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Case Number

Writ Petition No. 3531 of 1991

Attorney(S)

For the Appellant: R.V.Chalapathy, Raghuram, Advocates.

Judges

M.N Rao
Krishna Saran Shrivastav, JJ.

Acts

Section 4 of the Andhra Pradesh Entertainments Act 1939 (hereinafter referred to for short the Act)
sub-section (6) of Section 5 of the Andhra Pradesh Entertainments Act 1939
Andhra Pradesh Cinemas (Regulation) Act 1955 (President's Act IV of 1955)
increased.4. Rule 27 of the Andhra Pradesh Entertainments Rules 1939
Clause (d) of sub-rule (10) of Rule 27
Sub-section (6) of section 5
sub-rule 5 of rule 27,
sub-section (6) of S. 5
sub-section (1).(5)
sub-rule 13
Section 4: (1)

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Smart Summary

Structured Summary of the Opinion (M.N. Rao, J.)

Factual and Procedural Background

The petitioner is the proprietrix of an air-conditioned cinema theatre (Vijaya Mahal) in Chittoor (a special grade municipality). She had an agreement under Rule 27 of the Andhra Pradesh Entertainments Rules 1939 covering the period 1-4-1990 to 31-3-1991 and, pursuant to Section 5 of the Andhra Pradesh Entertainments Act 1939 ("the Act"), was permitted to pay tax at a rate specified in the Table appended to Section 5.

Originally, for air-conditioned theatres in special grade municipalities the rate under Section 5(1) was stated as 21% of the gross collection capacity per show multiplied by 21 (the mechanism allowed calculation limited to 21 shows). Sub-section (6) of Section 5 then provided a power to vary the amount of tax but, in its unamended form, it was described in the opinion as being concerned with power to vary for upward revision (with only a specific limited downward concession in sub-section (6A) for a past period).

By Ordinance No. I of 1991 (coming into force on 11-1-1991) the rate of tax under Section 5 was altered (an enhancement is described in the opinion). Ordinance No. I of 1991 was later repealed and replaced by Ordinance No. IX of 1991 (promulgated 14-6-1991 but stated to be effective from 11-1-1991). Ordinance No. IX of 1991 amended sub-section (6) of Section 5 by adding a new clause (a) and by re‑arranging existing grounds into clauses (b), (c) and (d). Ordinance No. IX of 1991 (and its amendment to sub-section (6)) was subsequently replaced by Act No. XXIII of 1991, the provision coming into force with retrospective effect from 11-1-1991.

The petitioner challenged the amendment to sub-section (6) (added ground and retrospective effect) and the change in the applicable tax rate for the period that overlapped her agreement. The petition sought relief from being required to pay the enhanced statutory rate for the portion of the year after 11-1-1991.

Legal Issues Presented

Whether the amendment to sub-section (6) of Section 5 (by Ordinance No. IX of 1991 and subsequently Act No. XXIII of 1991) which added a new ground permitting variation of the amount of tax — and which was brought into force retrospectively from 11-1-1991 — is constitutionally infirm as affecting vested rights flowing from the petitioner’s agreement under Rule 27.
Whether an agreement under Rule 27 that fixes a proprietor’s liability to pay tax at a previously specified rate creates a vested right that prevents a subsequently enacted statutory change in the tax rate from applying during the currency of that agreement.
Whether the statutory amendments (and the change in rate effective from 11-1-1991) operate retrospectively to alter the petitioner’s tax liability for the period covered by her 1-4-1990 to 31-3-1991 agreement.

Arguments of the Parties

Petitioner's Arguments

The petitioner (through learned counsel Shri Raghu Ram) contended that upon entering into an agreement under Rule 27 she acquired a vested right to pay tax only at the previously agreed rate (stated to be 21%).
She argued that the legislative change increasing the rate (described in the opinion as effective from 11-1-1991) affected vested rights and was arbitrary unless the legislation plainly or by necessary implication indicated such an effect. Counsel relied on the Supreme Court decision in Controller of Estate Duty v. M.A. Merchant, AIR 1989 SC 1710 for the principle that vested rights cannot be affected except as the legislature has expressly or necessarily provided.
The petitioner asserted she should not be required to pay the enhanced rate for the period from 11-1-1991 to 31-3-1991 covered by her agreement.

Respondent's Arguments

The opinion does not contain a detailed account of the respondent's separate legal arguments in adversarial form. The court’s reasoning, however, addresses the legal effect of the statute, its commencement date, and the interplay between statute and agreement.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Controller of Estate Duty v. M.A. Merchant, AIR 1989 SC 1710	The principle that vested rights cannot be affected by legislation unless the statute explicitly so provides or such effect follows by necessary implication.	The petitioner’s counsel relied on this decision to argue that the agreement under Rule 27 created a vested right not to have the tax rate increased. The court accepted the proposition as a correct principle of law but held that the statutory amendment in question operated prospectively from the ordinance commencement date and was not unconstitutional as applied; consequently the agreement could not be used to override the subsequent statutory rate.

