent
guous area of two (ii) Air-cooled 25 per cent
Kilometres thereof. (iii) Ordinary (other 22 per cent
than air-conditioned
and air-cooled)
(e) Second grade munici- All categories 21 per cent
palities and contiguous
area of two Kilometres
thereof.
(f) Third grade municipalities, All categories 20 per cent
and contiguous area of two
Kilometres thereof.
(g) Gram panchayats, selec- (i) Permanent and 19 per cent
tion grade gram panchayats, semi-permanent 20 per cent
townships and any other (ii) Touring and
local areas. temporary
Explanation.- For the purpose of this section
and section 5, the 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
625
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."
"Section 4-A. (1) In addition to the tax under
Section 4, there shall be levied and paid to
the State Government in the case of entertain-
ments held in the local areas specified in
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column (1) of the Table below, a tax
calculated at the rates specified in the
corresponding entry in column (2) thereof;
THE TABLE
-----------------------------------------------------------
Local Areas Rate of tax for every
show
-----------------------------------------------------------
(a) Municipal Corporation and the Six rupees
Secunderabad cantonment area and
contiguous area of two Kilometers
thereof.
(b) Selection grade, Special grade and the Six rupees
first grade municipalities and contiguous
area of two kilometers thereof.
(c) Second grade and Third grade Four rupees
municipalities and contiguous area of
two kilometers thereof.
(d) Gram Panchayats, selection grade Two rupees.
gram panchayats, townships and
any other local areas.
-----------------------------------------------------------
(2) The tax leviable under sub-section (1)
shall be recoverable from the proprietor.
(3) The provisions of this Act other than
Sections 4, 6 and 13 shall, so far as may be,
apply in relation to the tax payable under
subsection (1) as they apply in relation to th
e
tax payable under Section 4 "
626
"Section 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
------------------------------------------------------------
Local Area Theatre Amount of tax
------------------------------------------------------------
(1) (2) (3)
------------------------------------------------------------
(a) Municipal corpora- (i) Air-conditioned 24 per cent
tions and the of the gross
Secunderabad canton- collection
capacity
ment area and the per show multi-
contiguous area of plied by 22
two kilometrers
thereof. (ii) Air-cooled 23per cent of the
gross collection
capacity per show
multiplied by 22.
(iii) Ordinary 20 per cent of the
(other than air- gross collection
conditioned and capacity per show
air-cooled) multiplied by 22
(b)Selection grade muni- (i) Air-conditi- 23 per cent of the
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cipalities and contiguous aned gross collection
area of two kilometrers show multiplied by
thereof. 22.
(ii) Air- cooled 22 per cent of
the gross collec-
tion capacity per
show multiplied
by 22.
(iii) Ordinary 19 per cent of the
(other than air- gross collection
conditioned and capacity per
air-cooled show multiplied by
22.
(c)Special grade munici- (i) Air-conditi- 22 per cent of the
627
palities and contiguous oned gross show multi-
area of two kilo- lied by 21.
metrers thereof.
(ii) Air- cooled 21 per cent of the
gross collection
capacity per show
multiplied by 21.
(iii) Ordinary 18 per cent of the
(other than air- gross collection
conditioned and capacity per show
air-cooled) multiplied by 21.
(d)First grade municipali- (i) Air-conditi- 21 per cent of
ties and contiguous oned gross show
area of two kilo- multilied by 21.
metrers thereof.
(ii) Air-cooled 20 per cent of
the gross collection
capacity per show
multiplied by 21.
(iii) Ordinary 17 per cent of the
(other than air- gross collection
conditioned and capacity per show
air-colled) multiplied by 21.
(e) Second grade muni- All-cate-ores 16 per cent of the
cipalities and conti- gross collection
guors area of two capacity per
Kilometres there of show.
(f) Third grade muni- All categores 15 per cent of the
cipalities and gross Collection
contiguous area of capacity per show
two Kilometres multiplied by 17.
thereof.
(g) Gram panchayats, (i) Permanent 15 per cent of the
selection grade gram and semi- gross collection
panchayats, townships permanent capacity per
and any other show multi-
local areas. plied by 14.
(ii) Touring 14 per cent of the
and temporary gross collection
capacity per show
multiplied by 7.
