Ashoka Talkies v. State of Karnataka — 1987 DIGILAW 352 (KAR)

ORDER S.R. Rajasekhara Murthy, J.—In these two writ petitions, the petitioners who are exhibitors of cinematograph films, have challenged the recovery of difference of tax under section 6B of the Karnataka Entertainments Tax Act, 1958 (hereinafter referred to as "the Act"). 2. The petitioner in W.P. No. 10162 of 1987, who is an exhibitor of cinematograph films in Dandeli in his theatre - Ashoka Talkies, has challenged the notice issued by the Assistant Commercial Tax Officer, Dharwad, the second respondent, under section 13 of the Act for composition of the offence in defaulting to pay the difference of tax payable by the petitioner under section 4A for the period from 1st April, 1986 to 31st March, 1987. A sum of Rs. 16,216.20, being the difference of tax payable by the petitioner for the above period is sought to be recovered by the respondent under section 6B of the Act. 3. The petitioner in W.P. No. 10032 of 1987 is exhibiting cinematograph films in Sirsi in his theatre - Nataraj Talkies. The notice issued by the Assistant Commercial Tax Officer and Entertainment Tax Officer, Sirsi, dated 15th April, 1987 under section 6B of the Act calling upon the petitioner to paythe difference of tax of Rs. 42,539.90 is challenged. 4. The petitioners have opted for the levy and payment of entertainment tax under section 4A of the Act. Such tax is known as composition tax payable in lieu of the tax payable under sections 3 and 3A of the Act. 5. The population of Sirsi and Dandeli exceeds 25,000 and the petitioners therefore come under serial No. (d) of the table annexed to section 4A as amended by Act 3 of 1985. Such option was exercised and notified to the assessing authority by the petitioners after the provisions of section 4A were amended with effect from 15th February, 1986 by section 5 of the amending Act 3 of 1985, when section 4A of the principal Act underwent radical changes. In the table annexed to section 4A there was reduction of tax and entries (c) to (f) were inserted extending the benefit or composition tax to places which had population up to one lakh indicating different rates of tax payable under several entries on the basis of population. 6. In the table annexed to section 4A there was reduction of tax and entries (c) to (f) were inserted extending the benefit or composition tax to places which had population up to one lakh indicating different rates of tax payable under several entries on the basis of population. 6. Under the scheme of section 4A which was introduced for the first time by Act 16 of 1977 with effect from 1st April, 1979, the proprietors of the theatres in places covered by section 4A were permitted to pay what is known as composition tax in lieu of the tax and surcharge payable under sections 3 and 3A of the Act. To start with, section 4A was made applicable to places whose population was less than 10,000. By Act 13 of 1982, it was extended with effect from 1st July, 1982 to places whose population did not exceed 25,000. By Act 3 of 1985 it was extended up to one lakh with effect from 15th February, 1986. 7. The rate of tax payable under section 4A was fixed at a certain percentage of the gross collection capacity of the theatre. When this scheme was introduced, for the first time, by Act 16 of 1977, how the "gross collection capacity" ("GCC" for short), of a cinema should be computed was explained in sub-section (2)(a) of section 4A. For purpose of ready reference the said provision is reproduced below : "(2)(a) For the purpose of sub-section (1) 'gross collection capacity' of a cinema theatre means a sum equal to the aggregate of all payments for admission to a show, if all the seats and accommodation available and provided for the audience such theatre are occupied, and the aggregate of all payments for admission shall be calculated, - (i) in the case of cinema theatres exhibiting cinematograph shows immediately prior to the date of commencement of the Karnataka Entertainments Tax (Amendment) Act, 1977 at the rates of all payments for admission to such seats or accommodation which were in force immediately prior to such date, and (ii) in the case of cinema theatres commencing to exhibit cinematograph shows after the aforesaid date, at the rates of payment for admission to such seats or accommodation provided for by the proprietor." 8. An explanation was added to section 4A when the Act was amended by Act 13 of 1982. That explanation read as follows : "Explanation. An explanation was added to section 4A when the Act was amended by Act 13 of 1982. That explanation read as follows : "Explanation. - For the purpose of this section 'gross collection capacity' in relation to a cinema theatre means a sum equal to the aggregate of all payments for admission to a show, if all the seats and accommodation available and provided for the audience in such theatre are occupied and the aggregate of all payments for admission shall be calculated :- (i) in the case of cinema theatres exhibiting cinematograph shows immediately prior to the date of commencement of section 5 of the Karnataka Taxation and Certain Other Laws (Amendment) Act, 1982, at the rates of all payments for admission to such seats or accommodation which were in force immediately prior to such date; and (ii) in the case of cinema theatres commencing to exhibit cinematograph shows after the aforesaid date, at the rates of payment for admission to such seats or accommodation provided for by the proprietor." 