Court's Reasoning and Analysis

The court first examined the statutory scheme in Section 5 and its Table (which fixes the option-tax rates by local authority and theatre category) and the text of sub-section (6) both before and after amendment. It observed that the original sub-section (6) was described as conferring a power to vary the amount of tax, primarily for upward revision, with only a narrowly drawn downward concession in sub-section (6A) for a specific past period (1-4-1988 to 30-9-1988).

The court then recited the sequence of legislative instruments: Ordinance No. I of 1991 (effective 11-1-1991) altered rates; that Ordinance was later repealed and replaced by Ordinance No. IX of 1991 (also stated to operate from 11-1-1991), which included an amendment to sub-section (6) to add clause (a) permitting variation "where the amount of tax payable under sub-section (1) has been modified by law." Ordinance No. IX of 1991 was replaced by Act No. XXIII of 1991 and the amendment to sub-section (6) was treated as coming into force retrospectively from 11-1-1991.

On the facts, the petitioner’s agreement ran from 1-4-1990 to 31-3-1991. The court focused on timing: the legislative change that altered the rate took effect on 11-1-1991 — that is, after the agreement was made but effective on that date by the ordinance. The court concluded that the rate change was not shown to operate retrospectively to a date before 11-1-1991 (i.e., not back to 1-4-1990), and therefore the increase was not a constitutionally invalid retroactive impairment of a vested right.

The court accepted the general legal proposition (as argued by petitioner’s counsel and supported by the cited Supreme Court authority) that vested rights are protected unless the legislature has expressly or by necessary implication provided otherwise. However, the court found that the legislature had validly amended the rate as from 11-1-1991. Once the rate under Section 5 was amended, the statutory provision governed, and the agreement under Rule 27 could not operate to defeat the statutory charge — "No rule which runs contrary to a statutory provision has legal validity," the court observed.

The court further noted that procedural adjustments consequent upon the legislative change could not be sustained merely because an interim order had been granted by the court earlier (referring to an interim order made on 12-3-1991); such an interim order could not be a ground to allow the petitioner to insist on her previously agreed rate against the statutory provision.

Holding and Implications

Holding: The writ petition is dismissed. (The opinion states: "For these reasons, the writ petition fails and, accordingly, it is dismissed. No costs.")

Implications:

Direct effect on the parties: The petitioner cannot rely upon the agreement under Rule 27 to avoid liability to pay the rate specified by the amended statute effective from 11-1-1991. The statutory rate (described in the opinion as 23% in the court’s reasoning when contrasting the agreement at 21%) governs the liability despite the prior agreement.
The court reaffirmed the principle that vested rights are protected unless the legislature has clearly provided otherwise, but applied that principle to find no constitutional invalidity because the statutory amendment operated (as the court read it) from the ordinance commencement date and thus altered the legal position prospectively from that date.
The opinion does not purport to establish a new precedent beyond applying settled principles about statutory amendment and vested rights to the facts of this case. The court expressly ordered no costs.

This summary is confined strictly to information contained in the provided opinion and does not add or infer facts or legal propositions not present in the text of the opinion.

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Vijaya Mahal v. Government Of Andhra Pradesh And Another

M.N Rao, J.:— In this writ petition Ordinance No. IX of 1991 which was replaced by Act No. XXIII of 1991 by which Sub-section (6) of section 5 of the Andhra Pradesh Entertainments Act 1939 was amended with retrospective effect from 11-1-1991 adding one more ground for the purpose of varying the amount of tax payable by the proprietor of a cinema theatre is challenged. The petitioner is the proprietrix of an air conditioned theatre called Vijaya Mahal within the municipal limits of Chittoor, a special grade municipality. Under Section 4 of the Andhra Pradesh Entertainments Act 1939 (hereinafter referred to for short ‘the Act’) the State Government has power to levy tax on the gross collection capacity on every show in respect of entertainments held in the theatres. The table appended to Section 4 specifies the local authority, the nature of theatre and the rate of tax. Section 5 provided for an easy mode of levy by giving option to the owner of a theatre to make payment in accordance with what it lays down. Section 5 reads:

“5. Option of pay tax in lieu of tax payable under Section 4:— (1) In lieu of the tax payable under Section 4 in the case of entertainments held in the theatres specified in column 2 of the Table below and located in 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.