628
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
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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 proprietor under sub-section (1) during
the period of option permitted under this
section any time, if there is an increase in
the gross collection capacity per show in
respect of the place of entertainment by
virtue of an upward revision of the rate of
payment for admission therein or of the
seating capacity or accommodation thereof or
where the local area in respect of which
permission is granted is upgraded or if it is
found for any reason that the amount of tax
has been fixed lower than the correct amount.
(7)Every proprietor who has been permitted to
pay the tax under this section shall intimate
to the prescribed authority forthwith such
increase in the gross collection capacity per
show in respect of the place of entertainment,
failing which it shall be open to the pre-
scribed authority by giving fifteen days
notice to cancel the option so permitted.
629
(8)Where a proprietor fails to pay the amount
of tax on the due date, such amount of tax
shall be recoverable with interest calculated
at such rate as may be prescribed.
(9) The amount of tax due under this section
shall be rounded of to the nearest rupee
and for this purpose, where such amount
contains part of a rupee consisting of
paise, then if such part if fifty paise or
more it shall be increased to one rupee and if
such part is less then fifty paise, it shall
be ignored."
As a result of the said amendments, the earlier mode of levy
of tax on the basis of the percentage of each payment for
admission prescribed in Section 4 was replaced by a mode
similar to that provided in Section 4-C, i.e., on the basis
as prescribed percentage of the gross collection capacity
per show. In the table appended below sub-section (1) of
section 4 rates were fixed on the basis of a percentage of
the gross collection capacity per show varying with the
category of the local area in which the theatre was situated
as well as on the nature of the theatre, viz. air-
conditioned and air-cooled or ordinary (other than air-
conditioned and air-cooled) or permanent, semi-permanent
including touring and temporary theatres. In the
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Explanation to sub-section (1) of section 4, the term gross
collection capacity per show’ was defined in the same terms
as in the Explanation to Section 4-C, to mean the full
collection per show if all the seats in the theatre are
occupied. In sub-section (2) of section 4, it was
specifically provided that 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. Section 5 gave an
option to the proprietor to pay a weekly consolidated amount
irrespective of the number of shows actually held by him and
the said amount was fixed on the basis of the prescribed
number of shows per week. The number of shows varied with
the nature of the theatre as well as the category of the
local area in which it was situate. In section 4-A, a fixed
amount was leviable by way of show tax on each show.
A number of writ petitions were filed in the High Court to
challenge the validity of sections 4, 4-A and 5 of the Act,
as amended by Act 24 of 1984. The said writ petitions were
decided by a division bench of the High Court by judgment
dated July 19, 1984.
The constitutional validity of the provisions was challenged
on three grounds, viz. : (i) the levy of entertainment tax
on the basis of gross collection capacity without reference
to the actual amount collected or the actual number of
tickets sold or the number of persons admitted was ultra
vires the legislative power
630
conferred on the State Legislature under entry 62 of List II
of the Seventh Schedule; (ii) section 4 was hit by Article
14 of the Constitution inasmuch as by treating unequals as
equals, it gave rise to discrirmination amongst different
theatres situate within the same local area; and (iii) the
levy of entertainment tax under section 4 being
exproprietory amounts to an unreasonable restriction on the
right guaranteed to the petitioners by Article 19 (1) of the
Constitution, and was not saved by clause (6) of Article 19.
Relying upon the decisions of this Court in Western India
Theatres v. Contonment Board, 1959 Supp. 2 SCR 63, Y. V.
Srinivasamurthy vs. State of Mysore, AIR 1959 SC 894, and
State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699,
the High Court has held that the State Legislature was
competent to levy the impugned tax under entry 62 of list 11
of the Seventh Schedule to the Constitution since the said
head of legislative power empowers imposition of tax upon
entertainments and amusements and not on the persons
entertained or the persons provided amusement and it has to
be paid by the persons who provides the entertainment or
amusement. The High Court further held that so long as the
tax levied retains the character of entertainment tax, the
Legislature is competent to adopt such basis or such
measure, or such method of levy, as it thinks appropriate.
