REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   4798    OF 2008 [Arising out of SLP© No.9512 of 2006]

Entertainment Tax Officer, Madhapur … Appellant Circle, Hyderabad

Versus

M/s. Geeta Enterprises … Respondent

WITH

CIVIL APPEAL NO.   4799    OF 2008 [Arising out of SLP© No.11420 of 2006]

Entertainment Tax Officer, Rajendra … Appellant Nagar, Ranga Reddy, Distt. Hyderabad, A.P.

Versus

M/s. Sreedevi 70 MM … Respondent

1

AND

CIVIL APPEAL NO.  4800  OF 2008 [Arising out of SLP© No.21778 of 2006]

The Commercial Tax Officer, … Appellants Machilipatnam & Anr.

Versus

M/s. Kumari Talkies … Respondent

J U D G M E N T  

AFTAB ALAM, J.

1. Heard counsel for the parties.

2. Leave granted.

3. All  the  three  appeals  arise  from same or  similar  sets  of  facts  and

involve a common question of law. Hence, all the three appeals were taken

up together and are being disposed of by this judgment. The dispute relates

2

to demands raised by the prescribed authority in terms of Section 5(6) of the

Andhra  Pradesh  Entertainments  Tax  Act,  1939  as  the  provision  was  in

existence at the material time (Section 5 now stands deleted by Act 32 of

2005  with  effect  from  4.6.2005).  The  Prescribed  Authority  raised  the

impugned  demands  in  view  of  the  fact  that  the  local  authorities  within

which the respondents’ cinema theatres were situate were upgraded during

the  period  the  three  respondents  had  the  permission  to  pay  their  taxes

following  the  slab  system as  provided  under  section  5  of  the  Act.  The

demands were, of course, raised long after the period for which permission

was granted was over. The controversy in regard to the legal validity of the

demands turns on an interpretation of the expression “during the period of

option permitted under this Section at any time” occurring in sub-section (6)

of Section 5 and the expression “at any time” used in sub-rule (13) of Rule

27  of  the  Andhra  Pradesh  Entertainment  Tax  Rules,  1939.  The  Andhra

Pradesh High Court has interpreted the aforesaid expressions in a certain

way and if that interpretation is correct the conclusion arrived at by the High

Court  that  the  demands  were  invalid  and  unenforceable  is  perfectly

unexceptionable. But the question is whether the High Court’s interpretation

of those expressions is correct and sound.

3

4. Here,  we  may advert  to  the  basic  facts  which  are  very  brief  and

undisputed.   All  the  three  respondents  are  engaged  in  the  business  of

exhibiting  films  having  taken  out  requisite  licenses  under  the  Andhra

Pradesh Cinematographic Act and the Andhra Pradesh Entertainments Tax

Act, 1939. The cinema theatres of M/s. Geeta Enterprises and M/s. Sreedevi

70  MM  (respondents  in  SLP(C)  No.9512/06  and  SLP(C)  No.11420/06

respectively) are situate in Chandan Nagar, Serilingampally.  For financial

years 2001-02 and 2002-03 both the respondents paid entertainment tax on

slab basis in terms of Section 5 of the Act (as it  was in existence at that

time) by making  applications  in Form III  and obtaining their  respective

permits  in  Form IV.  Serilingampally,  where  the  two theaters  are  situate,

used to be a Grade III Municipality but by a Government Notification issued

on 19.5.2001 it was upgraded as a selection grade municipality with effect

from 18.5.2000, that is to say, during the period the two respondents were

granted permission to pay their taxes on the basis of the slab system. Here, it

may be noted that in terms of the table that was part of Section 5, cinema

theatres situate in a selection grade municipality attracted a higher rate of

tax than the one situate in a grade III municipality.   Notwithstanding the

upgradation  of  the  local  authority  within  which  the  two cinema theatres

were  situate  the appellants  went  on  making weekly payments  of  the  tax

4

amounts as shown in their respective permits, at the rate relating to a grade

III municipality. The Prescribed Authority issued notices dated 31.8.2004 to

the  two  appellants  raising  demands  of  the  differential  tax  amounting  to

