Niranjan Lal Bhargava v. State Of U.P And Others

M.H Beg, J.:— These are six connected writ petitions challenging the validity of a notification dated 23-5-1967 issued by the Government of U.P (Annexure 3) whereby the imposition of a “Theatre Tax” by the Nagar Mahapalika, Allahabad, Opposite Party No. 2, was notified under Sec. 203(2) of the U.P Nagar Mahapalika Adhiniyam, 1959 (hereinafter referred to as the Act). The notification provided: that, cinemas of class I the annual value of which, for purposes of property tax, is over Rs. 10,000/-, would be taxed at Rs. 5/- per show; that, cinemas of class II, the annual value of which, for purposes of property taxes is Rs. 10,000/- or less, would be taxed at Rs. 3/- per show; that, carnivals and fetes will be taxed at Rs. 10/- per show; and, that other “amusements and ??? would be taxed at Rs. 5/- per show.

2. The petitioners carry on the business of exhibiting films in various cinemas at Allahabad which belong to classes I and II given in the notification. They take out the required licenses under the U.P Cinematograph Act and pay entertainment tax under the U.P Entertainment Tax and Betting Act. They complain that they are now required to pay the new tax levied by the Nagar Mahapalika under Sec. 172 of the Act. It is alleged that they are already crushed by the burden of heavy taxation and that the additional tax may prove the proverbial last straw on the camel's back and result in the closing down of cinemas. The legality of the procedure adopted in imposing the tax is questioned on various grounds. It was urged that the so-called Theatre Tax is not a tax on entertainment at all but is a tax on property. It was contended that a “Theatre Tax” cannot be imposed on “cinemas”. It was argued that the imposition contravenes Art. 276 of the Constitution. The imposition was also assailed on the grounds that it violates the petitioners' fundamental rights under Arts. 14 and 19 of the Constitution.

3. The first ground of the petitioners was that the procedure laid down by the Act not having been followed the imposition is struck by Art. 265 of the Constitution. It is pointed out that the notice (Annexure I) published in the Bharat on 21-10-1961 under Sec. 199(3) of the Act mentions that the tax is directed to be imposed under Sec. 172(1), and, later on, it is mentioned that it was being imposed under Sec. 192 of the Act. Another irregularity which is said to have occurred was that, in forwarding the proposals to the State Government under Sec. 200(4), the original objections filed by the petitioners were not sent but a summary prepared in the office of the Nagar Mahapalika (Annexure D to the counter affidavit) was sent. The petitioners complain that they had no opportunity to be personally heard before the Nagar Mahapalika or the Government and also that the Nagar Mahapalika rejected the objections without giving any reasons, Still another alleged irregularity is that a general resolution was passed by the Nagar Mahapalika on 22-11-1962, and, later on, a special resolution was passed on 29-6-1964 after which the proposals were sent to the Government on 21-9-1964. The proposals for taxation had to be passed by special resolution under Sec. 200(1) of the Act. It was contended that, after a general resolution had been passed, the matter could not be subsequently reconsidered so that a special resolution may be passed.

4. So far as the first set of procedural objections is concerned, it will be found that the objections raise only the question of a reference to the correct provisions in exercising the powers conferred by the Act. It may be mentioned here that the Supreme Court has repeatedly held that mere citation of a wrong Section does not invalidate the exercise of a power so long as the power is there. See: P. Balakotaiah v. Union of India A.I.R 1958 S.C 232.; L. Hazari Mal v. Income Tax Officer A.I.R 1961 S.C 200. and Afzal Ullah v. State of Uttar Pradesh A.I.R 1964 S.C 264..

5. The procedure for the imposition of the tax is found in Secs. 199 to 206 of the Act whereas provisions for assessment are found, with regard to property taxes, in Secs. 207 to 218 and of other taxes in Secs. 219 to 227. The procedure for the assessment of the Theatre Tax has not been placed before me. But, as no arguments are based on invalidity of any assessment proceedings, which have not yet taken place, this question does not arise. It was also not argued that the validity of the imposition was affected by any absence of procedure for the assessment of the tax. These aspects are, therefore, not examined here.