Local authority Theatre Amount of tax (1) (2) (3) (a) Municipal Corporations and the Secunderabad Cantonment Area (i) Air Conditioned (ii) Air cooled (iii) Ordinary (other than air conditioned & air cooled) 23% of the Gross Collection Capacity per show multiplied by 22. 22% of the gross collection capacity per show multiplied by 22. 19% of the gross collection capacity per show multiplied by 22. (b) Selection Grade Municipalities (i) Air conditioned (ii) Air cooled (iii) Ordinary (other than air conditioned & air cooled) 22% of the gross collection capacity multiplied by 22. 21% of the gross collection capacity multiplied by 22. 18% of the gross collection capacity per show multiplied by 22. (c) Special Grade Municipalities (i) Air conditioned (ii) Air cooled (iii) Ordinary (other than air conditioned & air cooled) 21% of the gross collection capacity per show multiplied by 21. 20% of the gross collection capacity per show multiplied by 21. 17% of the gross collection capacity per show multiplied by 21. (d) First Grade Municipalities (i) Air conditioned (ii) Air cooled (iii) Ordinary (other than air conditioned & air cooled) 20% of the gross collection capacity per show multiplied by 21. 19% of the gross collection capacity per show multiplied by 21. 16% of the gross collection capacity per show multiplied by 21. (e) Second Grade Municipalities All categories 15% of the gross collection capacity per show multiplied by 21. (f) Third Grade Municipalities All categories 14% of the gross collection capacity per show multiplied by 17. (g) Gram panchayats, townships and other local authorities:— (1) With a population of 15.000 and above (i) Permanent and semi-permanent (ii) Touring and temporary 14% of the gross collection capacity per show multiplied by 14. 13% of the gross collection capacity pet show multiplied by 10. (2) With a population of 7,500 above but below 15.000 (i) Permanent and semi-permanent (ii) Touring and temporary 13% of the gross collection capacity per show multiplied by 14. 12% of the gross collection capacity per show multiplied by 10. (3) With a population of less than 7,500 (i) Permanent and semi-permanent (ii) Touring and temporary 12% of the gross collection capacity per show multiplied by 14. 12% of the gross collection capacity per show multiplied by 7.

Explanation:— For the purpose of computing the gross collection capacity per show in respect of any place of entertainment the maximum seating capacity or accommodation and the maxium rate of payment for admission determined by the licensing authority under the Andhra Pradesh Cinemas (Regulation) Act 1955 (President's Act IV of 1955) as on the date when the proprietor is permitted to pay tax under this section shall be taken into account.

2. The amount of tax under sub-section (1) shall be payable by the proprietor irrespective of the actual number of shows held by him in a week.

(3) Any proprietor who opts to pay tax under this section shall apply in the prescribed form to the prescribed authority to be permitted to pay the tax under this section.

(4) On being so permitted, such proprietor shall pay the tax for every week as specified in sub-section (1).

(5) The option permitted under this section shall continue to be in force till the end of the financial year in which such option is permitted.

(6) It shall be lawful for the prescribed authority to vary the amount of tax payable by the proprietor under sub-section (1) during the period of option permitted under this section 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 an upward revision in the rate of payment for admission therein or of the sealing capacity or accomodation 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.

(6A) Notwithstanding anything contained in sub-section (6), it shall be lawful for the prescribed authority to reduce the amount of tax payable by the proprietor under sub-section (1) during the financial year commencing from the 1st April, 1988 and ending with the 31st March 1989, if there is a reduction in the seating capacity or accommodation of the place of entertainment at any time during the period commencing from the 1st April, 1988 and ending with the 30th September, 1988.

(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 entertainments, failing which it shall be open to the prescribed authority by giving fifteen days' notice to cancel the option so permitted.

(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 off to the nearest rupee and for this purpose, where such amount contains part of a rupee consisting of paise, then, if such part is fifty paise or more it shall be increased to one rupee and if such part is less then fifty paise, it shall be ignored.”

So far as special grade municipalities are concerned, the rate of tax liable to be paid under S. 5 in respect of air conditioned theatres is 21% of the gross collection capacity per show multiplied by 21. This method is more advantageous to theatre-owner since the calculation of the rate of tax is confined only to 21 shows at the rate of 21% of the gross collection capacity even if more shows than 21 are exhibited. Sub-section (6) of section 5 concerns with the power to vary the amount of tax. From a reading of the aforesaid sub-section (6) it is clear that the power to vary the amount of tax has to be exercised only for the purpose of upward revision, but not to reduce the amount. Only in respect of a particular period, namely, from 1-4-1988 to 30-9-1988, a provision was made by sub-section (6A) for reduction of the amount of tax if there is a reduction in the seating capacity or accommodation of the place of entertainment during the aforesaid period.

