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PETITIONER: STATE OF UTTAR PRADESH & ORS.

       Vs.

RESPONDENT: VINAY KUMAR JAIN

DATE OF JUDGMENT:       19/11/1996

BENCH: B.P. JEEVAN REDDY, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P.JEEVAN REDDY, J.      The Uttar  Pradesh Entertainments  and Petting Tax Act, 1979 provides  for two modes of levy of entertainment tax on cinemas. Sub-section  (1) of  Section 3 says that subject to the provisions of the Act, there shall be levied and paid on all payments  for admission to any entertainment, other than an entertainment  to which  Section  4  or  Section  4-A  or Section 4-B  applies or  a compounded  payment is made under the proviso  to this  sub-section, an  entertainment tax  at such rate........:.  The proviso  to sub-section  (1), which provides the other mode of levy, reads:      "Provided that  a proprietor  of  a      cinema in  a local  area  having  a      population not  exceeding one  lac,      may, in  lieu of payment under this      sub-section,   pay   a   compounded      payment to  the State Government on      such conditions and in such rate as      the State  Government may from time      to time notify, and different rates      of  compounded   payments  may   be      notified for  different  categories      of local areas."      The respondent  is running  a cinema theatre in a local area having  a population  of less  than one  lakh. He  took advantage of  the aforesaid  proviso and  has been  entering into composition  agreements from year to year. The year for this purpose means the financial year. On February 22, 1995, the respondent  filed an  application before  the  "District Magistrate,  District   Entertainment  Tax  Office,  Hardoi" requesting for permission to reduce the seating  capacity of his cinema theatre from 540 to 450 for the ensuing financial year 1995-96. On March 24, 1995, the respondent submitted an application  opting  for  the  composition  system  for  the ensuing financial year, 1995-96. No order were passed by the District Magistrate  on  either  of  the  said  applications whereupon the respondent approached the Allahabad High Court by way of a writ petition. By an order dated My 9, 1995, the High  Court   directed  the   Collector  to   consider   the

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applications and  to pass  order thereon.  Accordingly,  the District Magistrate  passed orders on May 31, 1995 rejecting the application  for option,  inasmuch  as  the  application exercising option  for composition scheme was supposed to be linked up  with the  request for  reduction of  the  seating capacity. The  respondent filed  writ petition  [No. 1773 of 1995] in  the Allahabad  High Court  challenging  the  order dated May  31, 1995.  A Division Bench of the High Court has allowed the  writ petition  saying that  there is nothing in the Act  or the  Rules empowering the District Magistrate to ignore or  change the  seating  capacity  indicated  in  the petitioner’s  option  application  merely  because  for  the previous financial  year the  seating capacity  indicated by the applicant  was higher.  The High  Court  observed,  "the petitioner has  been given liberty to reduce or increase the number; of seats in various classes irrespective of the fact as to  what he  has been stating in Form ‘R’ of the previous financial year".  The High  Court observed  further that the reasons given  by the  District Magistrate, viz., there will be a  loss of  revenue to  the State by reduction of seating capacity is  not a  relevant reason.  The correctness of the judgment of  the High  Court is  challenged by  the State of Uttar Pradesh in this Special Leave Petition.      Leave granted.      Rule 24-A  of  the  Uttar  Pradesh  Entertainments  and Betting Tax  Rules, 1981  deals with  compounded payment  of tax. Sub-rules  (1) to (4) of Rule 24-A are relevant for our purpose and must be set out in full:      "24-A. Compounded payment of Tax.--      (1)  The  proprietor  of  a  cinema      opting to  make compounded  payment      of  entertainment   tax  under  the      proviso  to   sub-section  (1)   of      Section 3  of the  Act shall submit      his written  option in duplicate to      the District  Magistrate before the      last date  in Form  ‘R’ appended to      these  rules  declaring  the  total      number of  shows to be exhibited in      a day, number of seat in the cinema      classwise and  the rates of tickets      at full  price and on reduced price      if any.      (2)  The  option   once   exercised      shall be  valid for the period of a      financial year.      (3)(i)    The  District  Magistrate      shall within  a week of the receipt      of the  application, communicate to      the proprietor the gross collection      capacity and the weekly tax payable      by the cinema in Form ‘S’.      (ii) The gross  collection capacity      shall be  calculated by multiplying      the  number  or  seats  on  various      classes  in   a   cinema   by   the      respective  current   ticket  rates      (including  payment  for  admission      and entertainment  tax thereon) and      multiplying the  sum so  derived by      such  number   of  shows   as   the      proprietor of  the cinema  declares      to give in a day.      Explanation.-- For  purpose of this      sub-rule ‘the  number of  seats  in