9. The benefit of composition was extended up to one lakh population by Act 3 of 1985 as already stated. The difference of tax due from each of the theatres in these cases, is sought to be recovered on the basis of the rates of admission that were in force after 15th February, 1986 when section 4A was amended, and on the dates the applications for permits were made by the petitioners. 10. The statement of objections is filed on behalf of the respondents traversing the allegations with reference to facts in W.P. No. 10162 of 1987 (Ashoka Talkies). 11. It is explained by the second respondent in the said statement, how he has arrived at the sum of Rs. 16,216.20, being the difference of tax sought to be recovered from the petitioner. The short recovery is attributed to the mistake in the calculation made in the permit issued to the petitioner in form VI-B of the Rules under section 4A of the Act. 12. The full tax (100 per cent) payable by the petitioner on the basis of the gross collection capacity of the theatre was determined as Rs. 1,898. In the same permit (annexure A), is shown, the tax payable on "Hindi films", i.e., at the rate of 30 per cent on the gross collection capacity (GCC), namely, Rs. 569.40 per show. 13. The full tax (100 per cent) payable by the petitioner on the basis of the gross collection capacity of the theatre was determined as Rs. 1,898. In the same permit (annexure A), is shown, the tax payable on "Hindi films", i.e., at the rate of 30 per cent on the gross collection capacity (GCC), namely, Rs. 569.40 per show. 13. While calculating the tax payable by the petitioner on "Kannada films", the second respondent took the GCC at Rs. 1,590 and calculated the tax payable by the petitioner at Rs. 238.50 per show. 14. The mistake occurred, according to the assessing officer in taking Rs. 1,590 as the gross collection capacity, whereas it should have been Rs. 1,898. Reliance is placed on sub-section (5) of section 4A of the Act. The said provision is reproduced below : "(5)(a) Notwithstanding anything in this section, where a cinematograph film is allowed exemption from, or reduction in the payment of tax under sub-section (1) the rates of payment for admission shall be reduced in respect of each admission to the extent of the tax exempted or reduced in respect of such payment. Where a proprietor does not reduce the rates of payment for admission he shall, in addition to any other penalty under this Act, be liable to pay tax as if no exemption or reduction from the payment of tax was made under sub-section (1). (b) Notwithstanding the reduction in the rates of payment for admission under clause (a) the gross collection capacity for the purpose of payment of tax under sub-section (1) shall remain unaltered." 15. On this basis the difference of tax levied for the period 1st April, 1986 to 31st March, 1987 at the rate of Rs. 46,20 per show with surcharge, etc., the total difference of Rs. 16,216.20 as indicated in annexure B is sought to be recovered from the proprietor of Ashoka Talkies. Similarly, in case of Nataraj Talkies (W.P. No. 10032 of 1987) a sum of Rs. 42,539.90 is demanded being the difference of tax calculated on account of a similar mistake committed while issuing the permit. 16. The petitioners have challenged the legality of the action taken to recover the difference of tax in each of the two cases. The petitioners, in the first instance, advanced argument challenging the recoveries on the ground that the provisions of section 4A are ultra vires the Act. 16. The petitioners have challenged the legality of the action taken to recover the difference of tax in each of the two cases. The petitioners, in the first instance, advanced argument challenging the recoveries on the ground that the provisions of section 4A are ultra vires the Act. Later, the petitioners were permitted to urge additional grounds and a common statement of objections is filed on behalf of the respondents. 17. The common grounds urged on behalf of the petitioners in both the petitions are these : 18. Section 4A was introduced, for the first time, by Act 16 of 1977, when it was made applicable to places whose population was less than 10,000 and the tax payable under the scheme of section 4A of the Act was 12 per cent of the gross collection capacity of the theatre. The gross collection capacity of the cinema theatre was to be determined on the basis of the rates of admission which were in force immediately prior to 1st April, 1979, when section 4A was brought into force for the first time. 19. When section 4A was amended and the benefit was extended to places whose population did not exceed 25,000, the made of determining the GCC of the theatre, as mentioned in the explanation was required to be calculated on the basis of the rates that were in force immediately prior to 1st July, 1982 on which day, the amendment came into effect. 20. Section 4A underwent further amendment with effect from 15th February, 1986 by Act 3 of 1985. The difference in composition tax, which is now sought to be recovered from the petitioners, is calculated on the basis of the rates that were in force immediately prior to 15th February, 1986. 21. The petitioners' contention is that simultaneously with the amendment of section 4A by Act 3 of 1985, the amending Act did not provide for the mode of determining the GCC to those exhibitors who opted for the levy of composition tax on and after 15th February, 1986, and that, therefore, in the absence of a corresponding amendment to the explanation, the gross collection capacity in cases of both the theatres, should be calculated on the basis of the rates that were in force immediately prior to 1st July, 1982. 