The High Court rejected the contention that the only method
in which Legislature can levy the entertainment tax is that
prescribed in the old Section 4, i.e., on the basis of the
payment of admission. The challenge on the around of
Article 14 was negatived by the High Court on the view that
wide discretion is allowed to the Legislature in the matter
of classification and in the matter of selection of persons
to be taxed and that the two-fold classification made by
section 4 could not be said to be either discriminatory or
arbitrary much less could it be said that it metes out
hostile discrimination to certain theatres. The High Court
also observed that since it was not possible to predicate
absolute equality between two theatres, and also because the
situation and economics of each theatre are different, it is
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impossible to expect, or call upon the Legislature to evolve
such classification which would meet every conceivable case
and which would not result in prejudice even to a single
theatre. It was observed that different rates have been
prescribed for different local areas and for different types
of theatres, i.e. ordinary, air-cooled and air-conditioned
and the Legislature took note of the fact that rate of
occupancy in villages will be lower compared to towns, and
similarly, in bigger towns there will be greater rate of
occupancy, and finally in cities, the rate of occupancy
would be even higher and it could not be said that this
expectation was unrealistic, or seunreasonable as to call
for interference by the court. As regards the challenge
based on Article 19 (1) (g), the High Court has taken note
of the letter dated July 26, 1983 addressed by the Andhra
Pradesh Film Chamber of Commerce, to the Hon’ble Chief
Minister of Andhra Pradesh wherein the exhibitors not only
asked
631
tax which suggestion was accepted by the Government with
certain modifications varying from 2 to 4% over the rates
suggested by the Association. The High Court observed that
the rates of tax that were prescribed under section 4 based
on an average expected occupancy rate of less than 50 per
cent to 66 per cent, could not be said to be either
unreasonable or exproprietory. The High Court, however,
held that the agreements which had already been entered into
by the proprietors of cinema theatres under section 5, as it
stood prior to January 1, 1984, would be effective and valid
for the period for which they were entered into. The High
Court has also observed that merely because the form for
exercise of option, as contemplated under sub-section (3) of
section 5, had not been prescribed, it could not be said
that section 5 had not come into operation or was
unenforceable and that it was open for the proprietor to
send an intimation on an ordinary paper and the authority
would be bound to treat it as proper intimation. The High
Court rejected the contention that section 5 was
discriminatory inasmuch as it did 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 was exercised although under sub-section
(6) of section 5 the provision had been made for enhancement
of the composition amount in case the seating
capacity/accommodation or the rates of payment for admission
were enhanced. The High Court observed that section 5 was
only optional and no one was compelled to be governed by it
or to opt for the composition scheme contained in section 5
and that according to the said scheme the option once
exercised was in force till the end of the financial year in
which such option was permitted and that if a person opts to
be governed by section 5 he does so with his eyes open and
he must be deemed to have accepted all the conditions and
features of the scheme and it was not open to him to say
that he would avail of the beneficial provisions of the
scheme, while rejecting those features which are not
advantageous to him.
C.A.Nos. 4642-47/84,193-221/85,222/85, 223/85,224-28/85.
229, 232-34/ 85, 1468/85 and 1469-70/85 have been filed
against the said decision of the High Court dated July 19,
1984. C.A. Nos. 5722/85, 1527/86, and SLP (C) No. 3127/ 85
have been filed against the decision of the High Court dated
August 7, 1984 which is based on the earlier decision dated
July 19, 1984 and similarly C.A. Nos. 1858/89 and 4798/89
are directed against the decisions dated February 12, 1986
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and March 30, 1998 based on the earlier decision dated July
19, 1984.
During the pendency of these appeals, the Act was amended by
A.P. Act 23 of 1988 and A.P. Act 16 of 1991 whereby the
Tables below Sections 4,4-A and 5 were substituted and sub-
Section (6-A) was inserted in Section 5 whereby
632
provision was made for reduction of the amount of tax
payable by the proprietor during the financial year if there
is a reduction in the seating capacity or in the
accommodation of the place of entertainment at any time
during the period of six months commencing from the 1st day
of April and ending with 30th day of September or from the
1st day of October and ending with 31st day of March of any
financial year.