6. The first stage of imposition of tax is the framing of proposals under Sec. 199(1) of the Act. These proposals determine the amount to be levied upon a person or class of persons or property or other subject-matter of the tax. The proposals framed by the Executive Committee of the Mahapalika are then published under Sec. 199(3) in the form of a draft of rules along with a notice in prescribed form. Under Sec. 200 any inhabitant of the city may submit an objection to the Nagar Mahapalika to any of the proposals framed and the Mahapalika is required to take these into considerations and pass proposals “by special resolution.” Under Sec. 200(2), the Mahapalika may modify and then publish the modified proposals. Objections to modified proposals are provided for in Sec. 200(3). The proposals, as finally settled, have to be submitted by the Mahapalika under Sec. 200(4) to the State Government together “with the objections (if any) made in connection therewith. Under Sec. 201, the State Government may either refuse to sanction the proposals, or, return them to the Mahapalika for further consideration, or, sanction them with or without modifications subject to the condition that a modification shall not involve an increase in the proposed tax. Under Sec. 202(1), rules are framed for the levy of the tax and sent to the Mahapalika which then directs the imposition of the tax by special resolution from the date to be specified. Under Sec. 203, a copy of the special resolution is submitted to the State Government and published in the official Gazette. Sec. 203(3) lays down: “A notification of the imposition of the tax under sub-sec. (2) shall be conclusive proof that the tax has been imposed in accordance with the provisions of this Act.” Other provisions relating to the imposition are not relevant here.

7. The procedure indicated above is clearly a rule making or legislative procedure. It is not quasi judicial notwithstanding the fact that inhabitants of a locality, including persons whose interests may be affected, can object to the proposals. The provisions of an enactment must be closely examined in order to determine whether the procedure envisages or implies the performance of a quasi judicial function or merely provides for a just and fair legislative machinery so that interested persons may be heard. It was held recently by a Full Bench of this Court in S.P Srivastava v. Banares Electric Light and Power Company 1968 A.L.J 257. that a procedure resembling one which is prescribed for quasi judicial action may result in the making of rules and bye-laws. This does not convert what is essentially a legislative function and procedure into quasi judicial action. The requirements of a quasi judicial function, as laid down in Province of Bombay v. Khushaldas Advani A.I.R 1950 S.C 222., are not to be found here. In that case, their Lordships of the Supreme Court laid down the following conditions of quasi judicial action: (1) there must be a body of persons; (2) it must have legal authority to determine questions affecting rights of subjects; (3) it must he under a duty to act judicially. It is the last of these requirements which is absent in the present case. Judicial action requires a judicial approach. Adjudication upon rights of parties and not consideration of questions of policy only is involved in quasi judicial proceedings. But, administrative and legislative action is propelled by considerations of policy. Legislation is generally preceded by discussion by a body of persons expected to consider what is in public interest and not to act as spokesmen of individual rights of interests as is the case in hearings given to litigants before a judicial authority. Judicial and quasi judicial procedure, therefore, requires an opportunity to be heard and to lead evidence to be given to individuals whose rights are affected and adjudicated upon. It necessarily carries with it the duty to consider the arguments advanced by interested parties and to pass reasoned orders. But, legislative procedure does not provide for any of these ways of safeguarding the interests of particular individuals and is not required to culminate in reasoned orders. It results in certain rules which are formulated and duly promulgated.

8. The imposition of the tax, according to the procedure indicated above, being a legislative and not a judicial process, the right of the petitioners to be heard was confined to the statutory requirements of an opportunity to place their views before the authorities concerned in the form of objections under Sec. 200. The object of publicity and opportunity to object at this stage was to ensure that taxation is fair and not that reasoned judgments are delivered. Keeping this in view, the legislature only required the publication of the taxation proposals in the official Gazette after they had been formulated into rules. The notification of the imposition was made conclusive proof that the provisions of the Act had been followed in imposing the tax.