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    various classes  in a cinema’ means      the maximum  permissible number  of      seats in  various classes mentioned      in the  licence thereof  and  shall      include any increase in the maximum      number of  seats  by  an  amendment      allowed by the Licensing Authority.      (4)  The proprietor  shall strictly      adhere  to  the  declaration  under      sub-rule  (1)   and  shall   obtain      permission of  District  Magistrate      before effecting  any change in the      number of  seats, the  ticket  rate      and  the   number  of   shows.  The      licensing authority  shall have the      power  to   revise  the  compounded      amount to  tax upwards if the gross      collection capacity  increases as a      result of such permitted change."      Form ‘R’  referred to in sub-rule (1) is an application indicating the  applicant’s option  to be  governed  by  the composition scheme  under the proviso to Section 3(1) of the Act. It  is both an application exercising option and also a declaration containing  several  particulars  including  the total number  of seats in the cinema, the classes into which they are  categorised and  ticket rates.  At the foot of the application the applicant has to append a declaration to the effect: "Certified  that information given above is correct; kindly permit  compounded payment  of tax.  I shall abide by all the conditions and restrictions imposed in this behalf". Form ‘S’  referred to  in sub-rule  (3) is the Form in which the  District   Magistrate  grants  the  permission  to  the applicant to  come under  the composition scheme. This order also contains  several relevant  particulars  including  the number of  seats in  the cinema, the classes into which they are divided,  the rate  of tickets for each class and so on. Clauses (2), (3) and (4) of Form ‘S’ read thus:      "(2) He is hereby directed to--      (i)  make payment  of weekly tax as      per rules.      (ii) inform  the   undersigned   at      least three  days in advance if any      show/shows is/are  proposed  to  be      held at reduced price of tickets.      (iii)     obtain permission for any      change  in  respect  of  number  of      seats, number  of shows  and ticket      rates.      (iv) make    available    to    the      inspecting authorities  a  copy  of      the order  along with  the copy  of      the  application   for  option  and      declaration if required by him.      (3)  No rebate  shall be  permitted      for any show not held.      (4)  for    the     purposes     of      calculating  the  gross  collection      capacity, the  maximum  permissible      number of  seats mentioned  in  the      licence  and   where  the   maximum      number is increased by amendment by      the   licensing   authority,   such      increased  number  shall  be  taken      into account."             [Emphasis added]

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    These conditions  appear to be consistent with sub-rule (4) of  Rule 24-A,  both of which deal with post-composition agreement period.  We are,  however, not concerned with that situation in this case.      It is necessary to read closely Rule 24-A and the above Forms for  the purpose  of appreciating and adjudicating the controversy arising  herein. Sub-rule  (1) of Rule 24-A says that a proprietor of a cinema theatre seeking to apt for the compounded payment  of entertainment  tax has to submit Form ‘R’ with all the particulars mentioned therein. Sub-rule (3) requires the District Magistrate to communicate his order in Form ‘S’  to the  proprietor of  the  application  Form  ‘R’ mentioning  in  his  order  the  gross  collection  capacity [G.C.C.] and  the weekly  tax payable by the cinema theatre. The Explanation  appended to  sub-rule  (3)  is  of  crucial significance. It  says that for the purpose of sub-rule (3), the expression  "the number of seats in various classes in a cinema" means  the maximum  permissible number  of seats  in various classes  mentioned in  the licence thereof and shall include any  increase in  the maximum  number of seats by an amendment allowed  by the  licencing authority. Sub-rule (4) says that  the  proprietor  shall  strictly  adhere  to  the declaration in  Form ‘R’  and shall obtain the permission of the District  Magistrate for  effecting any  change  in  the number of  seats, the  ticket rate  and the number of shows. The  licencing   authority  is   empowered  to   revise  the compounded amount  of tax upwards if the G.C.C. increases as a result of such permitted change.      It is  equally evident - and also beyond dispute - that the words  "the  maximum  permissible  number  of  seats  in various classes  mentioned in  the licence  thereof" in  the Explanation to  sub-rule (3)  mean and refer to the relevant provisions of the Uttar Pradesh Cinemas Regulation Act, 1955 and the  U.P. Cinematograph  Rules, 1951. [The Uttar Pradesh Cinemas Regulation  Act, 1955 repeals the Cinematograph Act, 1948  but   at  the  same  time  continues  the  rules  made thereunder and  it  is  by  virtue  of  the  said  provision contained in  Section 12  that the 1951 Rules made under the repealed enactment  are continued  and are  treated  as  the Rules made  under the  1955 Act.] The 1955 Act regulates all aspects of  the construction  of a  cinema theatre including the seating  capacity therein.  Clause (v)  of Rule 2 of the Cinematograph Rules  defines the expression "licence" in the following words:      "(v) ‘Licence’  means   a   written      authorisation  by   the   Licensing      Authority  to   give  cinematograph      exhibitions and granted in the form      set out  in  Appendix  I  to  these      rules  and   shall  be  subject  to      necessary     modifications      or      amplifications in  accordance  with      any  terms  or  conditions  imposed      under sub-section  (3) of Section 5      of the Act."      Section 3  of the  U.P. Cinemas  [Regulation] Act, 1955 deals with  "licence". The  U.P. Entertainments  and Betting Tax Act,  1979 or  the Rules  framed thereunder,  it may  be mentioned, do not define the expression "licence".      Sub-rule (1) of Rule 14 of the 1951 Rules provides that "the Licensing  Authority shall determine the maximum number of seats  for each  class separately  and the  same shall be specified in  the licence and prominently displayed near the entrance door  to every  class in  the cinema".  The Form of licence granted to cinema theatre is prescribed in appendix-