The learned counsel appearing for the appellants have
assailed the constitutional validity of sections 4 and 5 on
two grounds, viz. : (1) that the impugned provisions do not
fall within the ambit of the legislative power conferred on
the State Legislature under Entry 62 of List II of the
Seventh Schedule of the Constitution-, and (2) that the
impugned provisions were violative of the right to equality
guaranteed under Article 14 of the Constitution inasmuch as
they treated unequals as equal by imposing tax at a uniform
rate on a particular class of cinema theatres irrespective
of their location and occupancy.
While considering the question as to legislative competence
of the State Legislature, it is necessary to bear in mind
that the impugned provisions provide fir imposition of a tax
and a tax has two distinct elements, viz., subject of the
tax and the measure of the tax. The subject of the tax is
the person, thing or activity on which the tax is imposed,
and the measure of the tax is the standard by which the
amount of tax is measured. The competence of the
Legislature to enact a law imposing a tax under a particular
head of the legislative list has to be examined in the
context of the subject of the tax. If the subject of the
tax falls within the ambit of the legislative power
conferred by the head of legislative entry, it would be
within the competence of the Legislature to impose such a
tax. It is, therefore, necessary to examine the scope of
the legislative entry, viz., Entry 62 of List II, which is
invoked in support of the competence of the State
Legislature to impose the tax and ascertain whether the
subject of the tax imposed by the impugned provisions falls
within the ambit of the said entry. Entry 62 of List 11 is
as follows
"62. Taxes on luxuries, including taxes on
entertainments, amusements, betting and
gambling
The said entry is in pari materia with entry 50 of the
Provincial List in the Seventh Schedule to the Government of
India Act, 1935. Construing the said entry, this Court, in
the Western India Theatres v. Cantonment Board (supra), has
rejected the contention that the entry contemplates a law
imposing taxes on persons who receive or enjoy the luxuries
or the entertainments or the amusements
633
and has held
"The entry contemplates luxuries,
entertainments and amusements as objects on
which the tax is to be imposed...............
The entry, a,,, we have said, contemplates a
law with respect to the matters regarded as
objects and law which imposes tax on the act
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of entertaining is within the entry whether it
falls on the giver or the receiver of that
entertainment." (p.69)
In that case, the Cantonment Board had imposed entertainment
tax of Rs. 10 per show on the cinema houses of the
appellant in the said appeal and Rs. 5 per show on others.
Upholding the said imposition this Court has held-
"It is a tax imposed on every show, that is to
say, on every instance of the exercise of a
particular trade, calling or employment. If
there is no show, there is no tax....... The
impugned tax is a tax on the entertainment
resulting in a show". (p. 69-70)
Similarly, in Y. V. Srinivasamurthy v. State of Mysore
(supra), upholding the provisions of the Mysore
Cinematograph Shows Act, 1951 enacted under the
Constitution, which authorised levy of tax on conematograph
shows at rates prescribed in a rising scale according to the
seating accommodation and the cities where the cinematograph
show was held, this Court following the decision in Western
India Theatres case (supra) held that the said Act was
validly enacted in exercise of the legislative power
conferred by entry 62 of List II.
In the instant case, we find that prior to the enactment of
Act 24 of 1984, Section 4 provided for levy of entertainment
tax on the basis of each payment for admission to the cinema
theatre and under Section 4-C, in respect of entertainments
held within the jurisdiction of a local authority whose
population did not exceed 25,000 the tax was levied on the
basis of the prescribed percentage of the gross collection
capacity per show. In other words, there were two modes for
levy of the tax, one on the basis of the actual number of
persons admitted to each show and the other on the basis of
the percentage of the gross collection capacity per show.
As a result of the amendments introduced by Act 24 of 1984,
the system for levy of tax on the basis of number of persons
actually admitted to each show was dispensed with and the
tax was to be levied on the basis of the percentage of the
gross collection capacity per show and different percentages
were prescribed depending on the type of the theatre and the
nature of the local area where it was situated. Under
section 5, an option was given to pay a tax on the basis of
the
634
prescribed percentage fixed for a fixed number of shows in a
week irrespective of the number of shows actually held. It
is not disputed that the tax as it was being levied prior to
January 1, 1984, i.e, before the amendment of Section 4 by
Act 24 of 1984, was a tax on entertainment falling within
the ambit of entry 62 of List 11. The question is whether
the alteration in the said mode of levy of tax by Act 24 of
1984 has the effect of altering the nature of the tax in a
way that it has ceased to be a tax on entertainments and
falls beyond the field of legislative competence conferred
on the State Legislature by Entry 62 of List 11. In our
view, the said question must be answered in the negative.