9. The injury, if any, resulting from the irregularities in publication may, however, be examined. The first irregularity was that Sec. 172(1) was mentioned in place of Sec. 172(2). This could hardly affect the rights of the petitioners who did make their representations to the Nagar Mahapalika. Another irregularity was that Sec. 192 was cited in place of Sec. 199 although the notice itself is headed as a notice under Sec. 199. This again could not affect any right of the petitioners. Sec. 172(1) classifies taxes into two categories. The particular tax under consideration is mentioned in Sec. 172(2)(i) and is referred to as the “Theatre Tax.” The taxes falling under Sec. 172(1) are property taxes, taxes on vehicles, and taxes on animals. Sec. 192 refers to taxes on advertisements which had nothing to do with the tax under consideration. The fact that the petitioners were not misled at all by these errors is evidenced by the fact that they sent their objections (Annexure II) to the Nagar Mahapalika as a result of the notice published in the Bharat on 7-10-1961 and mentioned the subject as follows: “Notice published in the Bharat dated 7-10-1961 proposing tax on theatres under Sec. 199(3).” In other words, the petitioners did not at all misunderstand the nature of the proposals made.

10. The next objection was that the Nagar Mahapalika submitted the proposals to the Government under Sec. 200(4) in the form of a summary in Hindi (Annexure D to the counter affidavit) instead of forwarding the original objections of the petitioners. An examination of the actual summary of objections sent to the Government indicates that the objections were merely arranged in a convenient form in various columns after translation into Hindi. Learned counsel for the petitioners referred to this document as a “truncated” form of objections, but he could not point out what objection or part of it had been omitted or had not been forwarded to the Government. After having been taken through the Hindi translation and comparing it with the objections in English, I find that nothing was left out or cut down at all.

11. I find, from paragraph 12 of the counter affidavit, that the State Government published the draft rules on 6-11-1965 and invited further objections to the draft rules although the provisions of the Act did not require this to be done. This meant that the petitioners had an additional opportunity of objecting to the proposals to tax but did not avail themselves of this opportunity. They could not, in any event, complain that they had been prejudiced by any irregularity in either entertaining or sending their objections. As the procedure prescribed for the imposition of the tax was not quasi judicial but legislative, the petitioners were not entitled to a personal hearing by any authority before the proposals to tax were gazetted.

12. Another irregularity is said to be that there was no special resolution initially. If this irregularity could be so vital as to invalidate the proposals it could be assumed that the initial resolution was no resolution at all. In that case, the special resolution dated 29-6-1964 would be the only resolution to be taken into account. The fact that there was a special resolution would prevent any violation of Sec. 200(1). As there was no violation of this provision, the question of considering the effect of Sec. 203(3) as a provision validating this irregularity did not arise. In Hapur Municipality v. Raghuvendra A.I.R 1966 S.C 693. it was pointed out that the object of such provisions was to condone departures from the procedure prescribed which do not fundamentally affect the proceedings. I find that the departures alleged and shown in the present case do not amount to any basic departure from the prescribed procedure and that no prejudice to the petitioners has been proved.

13. One of the grounds of objection is that there is nothing to show that the Nagar Mahapalika took into account the objections put forward by the petitioners of which a copy is attached as Annexure 2 to the petition. The general resolution dated 28-4-1961 does mention that the objections of the Allahabad Cinema Exhibitor's Association were considered and rejected, but the subsequent special resolution passed on 29-6-1964 does not mention that the objections were taken into consideration and rejected. It only approves the proposals. The resolution is to the effect that the proposals should be sent to the Government. Another objection taken is that there is nothing to show that the State Government itself took into consideration the objections of the petitioners before sanctioning the draft rules submitted by the Nagar Mahapalika with some modifications. These objections are also based on the misconception that the procedure which the Nagar Mahapalika and the State Government had to follow was quasi judicial so that reasons had to be recorded showing consideration of the objections. If, however, the procedure was actually legislative, there is no need to disclose, by reasoned orders, that objections put forward to the proposals were considered. As we know, enactments only contain preambles stating the need for the legislative measure but do not contain either reasons for or objections advanced against the legislative measures. And, preambles are only taken into consideration by courts as aids to the construction of the legislative measures in cases of doubt about their meanings.

14. It may be useful at this stage to refer to some distinctions between “administrative”, and “legislative”, and “judicial” functions. A useful discussion is found in Prof. S.A de Smith's “Judicial Review of Administrative Action.” It is pointed out here (at page 31): “The distinction between legislative and administrative acts is usually expressed as being a distinction between the general and the particular. A legislative act is the creation and promulgation of a general rule without reference to particular cases; an administrative act is the making and issue of a specific direction, or the application of a general rule to a particular case in accordance with the requirements of policy.”