Rs.10,19,875/- in case of M/s. Geeta  Enterprises and Rs.11,85,863/- in case

of M/s.  Sreedevi  70 MM for the period of 18.5.2001 to  31.3.2002.  The

prescribed authority issued another notice dated 1.6.2005 making a demand

of Rs.3,91,377/- against M/s. Geeta Enterprises for the period 4.4.2002 to

27.6.2002: against M/s. Sreedevi 70 MM a similar demand of Rs.95,820/-

was made on the basis of a revised Form IV for the year 2002-2003 vide

order  dated  30.5.2005.  M/s.  Kumari  Talkies,  the  respondent  in  SLP (C)

No.21778/2006 was given a similar demand for the differential amount of

tax  by  the  prescribed  authority  on  the  ground  that  during  the  period  of

option  the  population  of  Kaikalur  Gram  Panchayat,  in  Krishna  district,

where the respondent’s cinema theatre was situate had increased and had

gone over 15,000.

5. All the three respondents challenged the demands raised against them

by the prescribed authority before the Andhra Pradesh High Court.   The

High Court  allowed the writ  petitions  filed  by the three respondents  and

quashed  the  impugned  demands  relying  upon  its  earlier  decision  dated

5

25.6.1992 in M/s. Swami Theatre, Sanathnagar vs. Deputy Commercial Tax

Officer, Santhnagar: W. P. Nos.8432/88 and 14970/89.

6. Here,  it  will  be  useful  to  take  a  look  at  the  relevant  statutory

provisions before going to the High Court decision in the case of  Swamy

Theatre (supra). Section  5  of  the  Act  gave  the  option  to  the  theatre’s

proprietor to pay entertainment tax on slab basis. The provision allowed for

payment of a fixed weekly amount as tax, determined on the basis of such

factors as the status of the local authority within which the cinema theatre

was  situated  and  the  facility  of  air-conditioning  or  air  cooling,  if  any,

provided in the theatre etc. Sub-section (6) of the section empowered the

prescribed authority to vary the fixed amount of tax on the happening on

any of the four events enumerated in the sub-section.  Section 5(6), when it

was on the statute book, was as follows:

“(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 at any time –

(a) where the amount of tax payable under sub-section (1) has been modified by law; or

(b) 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

6

(c) where the local area in respect of which permission is granted is upgraded; or

(d) if it  is found for any reason that the amount of tax has been fixed lower than the correct amount.”  

                                              (emphasis added)

7.   The other relevant provision in this regard was Rule 27 of the  A. P.

Entertainments Tax Rules that dealt with the details concerning payment of

entertainment  tax  on  slab  basis.  Sub-rule  (13)  of  Rule  27  provided  as

follows:

“(13).  The  Entertainments  Tax  Officer  may revise  the amount  of  tax  payable  by  the  proprietor  under  sub- section (1) of Section 5 of the Act at any time if there is an increase in the gross collection capacity per show in respect of the place of entertainment by virtue of upward revision of the rate or the rates 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.”

                                                   (emphasis added)

8. In view of the provisions in the Act and the Rules it was contended

on  behalf of the respondents that the prescribed authority undoubtedly had

the power to vary the amount of tax fixed under section 5 but the power

could  only be exercised  during  the  period  for  which  the permission  was

7

allowed. It was pointed out that in the three cases the impugned demands

were raised, admittedly, long after the period for which the permission was

allowed was over. The impugned demands were, therefore, bad, invalid and

unenforceable. The High Court, relying upon an earlier decision in Swamy

Theatre upheld  the  respondents’  contentions,  set  aside  the  impugned

demands and allowed the writ petitions filed by the respondents.     