The fact that instead of tax being levied on the basis of
the payment for admission made by the persons actually
admitted in the theatre it is being levied on the basis of
the gross collection capacity per show calculated on the
basis of the notional aggregate of all the payments for
admission which the proprietor would realise per show if all
the seats or accommodation in respect of the place of
entertainment are occupied and calculated at the maximum
rate of payments for admission, would not, in our opinion,
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alter the nature of the tax or the subject-matter of the tax
which continues to be a tax on entertainment. The mode of
levy based on ’per payment for admission’ prescribed under
Section 4(1) prior to amendment by Act 24 of 1984
necessitated enquiry into the number of shows held at the
theatre and the number of persons admitted to a
cinematheatre for each show and gave room for abuse both on
the part of proprietor as well as other officers incharge of
assessment and collection of tax. The mode of levy or
measure of the tax prescribed under section 4(1), and
substituted by Act 24 of 1984, is a more convenient mode of
levy of the tax inasmuch as it dispenses with the need to
verify or enquire into the number of persons admitted to
each show and to verify the correctness or otherwise of the
return submitted by the proprietor containing the number of
persons admitted to each show and the amount of tax
collected.
Prior to the enactment of Act 24 of 1984, tax was leviable
on the basis of either of the two modes under Section 4(1)
and4-C. On an examination of the rates prescribed under
both the modes, the High Court found that under the system
of consolidated levy prescribed under Section 4-C the
proprietor could break- even if the average rate of
occupancy was 40%. As regards the rates prescribed under
Section 4 and 5 as amended by Act 24 of 1984, the High Court
has observed that the said rates are based on an average
expected occupancy rate of less than 50% or 66% depending
upon the area in which the theatre is situated. This would
mean that the entertainment tax that would be collected over
and above the average occupancy rate would constitute the
profit of the proprietor. In the circumstances, it cannot
be said that the adoption of the system of consolidated levy
in Section 4(1) as amended by Act 24 of 1984 alters the
nature of tax and it has ceased to be a tax on
entertainments.
635
It has been urged that since both the modes of levy of tax
were prevalent prior to the enactment of Act 24 of 1984, an
option should have been given to the proprietor of a cinema
theatre to choose between either of the two modes and that
under the impugned provisions the choice is confined to two
modes of assessment under the same system of consolidated
levy based on the gross collection capacity per show, one on
the basis on the gross collection capacity per show, under
Section 4(1) and other on the basis of gross collection
capacity per show for a prescribed number of shows per week
under section 5. We find no substance in this contention.
Once it is held that tax on entertainment could be levied by
either of the two modes, viz., per payment of admission or
gross collection capacity per show, it is for the
legislature to decide the particular mode or modes of levy
to be adopted and whether a choice should be available to
the proprietor of the cinema theatre in this regard. The
legislature does not transgress the limits of its
legislative power conferred on it under Entry 02 of List 11
if it decides that consolidated levy on the basis of gross
collection capacity per show shall be the only mode for levy
of tax on entertainments.
We are, therefore, unable to accept the contention urged on
behalf of the appellants that the impugned provisions
contained in Section 4 and 5 as amended by Act 24 of 1984
are ultra vires the legislative power conferred on the State
Legislature under Entry 62 of List II.
The challenge to the impugned provisions on the basis of
Article 14 is grounded on the principle that discrimination
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would result if unequals are treated equally are reliance is
placed on the decision of this Court in K. T Moopil Nair v.
The State of Kerala & Anr, [1961] 3 SCR 77. It has been
urged that under section 4, as substituted by Act 24 of
1984, a uniform rate has been prescribed for cinema theatres
of a particular class situate in different parts of the same
local area although the average rate of occupancy in the
cinema theatres located in different parts of the same local
area is not the same and a cinema theatre which is located
in the central part of the local area would have better rate
of occupancy as compared to a theatre located in a remote
part and further that the occupancy in the theatre depends
on various of the factors which have not been taken into
account. We find it difficult to accept the contention.