15. Certain consequences flow from this distinction. A legislative measure has to be generally published as a statutory instrument but an administrative order passed in circumstances which impose the duty of acting quasi judicially upon the administrative authorities is not generally required by statute to be published. A legislative order will not be invalid unless it is ultra vires whereas an administrative quasi judicial order can be interfered with for patent illegalities and violation of rules of natural justice. Sub-delegation of legislative powers is permitted in very exceptional cases, but it is easily possible in the case of administrative orders. Reasons have to be given for quasi judicial administrative action but this is not required in the case of legislative action. A quasi judicial action will have to be based on relevant considerations whereas legislative action has to be only confined within the ambit of the power to legislate. And, under our Constitution, reasonableness of the provision is considered in determining whether a legislative measure falls within the power to legislate.

16. There are also distinctions between purely administrative action and administrative action which implies the duty to act quasi judicially. The main distinction is that purely administrative action is based on policy which may be revised from time to time, but quasi judicial action has the characteristics of an adjudication which is conclusive as between parties. Purely administrative action may be preceded by any form of investigation the administrative authority likes to carry out whereas administrative action, which is quasi judicial in character, takes the form of hearing given to the parties in the course of which investigation of facts is carried out with fair opportunities given to the contesting parties to meet the cases of their opponents. In other words, rules of natural justice are followed whenever the duty to act quasi judicially exists. The distinction is sometimes expressed by saying that surely administrative action is based on subjective opinion whereas quasi judicial decision is confined to action based on objective standards given by law defining the rights of parties according to facts found. It has been held repeatedly by the Supreme Court that, in order to find out the extent to which administrative action implies a duty to act quasi judicially, the provisions of an enactment and the rules made thereunder have to be closely examined e.g See: N.N Bora v. Commissioner of Hills Division A.I.R 1958 S.C 398..

17. It is clear to me that, judged by the tests given above, the function of the Nagar Mahapalika as well as of the Government in formulating the proposals and promulgating the rules imposing the Treatre Tax under Sec. 199 to 203 of the Act are essentially legislative in character and are not quasi judicial. Therefore, no objections based upon the assumption that some kind of procedure akin to quasi judicial procedure was incumbent either for the Nagar Mahapalika or for the State Government to follow can be accepted.

18. It has also to be borne in mind that a notification issued under Sec. 203(3) of the Act is made “conclusive proof” that the procedure laid down by law has been complied with. A copy of the notification under Sec. 203(3) (Annexure 3) has been produced. An attempt was, however, made to argue that it should be assumed that there was no notification under Sec. 203(3) in the eye of law at all as conditions precedent to its issue did not exist. It had neither been asserted nor shown that the proposals sanctioned by the State Government had not been actually sent to the State Government or that an order sanctioning the proposals after a modification had not been sent to the Mahapalika or that the Mahapalika had not, by special resolution, directed the imposition of the tax with effect from a date specified in the resolution. The impugned notification dated 23-5-1967 (Annexure 3) states that the Nagar Mahapalika has imposed a tax, in exercise of its power under Sec. 172(2) of the Act, with effect from 1-6-1967. Such an imposition could only take place by special resolution under Sec. 202(2). No assertion having been made in the petition that there was no special resolution of the Mahapalika as required by Sec. 202(2) imposing a tax from a date specified, the Nagar Mahapalika could not be expected to assert the existence of such a resolution which could be presumed. Nevertheless, in paragraph 15 of the counter affidavit, it had been stated on behalf of the Mahapalika that it passed a special resolution, dated 18-5-1967, directing the imposition of the tax from 1-6-1967 as required by Sec. 202 of the Act. It is only in paragraph 14 of the rejoinder affidavit that it is stated that no copy of such resolution having been filed the passing of the resolution is not admitted. This is not a categorical denial and is not enough to controvert the statement made in paragraph 15 of the counter affidavit that the required resolution under Sec. 202(2) of the Act was there in the case. Therefore, it could not be argued that the impugned notification is no notification in the eye of law.