2. By Ordinance I 1991, which came into force with effect from 11-1-1991, the rate of tax under S. 5 was uniformly enhanced; in respect of air conditioned theatres in special grade municipalities the enhancement was to 26% as against the earlier rate of 21%. This change was brought about by amending the table under S. 5(1) of the Act without amending sub-section (6). Ordinance No. 1 of 1991 was repealed by Ordinance No. IX of 1991 promulgated by the Governor of the State on 14th June, 1991. Clause (ii) of S. 4 of Ordinance No. IX of 1991 which was brought into force with effect from 11-1-1991, the date on which the earlier Ordinance No. 1 of 1991 came into force, amending sub-section (6) of S. 5 of the Act reads 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 the upward revision of the rate of payment for admission therein or of the seating capacity or accommodation thereof; or

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

By Ordinance No. IX of 1991 the rate of tax was reduced to 23% of the gross collection, capacity per show with effect from 11-1-1991. Subsequently, Ordinance No. IX of 1991 was replaced by Act No. XXIII of 1991 and the provision dealing with the amendment of, amended Sub-section (6) of section 5 came, into force with retrospective effect from 11-1-1991.

3. From a comparison of the unamended sub-section (6) with the amended sub-section (6) what is clearly noticeable is that the amended provision has classified in clauses (b), (c) and (d) what was incorporated in the unamended sub-section (6) and the new addition is clause (a). Presumably this legislative device is sought to be resorted to for the reason that sub-section (6) of S. 5 was left untouched by Ordinance No. 1 of 1991 and so it was felt that the provision relating to the power to vary the amount of tax also must be suitably amended if the rate of tax was to be increased.

4. Rule 27 of the Andhra Pradesh Entertainments Rules 1939 contains the procedure for making application under S. 5 and for the determination of the amount liable to be paid by the owner of a theatre. After effecting scrutiny, the entertainment tax officer, under sub-rule 5 of rule 27, issues permit in Form No. IV to the proprietor who shall pay the amount of tax as indicated therein. The permit issued in Form IV invariably expires by 31st March of every year. Clause (d) of sub-rule (10) of Rule 27 says that even if there is a decrease in the existing gross collection capacity the proprietor shall continue to pay the amount of tax fixed by the authority till the end of the financial year in which the change has taken place. If there is increase in the gross collection capacity, the entertainment tax officer has power under sub-rule 13 to effect upward revision.

5. The agreement entered into by the Petitioner was confined to the period 1-4-1990 to 31-3-1991. The case of the petitioner is that as a result of Ordinance No. 1 of 1991 she has to pay tax at the enhanced rate for the period 11-1-1991 to 31-3-1991, the difference in the rate of tax being two per cent; originally it was twentyone per cent which was increased to twentysix per cent by Ordinance No. IX of 1991 replaced by Act No. XXIII of 1991. The contention of Shri Raghu Ram, the learned counsel for the petitioner, is that when the petitioner had entered into an agreement under Rule 27 she had a vested right flowing from the agreement to pay tax only at the rate of twentyone per cent and the enhancement of the same to twentythree per cent is clearly arbitrary. The vested rights, according to the learned counsel, cannot be effected unless the legislation by which the change was brought about has said so explicitly or such an inference follows as a necessary implication. He relies on the decision of the Supreme Court in Controller of Estate Duty v. M.A Merchant, AIR 1989 SC 1710.

6. As a principle of law what the learned counsel stated is unexceptionable. In the present case,’ the enhancement of the rate of tax was not done with retrospective, effect. The increase was in the rate of tax with effect from 11-1-1991, the date on which the Ordinance came into force but not with effect from 1-4-1990, the date on which the petitioner entered into the agreement under Rule 27 with the entertainment tax officer, Section 5, the charging section, was amended by Ordinance I of 1991 increasing the rate of tax prospectively and, therefore, we do not discern any unconstitutionality. It is true by Ordinance No. IX of 1991 one more ground was added for the purpose of varying the rate of tax and this provision cannot, by any means, be said to be unconstitutional. It is settled law that the legislature has power to amend an existing law both prospectively as well as retrospectively. When once the rate of tax under Section 5 was amended it is not open to the petitioner to rely upon the agreement concluded under Rule 27 and contend that the statutory provision is contrary to the agreement and, therefore, the former should be declared unconstitutional. No rule which runs contrary to a statutory provision has legal validity. In the present case, the agreement incorporating the liability to pay tax at the rate of 21% clearly runs counter to the statutory provisions which specifies the rate as 23%. As a consequence of the change in the law, procedural modifications have to be effected and the same could not be done because of the interim order passed by this Court on 12-3-1991. Obviously that cannot be a ground to sustain the plea of the petitioner that her liability to pay tax is only at the rate of twentyone per cent.

7. For these reasons, the writ petition fails and, accordingly, it is dismissed. No costs.

Petition dismissed.

Vijaya Mahal v. Government Of Andhra Pradesh And Another

Structured Summary of the Opinion (M.N. Rao, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Vijaya Mahal v. Government Of Andhra Pradesh And Another

Comments