Article 14 enjoins the State not to deny to any person
equality before the law or the equal protection of the laws.
The phrase "equality before the law" contains the
declaration of equality of the civil rights of all persons
within the territories of India. It is a basic principle of
republicanism. The phrase "equal protection of laws" is
adopted from the Fourteenth Amendment to U.S. Constitution.
The right
636
conferred by Article 14 postulates that all persons
similarly circumstanced shall be treated alike both in
privileges conferred and liabilities imposed. Since the
State, in exercise of its governmental power, has, of
necessity, to make laws operating differently on different
groups of persons within its territory to attain particular
ends in giving effect to its policies, it is recognised that
the State must possess the power of distinguishing and
classifying persons or things to be subjected to such laws.
It is, however, required that the classification must
satisfy two conditions namely, (i) it is founded on an
intelligible differentia which distinguishes those that are
grouped together from others; and (ii) the differentia must
have a rational relation to the object sought to be achieved
by the Act. It is not the requirement that the
classification should be scientifically perfect or logically
complete. Classification would be justified if it is not
palpably arbitrary. [See: Re Special Courts Bill, [1979] 2
SCR 476 at pp. 534-5361. It there is equality and
uniformity within each group, the law will not be condemned
as discriminative, thou oh due to some fortuitous
circumstance arising out of a peculiar situation some
included in a class get and advantage over others, so long
as they are not singled out for special treatment. [See:
Khandige Sham Bhat v. Agricultural
Income-Tax Officer, [1963] 3 SCR 809 at p. 8 171
Since in the present case we are dealing with a taxation
measure it is necessary to point out that in the field of
taxation the decisions of this Court have permitted the
legislature to exercise an extremely wide direcretion in
classifying items for tax purposes, so long as it refrains
from clear and hostile discrimination against particular
persons or classes. [See: East India Tobacco Co. v. State of
A.P., 19631 1 SCR 404, at p. 411, P.M. Ashwathanarayanan
Shetty v. State of karnataka, 1988, Supp. 3 SCR 155, at p.
188, Federation of Hotel & Restaurant Association of India
v. Union of India, [1989] 2 SCR 918, at p. 949, Kerala Hotel
& Restaurant Association v. State of Kerala, [1990] 1 SCR
516, at p. 530, and Gannon Dunkerley and Co. v. State of
Rajasthan, [1993] 1 SCC 364, at p. 3971.
Reference, in this context, may also be made to the decision
of the U.S. Supreme Court in San Antonio Independent School
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District v. Bodrigues, 41 1 US 1 at p. 41, wherein Justice
Stewart, speaking for the majority has observed
"No scheme of taxation, whether the tax is
imposed on property, income or purchases of
goods and services, has yet been devised which
is free of all discriminatory impact. In such
a complex arena in which no perfect
alternatives exist, the court does well not to
impose too rigorous a standard of scrutiny
lest all local fiscal schemes become subjects
of criticism under the Equal Protection
Clause."
637
Just a difference in treatment of persons similarly situate
leads of discrimination, so also discrimination can arise if
persons who are unequals, i.e. differently placed, are
treated similarly. In such a case failure on the part of
the legislature to classify the persons who are dissimilar
in separate categories and applying the same law,
irrespective of the differences, brings about the same
consequence as in a case where the law makes a distinction
between persons who are similarly placed. A law providing
for equal treatment of unequal objects, transactions or
persons would be condemned as discriminatory if there is
absence of rational relation to the object intended to be
achieved by the law.
In K T Moopil Nair v. State of Kerala (supra), this Court
was dealing with a law providing for imposition of uniform
land tax at a flat rate without having regard to the quality
of the land or its productive capacity. The law was held to
be violative of Article 14 of the constitution of the ground
that lack of classification had created inequality.
The said decision in K. T Moopil Nair’s case (supra) has
been explained by this Court is Jalan Trading Co. (Pvt.)