19. The next ground of attack was that the so-called Theatre Tax was not a tax on entertainment but a tax on property. It has been observed by the Supreme Court in Western India Theatres v. Cantonment Boards A.I.R 1959 S.C 582 at p. 585. that “it may not be unreasonable or improper if a higher tax is imposed on the shows given by a cinema house which contains large seating accommodation and is situated in fashionable or busy localities where the number of visitors is more numerous and in more affluent circumstances than the tax that may be imposed on shows given in a smaller cinema house containing less accommodation and situated in some localities where the visitors are less numerous or financially in less affluent circumstances, for the two cannot, in those circumstances, be said to be similarly situate. There was, however, no material on which the trial court could or we may now come to a decision as to whether there had been any real discrimination in the facts and circumstances of this case.”

20. In Calcutta Corporation v. Liberty Cinema A.I.R 1965 S.C 1107. the validity of a tax called fee, at the rate of Rs. 5/- per show, was upheld by the Supreme Court. A Full Bench of this Court held, in S.C Anand v. State of U.P 1967 A.L.J 999 F.B., that a tax in which income is used as a measuring rod for determining the amount of tax on professions, trades, and callings, would, nevertheless, be a tax on professions, trades, and callings. In other words, the use of a yard stick having reference to either the income of an individual or to the value of his property would not change the character of the tax. Similar is the position in this case. The cinemas of which the annual value for the purposes of property tax was over Rs. 10,000/- could be presumed to have larger seating capacity so as to justify the distinction made between classes I and II. In any case, it has not been shown that the distinction is unreasonable. The gradation of the tax in accordance with the value of the building of the cinema is based on rational and intelligible grounds. This method of calculating the tax which may be levied could not change the character of the tax itself which is not on property but on shows given in cinemas. If no shows are given in a cinema hall its owner or tenant would not be liable to pay the Theatre Tax at all whatever may be the value of the building.

21. Another question which was argued was that the tax was hit by the provisions of Article 276 of the Constitution. It may be pointed out that entry No. 33 of List II, the State List, of the 7th Schedule is: “Theatres and dramatic performances: cinemas subject to provisions of entry 60 of List II, sports, entertainments and amusements.” This has to be read with entry No. 62 in List II covering taxes on entertainments and amusements. Taxes on professions trades, callings, and employments fall under a different entry No. 60 of the same List II or the State List. Item No. 33 subjects legislation relating to cinemas only to the provisions of entry No. 60 of List I or the Union List which is concerned with sanctioning (i.e licensing) of cinematograph films for exhibition. In other words, subject to the provisions made by Parliament relating to the nature of films which can be exhibited, the other matters relating to cinemas, including taxation of cinema shows, fall within the ambit of State Legislation. Taxes on professions, trades, callings and employments fall under a different category altogether.

22. It is often difficult to distinguish a tax on professions, trades, callings, and employments from taxes on other and different subject-matter. In the Full Bench case of S.C Anand v. State of U.P an attempt was made to determine the nature of taxes on professions, trades, callings, and employments (See p. 1009). Reliance was placed by me, in that case, upon the following passage from Kantilal Chatrabhuj Shah v. The Palituona Municipality A.I.R 1955 Sau. 90 at p. 91. which is directly applicable here: The true test for determining whether a particular tax is a tax on ‘calling’ referred to in Art. 176 or the tax on ‘entertainments’ under item 62 of the State List is to ascertain the incidence of the tax. If the incidence falls on the person because he is engaged in the business of providing the entertainment for profit, it is a tax on his calling; but, if the incidence of the tax falls on the particular entertainment irrespective of whether the person providing the entertainment follows that calling or not, then it is a tax on the entertainment and falls within item No. 62 of the State list and as such will not be hit by Art. 276. If for instance the tax is to be paid on a cinema show irrespective of whether it is given by a professional exhibitor or by one following a different calling e.g, by a charitable society to raise funds for a charity, it is obvious that the tax can only be regarded as a tax on entertainment and not a tax on calling, for what is taxed is not the calling of the person providing the entertainment but the entertainment itself.

23. Another distinction, in view of the pronouncement of their lordships of the Supreme Court in Bharat Kala Bhandar (Pvt.) Ltd. v. The Municipal Committee A.I.R 1966 S.C 249 at p. 257., is that a tax on a trade or calling can be quite properly viewed as a tax on income which is, nevertheless put in List II subject to a limitation found in Art. 276. But, the base or the subject-matter of an entertainment tax or Theatre tax is entertainment, exhibition, or show as such, irrespective of the income of the person giving or arranging the show. In the cases before me now, the direct incidence of the tax is on cinema shows although, indirectly, the incomes of the petitioners, derived from their business or calling, may be taxed.