22. 22. The argument of Sri Srinivasan, learned counsel for the petitioners, is that the rates for determining the GCC, as fixed by the explanation by Act 13 of 1982 should be the basis for the purposes of calculating the GCC even in respect of exhibitors who have opted for composition levy under the Amendment Act 3 of 1985. It is, therefore, submitted on this premise that the recovery of the difference of tax is illegal and without authority of law. 23. The department's case is set out in paragraphs 12 of 15 of the statement of objections. The recovery of the difference of tax is justified on the ground that the Assistant Commercial Tax Officer, Dharwad, who issued the permit in form VI-B on 31st March, 1986, in the case of Ashoka Talkies, committed a mistake while calculating the GCC of the theatre, as applicable to Kannada films. This mistake is explained in the statement of objections in paragraphs 12 to 15 referred to above to which I have made a reference earlier. 24. It is, therefore, argued by Sri Dattu that it is not open to the petitioners now to challenge the computation made on the basis of the rates furnished by themselves while applying for the permits for payment of the composition levy under the amending Act 3 of 1985. It is further argued that the petitioners should not be permitted to urge any contention contrary to their own applications offering to be taxed on the basis of those rates which was in conformity with the provisions of the Act. It is also urged that the petitioners are not entitled to any relief in a writ jurisdiction which, if granted, would be depriving the State of the legitimate tax due under the Act and further would be permitting the petitioners to make an unjust gain. 25. The point that therefore arises for decision in these two cases is, whether the recovery of the difference of tax by the respondent is sustainable in law, in the absence of an explanation appended to section 4A(i) as amended by the Karnataka Act 3 of 1985. 26. The recovery of difference of tax is sought to be justified by the learned Government Pleader on the principles of harmonious construction of all the relevant provisions of section 4A of the Act, which provide for a composition levy. 27. 26. The recovery of difference of tax is sought to be justified by the learned Government Pleader on the principles of harmonious construction of all the relevant provisions of section 4A of the Act, which provide for a composition levy. 27. The rate of tax to be levied was provided in the table and was levied at certain percentage of the gross collection capacity of the theatre (for short "GCC"). The provisions of section 4A, as introduced by Act 16 of 1977 and as amended by Act 13 of 1982 indicating in the explanation how the GCC should be calculated, are reproduced already in this order. It is relevant to notice that the rate of tax depended on the rate of tax for admission which was in force at the relevant point of time, namely, 31st March, 1979 and 30th of June, 1982 when the two enactments referred to above were brought into force. But no such explanation was inserted when the scheme was extended to places having population up to one lakh. 28. Sri Dattu has argued that by construing the various provisions of the composition scheme introduced under section 4A, as amended, from time to time, and extended to bigger places, there is sufficient indication in section 4A itself as to how the rate of tax should be calculated even after the scheme was extended under Act 3 of 1985. Thus, construed, the learned counsel argues, it should present no difficulty or problem for the department to ascertain the GCC of the theatre and fix the rate of tax on the basis of the rates of admission that were in force prior to 15th February, 1986. That those rates were furnished by the petitioners in their applications for permits made under the amended provisions of Act 3 of 1985, is not disputed by the petitioners. It is also not in dispute that the tax that is calculated now as per the impugned notices is based on the said rates of admission furnished by the petitioners. 29. The argument of the petitioners is that in the absence of a corresponding explanation incorporating the change of date, the rate of tax to be calculated and levied on the petitioners under the composition scheme has to be fixed on the basis of rates of tax that were in force prior to 1st July, 1982 and not 15th February, 1986. 30. 30. This argument, in my view, deserves to be rejected on more than one ground. Firstly, the petitioners themselves furnished the rates of admission which were in force on the dates of their applications filed under the Act 3 of 1985. Secondly, having regard to the rule of construction to be placed in a case like this, which will be dealt with in detail later in this order, such an argument cannot be accepted. 