Ltd. v. Mill Mazdoor Union, [1967] 1 SCR 15, in the context
of challenge to the validity of section 10 of the Payment of
Bonus Act, 1965 providing for payment of a minimum bonus of
4% by all industrial establishments irrespective of the fact
whether they were making profit. This Court held that the
judgment in Moopil Nair’s case (supra) has not enunciated
any broad proposition that when persons or objects which are
unequals are treated in the same manner and are subjected to
the same burden or liability discrimination inevitably
results. It was observed :
"It was not said by the Court in that case
that imposition of uniform liability upon
persons, objects or transactions which are
unequal must of necessity lead to
discrimination. Ordinarily it may be
predicated of unproductive agricultural land
that it is incapable of being put to
profitable agricultural use at any time. But
that cannot be so predicated of an industrial
establishment which has suffered loss in the
accounting year, or even over several years
successively. Such an establishment may
suffer loss in one year and make profit in
another. " (p.35)
It was further observed
"Equal treatment of unequal objects,
transactions or persons is not liable to be
struck down as discriminatory unless there is
simulta-
638
neously absence of a rational relation to the
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object intended to be achieved by the law."
(p.36)
The limitations of the application of the principle that
discrimination would result if unequals are treated as
equal, in the field of taxation, have been pointed out by
this Court in Twyford Tea Co. Ltd. & Anr. v. The State of
Kerala & Anr., [1970] 3SCR 383, wherein tax at a uniform
rate was imposed on plantations. Hidayatullah, CJ, speaking
for the majority, while upholding the tax, has observed
"It may also be conceded that the uniform tax
falls more heavily on some plantations than on
others because the profits ,ire widely
discrepant. But does that involve a
discrimination ? If the answer be in the
affirmative hardly any tax direct or indirect
would escape the same ensure for taxes touch
purses of different lengths and the very
uniformity of the tax and its equal treatment
would become its undoing. The rich and the
poor pay the same taxes irrespective of their
incomes in many instances such as the sales-
tax and the profession tax etc." (pp. 389-390)
It was further 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 tasi give different
out turns in terms of money and mileage.
Cinemas pay the same show fee. We do not take
a doctrinaire view of equality." (p.393-94)
In the instant case, we find that the legislature has
prescribed different rates of tax by classifying theatres
into different classes, namely, air-conditioned, air-cooled,
ordinary (other than air-conditioned and air-cooled),
permanent and semipermanent and touring and temporary. The
theatres have further been categorized on the basis of the
type of the local area in which they are situate. It
cannot, therefore, be said that there has been no attempt on
the part of the legislature to classify the cinema theatres
taking into consideration the differentiating circum-
639
stances for the purpose of imposition of tax. The grievance
of the appellants is that the classification is not perfect.
What they want is that there should have been further
classification amongst the theatres falling in the same
class on the basis of the location of the theatre is each
local area. We do not think that such a contention is well
founded.
In relation to cinema theatres it can be said that the
attendance in the various cinema theatres within a local
area would not be uniform and would depend on factors which
may very from time to time. But this does not mean that
cinema theatres in a particular category of local area will
always be at a disadvantage so as to be prejudicely affected
by a uniform rate as compared to cinema theatres having a
better location in the local area. It is, therefore, not
possible to accept the contention that the impugned
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provisions are violative of right to equality guaranteed
under Article 14 of the Constitution on the basis that
unequals are being treated equally.
Another contention that has been urged on behalf of the
appellants is that while provision was made under sub-
section (6) of section 5 for enhancement of the amount of
tax in the event of increase in the amount of gross
collection capacity, there was no corresponding provision
for reduction for the amount of tax in the event of
reduction in the gross collection capacity. The said
provision for enhancement contained in sub-section (6) of
section 5 relates to the cases where the proprietor of a
cinema theatre opts for payment of weekly consolidated
amount. Since the proprietor has the option to opt for the
said scheme he cannot complain that the scheme suffers from
inequality on account of absence of a corresponding
provision for reduction of amount of tax. In any event the
said grievance has how been removed by the introduction of
sub-section (6-A) in section 5 by amendments, introduced in
the Act by A.P. Act 23 of 1988 and A.P. Act 16 of 199 1.
In the result, we find no merit in these appeals and the
special leave petition and they are accordingly dismissed.
The parties are, however, left to bear their own costs.
V.P.R.
Appeals dismissed.
640