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1 to  the said  Rules. Condition  No.8 of the licence reads: "(8) that  the total  number of  seats in the auditorium and the seats  for  each  class  shall  not  exceed  the  number specified in  the Schedule  thereto appended  nor shall  the number and  description of  fire appliances,  exhaust  fans, electric fans  or sanitary  requirements be  less than those therein specified".  The Schedule  to the Rules contains the particulars of  seats class-wise.  Now, therefore,  when the Explanation  to   sub-rule  (3)   of  Rule   24-A   of   the Entertainment Tax  Rules speaks  of "the maximum permissible number of  seats in various classes mentioned in the licence thereof", it refers to "the maximum number of seats for each class separately" mentioned in the licence as per Rule 14 of the 1951 Rules read with From-I Licence. In short, according to the  aforesaid Explanation, the District Magistrate shall take the  maximum number  of permissible  seats specified in the licence  issued under  the U.P.  Cinema [Regulation] Act and  the  Cinematograph  Rules  as  the  basis  for  working out/calculating the G.C.C. and the weekly tax payable by the cinema theatre  and which  figures the mentions in Form ‘S’. The District  Magistrate is  not concerned  with the  actual number of  seats fixed  in a cinema theatre for the purposes of Rule  24-A. He  will only  look to  the maximum number of ssats specified in the licence [Form-I issued under the U.P. Cinematograph Rules,  1951] and  take that  as the basis for determining the G.C.C. and the weekly tax payable. This fact necessarily means  that if  any person warts to enter into a composition agreement with a reduced seating capacity [i.e., reduced with  reference to  the previous financial year], he must  go   to  the   Authority  under   Rule   14   of   the U.P.Cinematograph Rules, 1951*, have his licence amended and produce his  licence before the authority under Rule 24-A to take the  maximum so  specified therein  as  the  basis  for calculating the  G.C.C. and the weekly tax payable. The fact that the  District Magistrate  mentioned in Rule 24-A of the Uttar Pradesh  Entertainments and  Betting Tax  Rules,  1981 also happens  to be the licencing authority under Rule 14 of the U.P.Cinematograph  Rules, 1951  for  the  time  are  two difference  in   law.  In   law,  they   are  two  different authorities acting under two different statutory provisions. It is  open to  the government  to amend  Rule 4 of the 1951 Rules and  specify any  other person  or  authority  as  the licencing authority.  There  is  yet  another  aspect  which requires to  be clarified in view of the submissions made by Sri Srivastava,  learned counsel  for the respondent. Though sub-rule (3)  of Rule  24-A uses  the expression "shall", it does not mean that ------------------------------------------------------------ *Though Rule 14 does not expressly provide for alteration or amendment of  the licence,  it is  obvious that the power to "determine the  maximum number  of seats" conferred upon the licencing authority  necessarily implies  and  includes  the power to amend it including the increase or reduction in the maximum seating capacity specified in the licence. the District  Magistrate is  bound  by  the  particulars  as stated in  the application Form ‘R’. The District Magistrate is entitled  to - and is obliged to - verify the correctness of the  particulars  stated  in  the  application  Form  ‘R’ including the  particulars relating to the maximum number of seats and  their classes.  So far  as the  maximum number of seats and  the classes  are concerned,  the only document he has to  see is  the licence  issued under  the Cinematograph Rules only  if he  is satisfied  with the correctness of the particulars stated  in the  application Form  ‘R’  that  the District Magistrate  comes under  an obligation to issue the