9.  In the case of  Swamy Theatre,  a  Division Bench of the A.P.High

Court earlier held that the expression “during the period of option permitted

under this section at any time” imposed a limitation on the exercise of the

power by the prescribed authority to vary the amount of tax fixed under

section 5(1) of the Act.  The Division Bench held as follows:

“A reading of sub-section (6) of Section 5, which confers power on the prescribed authority to vary the amount of tax, in our opinion, clearly shows that the power to vary must be restricted to the period of option.  The period during which the power to vary the amount of tax is the “period of option”.  The language employed is specific and  admits  of  no  ambiguity.   The  jurisdiction  facts conferring power to vary the amount of tax as laid down in sub-section (6) are: (1) Increase in the gross collection capacity per show because of upward revision of the rate of  payment  for  admission;  (2)  Increase  in  the  seating capacity or accommodation; (3) Up gradation of the local area where the theatre is situate; and (4) If a lower rate of tax was fixed due to any other reason.  If the above said jurisdiction  facts  are  present,  the  opening  words  of section 6, namely, “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  at  any time” come

8

into  operation.   The  words  “at  any  time”  signify  the limitation of time aspect confining the same to the period of option.  In other words, the period of option qualifies the time factor inferable from the words “at any time”.”

Thus, according  to  the  High Court,  the expression  “during the  period  of

option permitted under this section at any time” referred to the power of the

prescribed  authority  to  vary the  amount  of  tax  fixed  under  section  5(1).

Hence, any revision of rates under section 5(6) would be valid only in case

any of the four eventualities  as stipulated in sub-section (6) of Section 5

took place during the period of permission granted under section 5(1) and

the prescribed authority passed the order varying the fixed amount of tax

also within that period.

10. The meaning put by the High Court on section 5(6) gave rise to some

problem when one came to rule 27 (13). As noted above rule 27 (13) is quite

unambiguous and it only uses the expression “at any time” and not “during

the period of option permitted under this section”. The High Court tried to

overcome the problem by reading the rule  subject  to its  interpretation of

section 5(6). The High Court observed:

“The  question  is:  Whether  the  words  “at  any  time” occurring in sub-rule (13) confer power on the authority to  revise  the  tax  without  regard  to  the  period  of limitation?  Our answer is  in the negative.  When once the  section  specifically  curtails  the  power  of  the authority  to  vary  the  tax  only  during  the  period  of

9

option, it cannot be accepted that a rule can confer on the authority the power to vary the tax without regard to the period of option. The words “at any time” occurring in sub-rule (13) of Rule 27 must, therefore, be interpreted as limiting the power to vary the tax “during the period of  option”.   The  words  “during  the  period  of  option” occurring in sub-section (6) must be read into sub-rule (13). Otherwise, it will be ultra vires the section.”

11. We are  unable  to  agree  to  the meaning put  by the High Court  on

Section 5(6) of the Act. In our view, the expression “during the period of

option permitted under this section at any time” does not refer to the power

of the prescribed authority at all but it refers to the happening of the events

enumerated in the sub section that would form the basis to vary the fixed

amount of tax. To make our meaning clear we may read sub-section (6),

insofar  as  relevant  for  the  present,  in the following way: “Where, at  any

time during the period of option permitted under this section, the local area

in respect of which permission is granted is upgraded, it shall be lawful for

the prescribed authority to vary the amount of tax payable by the proprietor

under sub-section”.   Alternatively, the long expression “during the period

of option permitted under this section at any time” may be divided into two

parts;  the  first  part,  “during  the  period  of  option  permitted  under  this

section” referring to any of the four events taking place and the second part

“at any time” referring to the prescribed authority”. Thus read the meaning

10

of Section 5(6) becomes plain and clear and rule 27(13) gets back its normal

meaning, there being no need to give it any forced restricted meaning.

12. In view of the discussions  made above,  we find  and hold that  the

decision of the A.P. High Court in the case of  Swamy Theatre did not lay

down  the  correct  law.  The  orders  passed  by the  High  Court  in  the  writ

petitions filed by the three respondents relying upon the decision in Swamy

Theatre are accordingly set aside and it is held that the impugned demands

did not suffer from any invalidity simply because those were raised after the

period of option was over.  All the writ petitions filed by the respondents in

the High Court stand dismissed.   In the result, the appeals are allowed.  

13.  It may, however, be made clear that this judgment finds and holds

that  the  impugned demands did  not  suffer  from invalidity  because  those

were raised after the period of option was over.   In case the respondents

have any other grievances against the impugned demands it will be open to

them to seek their remedies, if any is available, under the provisions of the

Act.

…………………………J.

[A.K.Mathur]

11

…………………………J.

[Aftab Alam]        

New Delhi, August 04, 2008.

12