24. In S.C Anand's case, after considering various authorities, two tests were laid down for determining whether a tax was a tax on professions, trades and callings. It was held there at page 1012: “In order to establish the character of such a tax two tests may be applied; one, by determining positively whether the reason for the incidence of a tax upon a person or his resources or income is the possession by him of a profession, trade, calling, or employment; and, another, negatively, by ascertaining whether the subject-matter or object or reason for the tax is not more properly referable to some other entry in the legislative lists of the Seventh Schedule apart from the entry for income-tax.” Applying these tests, I find that the reason for or the basis of the impugned tax is not the possession of a particular profession or calling but the giving of one more shows or exhibitions and that the tax is more properly referable to entries other than No. 60 of List II. It is covered by entries 33 and 62 on this list. Therefore, the Theatre Tax is not hit by Art. 276 of the Constitution.

25. It is true that the term ‘theatre tax’ is defined rather widely in Sec. 3(77) of the Act as: “a tax on amusement and entertainments.” This definition of the theatre tax given in the Act would cover every kind of amusement and entertainment whether inside or outside a building. It would certainly cover exhibition of films in cinemas. Even though cinemas may have been mentioned separately in entry No. 33 of List II of the 7th schedule, the entry is insufficiently wide terms to include all entertainments and amusements. The mere choice of inaccurate nomenclature or use of wide language in the Act could not invalidate the exercise of power so long as the power to legislate on the subject covered exists. Taxation of every kind of theatrical performance whether the performance is directly on the stage or is representation of that performance projected on the screen through films, and, indeed, of every form of entertainment and amusement, falls within the ambit of the State's power to tax conferred by the Constitution.

26. It is also contended that the imposition of the tax results in double taxation inasmuch as the petitioners are already taxed under the U.P Entertainment Tax and Betting Act. The last mentioned tax, however, is levied on entertainment on a somewhat different footing (on the basis of number of admissions to a show) and by separate authorities even though, for purposes of Art. 13 of the Constitution, a Nagar Mahapalika would be included in the definition of “the State” given in Art. 12. The principle of double taxation is really invoked as a presumption against taxation twice over under the same enactment when statutory provisions are not clear. If, however, the enactment itself is clear there may be double taxation sanctioned by it. For example, a surcharge may be viewed either as double taxation on a higher income, or, alternatively, as a steepening of rate of taxation. Even if the effect of reading the provisions of two Acts together is to enhance the total tax on entertainments or amusements which take the form of watching exhibitions through cinemas, the tax would not be invalid for that reason. No materials have been placed before this Court to enable it to decide that this, in itself, or, in combination with other facts, amounts to a violation of either Art. 14 or Art. 19 of the Constitution. The presumption of validity of an enactment is fairly strong as pointed out by this Court in S.C Anand's13 case (Pages 1005 and 1015-1016). The tests laid down by the Supreme Court, in Jagannath Buksh Singh v. State of U.P for holding either that the tax is hit by Arts. 14 and 19 (see: p. 1570-71 paragraphs 16 and 17) or that the imposition is a colourable measure amounting to a fraud upon the Constitution (See: p. 1572 paragraph 21) have not been satisfied by the petitioners.

27. I may also mention that a preliminary objection had been taken in this case on behalf of Nagar Mahapalika that an alternative remedy lies by way of an appeal under Sec. 472 of the Act. I do not think that Sec. 472 of the Act would apply at all against imposition of the tax. It only arises in cases of valuation and assessment at the time when a tax is fixed or charged under the Act. That stage has not arisen. On behalf of the petitioners reliance is placed on Baburam Prakash Chand Maheshwari v. Antarim Zila Parishad, Muzaffarnagar Civil Appeal No. 650 of 1968 decided by the Supreme Court on 2-8-1968. remanding a case for decision to this Court on the ground that the validity of a taking measure and violation of rules of natural justice having been raised there, the writ petition should not have been dismissed on a preliminary ground. I have, therefore, considered the merits of the objections to the imposition of the tax put forward by the petitioners, but I find that they are devoid of force.

28. For reasons given above, these writ petitions are dismissed with costs.

Petitions dismissed.