31. This is not a case of apparent inconsistency in the provisions of the statute leading to an anomalous situation. The rule of harmonious construction, as suggested by Sri Dattu, is adopted only where a literal construction of the provisions of a statute in a given circumstance, renders any part of the statute meaningless or otiose (see Sirajul Haq Khan and Others Vs. The Sunni Central Board of Waqf, U.P. and Others, AIR 1959 SC 198 . "Harmonious construction", was explained by Justice T. L. Venkatarama Aiyar in Sri Venkataramana Devaru and Others Vs. The State of Mysore and Others, AIR 1958 SC 255 , thus : "The rule of construction is well-settled that when there are in an enactment two provisions, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect could be given to both. This is what is known as the rule of harmonious construction." 32. The rule construction that should come to the aid of courts in a case like this what is known as "schematic construction" which is now accepted as a departure from the well-known "golden rule" of construction, namely, that the words of a statute must, prima facie, be given their ordinary meaning. 33. This Court applied such a construction in a case arising under the Karnataka Debt Relief Act in Gowramma Vs. Taluk Magistrate, ILR (1986) KAR 1016 , in which the observations of Lord Chancellor in Grey v. Pearson (1857) 6 HL Cas 61, that the "golden rule" of construction has yielded place to what is now come to be known as schematic interpretation, was applied. It would be useful to reproduce their Lordships' observations from the said decision at para 9 : "But, the literal construction or the strict construction which goes by the letter of the law dominated in the legal scene in the 19th century is no longer popular. It would be useful to reproduce their Lordships' observations from the said decision at para 9 : "But, the literal construction or the strict construction which goes by the letter of the law dominated in the legal scene in the 19th century is no longer popular. The strict constructionists stood by the 'golden rule' laid down in Grey v. Pearson (1857) 6 HL Cas 61 by Lord Chancellor have yielded place to 'schematic' interpretatists. So much so, the courts now look to the purpose, intent, scheme or design of the legislation. Therefore, we must have due regard to the object of the Act and the intent of the legislature. We must adopt such an interpretation so as to achieve the purpose of the Act and not to defeat the purpose." 34. If a literal construction as suggested by the petitioners is applied to the facts of the present cases, it will lead to absurdity or apparent repugnancy and inconsistency with the rest of the statute (section 4A). Such a construction may have to be departed from in order to avoid that such absurdity or inconsistency. Similarly, a construction giving rise to anomalous situation should be avoided (see the observations of Justice Sri Venkatarama Ayyar in Tirath Singh Vs. Bachittar Singh and Others, AIR 1955 SC 830 and State of Madhya Pradesh Vs. Azad Bharat Finance Co. and Another, AIR 1967 SC 276 . 35. While interpreting a statute and confronted with a situation like the one in the present case, courts have also to look to the intention of the legislature. Such a construction which combines both literal and functional approach would enable the court to ascertain the true intent and purpose of the legislature. 36. One other aspect that needs to be mentioned in this context is, about the "explanation", which was incorporated as part of section 4A in the statute and omitted, while amending it by Act 3 of 1985. An explanation appended to a section explains the meaning of words contained in the section. It becomes a part and parcel of the enactment (see The Bengal Immunity Company Limited Vs. The State of Bihar and Others, AIR 1955 SC 661 . 37. An explanation appended to a section explains the meaning of words contained in the section. It becomes a part and parcel of the enactment (see The Bengal Immunity Company Limited Vs. The State of Bihar and Others, AIR 1955 SC 661 . 37. But, as is seen from the legislative history of section 4A, the explanation which was incorporated as a part of the scheme was necessary to implement the composition scheme, was not inserted when section 4A was amended by Act 3 of 1985. No explanation is forthcoming on behalf of the State for such omission. 38. What has not been provided for in a statute cannot be supplied by courts, as to do so will be legislation and not construction. But a departure from the said rule is permissible and recognised in certain circumstances, having regard to the object of the legislation. The words which appear to have been accidentally omitted or adopting a construction, it deprives certain existing words of all meaning, it is permissible to supply the words (see Craies on Statute law, 7th edition, at page 109). The courts have recognised such a rule as the rule " casus omissus". 39. This case is one such where these principles and rules of construction have to be applied. On doing so, what is required to be done is to read into and supply the explanation as an appendage to the table annexed to section 4A, as amended by Act 3 of 1985 and assume the date 15th February, 1986 in place of 1st July, 1982 for purposes of ascertaining the gross collection capacity of the petitioners' theatres based upon the rates of admission that were in existence immediately prior to 15th February, 1986. 40. So read and interpreted, the provisions of section 4A, as amended by Act 3 of 1985 and the scheme of composition levy become meaningful and the object of the amendment effectuated and fulfilled, and not defeated. 41. For the above reasons, I reject all the contentions of the petitioners and dismiss the writ petitions, and upheld the notices demanding difference of tax from the petitioners. 42. Writ petitions dismissed.