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order in  Form ‘S’  with relevant  particulars. This  is the position if any proprietor wants to enter into a composition agreement  for  the  ensuing  financial  year  with  reduced seating capacity.  It may  be mentioned that the case before us deals  with such  a situation.  In other  words, the case before us  does  not  deal  with  the  situation  where  the proprietor, having  entered into a composition agreement, is seeking to  reduce his  seating capacity during the currency of the  composition agreement.  This is  a  case  where  the respondent is asking the District Magistrate to enter into a composition agreement  with him  taking the seating capacity in his  cinema theatre  as 450  whereas the  maximum seating capacity of  his cinema  theatre as  per the  licence issued under  the   Cinematograph  Rules   is  540.   The  District Magistrate has  no power  or authority  to agree  to such  a request -  nor can  the respondent  make such  a request, as explained hereinabove  so long  as the licence of the cinema theatre shows the maximum seating capacity as 540.      For the  purposes of  this case, it is not necessary to deal with  or interpret  sub-rule (4)  of Rule  24-A,  which deals  with   the  post-composition  agreement  period.  The language of the sub-rule leaves much to be desired. It would be in  the fitness  of things  that the  Government of Uttar Pradesh recasts  the sub-rule  at its  earliest to  make its meaning  clear.   Such  a  course  would  obviate  avoidable litigation in the State.      In  short,   the  position   emerging  from  the  above discussion may be stated in the following terms: (1)  A proprietor  of a  cinema theatre seeking to opt to be governed by  the compounded  payment  of  entertainment  tax system shall  have to submit an application in Form ‘R’ with all the necessary particulars as specified in the said Form, truly and fully. (2)  On receipt  of the  application Form ‘R’, it is open to the District  Magistrate to  verify the  correctness of  the particulars stated  in Form ‘R’. If he is satisfied with the correctness of  the particulars  in Form ‘R’, he shall issue an order  in Form  ‘S’ mentioning  therein the G.C.C. of the cinema theatre  and the  weekly tax  payable  by  it.  While calculating the  G.C.C. and  the  weekly  tax  payable,  the District Magistrate  shall take  the maximum number of seats in various  classes mentioned  in the  licence [issued under the U.P.Cinematograph Rules, 1951] as the basis. (3)  The option  once  exercised  shall  be  valid  for  the relevant financial year to which it pertains. (4)  It is  not open to any proprietor to seek to enter into a composition agreement indicating a lesser seating capacity than the  maximum mentioned in his licence [issued under the U.P.Cinematograph  Rules,  1951]  nor  is  it  open  to  the District Magistrate  to take  any other  figure  of  seating capacity than the maximum seating capacity mentioned in such licence. The  remedy of any proprietor who wants to have the seating  capacity  of  his  cinema  theatre  reduced  is  to approach the  licencing  authority  under  Rule  14  of  the U.P.Cinematograph Rules,  1951 and  have his licence amended accordingly. Only  then can that amended seating capacity be taken into  consideration for  the purposes  of Rule 24-A of the Uttar  Pradesh Entertainments  and  Betting  Tax  Rules, 1981.      Now, coming  back  to  the  facts  of  this  case,  the judgment under  appeal was  rendered by  the High  Court  on March 25, 1996 by which date the Financial Year 1995-96 [for which the respondent had opted through his application dated March 24,  1995] had practically come to an end. We are told that because  of the  absence of  any composition agreement,

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the respondent’s  cinema theatre  was governed  by the  main limb of  sub-section (1)  of Section  3 of the Uttar Pradesh Entertainments Act and not by the proviso to sub-section (1) of Section 3. During the current financial year, 1996-97, it is stated, the respondent’s cinema theatre is operating with the reduced  capacity as per the impugned orders of the High Court. We  do not know whether any composition agreement has been entered into for the financial year, 1996-97 or whether the respondent’s cinema theatre is governed by the admission system provided  by the  main limb  of  sub-section  (1)  of Section 3 of the Uttar Pradesh Entertainments Tax Act. These are the matters for the appropriate authorities to look into and pass necessary consequential orders.      Inasmuch as the judgment under Appeal does not refer to or deal  with the  aforesaid relevant Rules and has also not correctly appreciated  the legal position flowing therefrom, we are  obliged to set aside the impugned in the High Court. It is  open to  the respondent to adopt such proceedings and take such  steps as  are open  to him in law in the light of the legal position adumbrated herein.      The appeal is allowed in the above terms. No costs.      A copy  of this  judgment shall  be communicated by the Registry of  this Court to the Secretary, Finance Department [Entertainment  Tax],   Government  of  Uttar  Pradesh,  for appropriate action.