MOTILAL B. NAIK, J. ( 1 ) THIS writ petition is filed seeking a writ of mandamus or any other appropriate writ or direction declaring the proceedings dated 16-3-1996 issued in G. O. Ms. No. l33/ma by the first respondent as illegal, arbitrary and consequently direct the 3rd respondent not to collect the difference in tax from 20- 3-1996 to 27-3-1997 and pass such other order or orders as are deemed fit and proper in the circumstances of the case. ( 2 ) PETITIONERS, numbering seven, are owners of cinema theatres situated in yemmiganur Town of Kurnool District. The yemmiganur Municipality was second grade municipality. The Government in G. O. Ms. No. 790 dated 29-12-1995 prescribed the rate of entertainment taxes for theatres situated in various Municipalities in the State of andhra Pradesh. Entertainment tax is levied at different rates basing on the gradation of the Municipality. In the State of Andhra pradesh, Municipalities are categorized as municipal Corporations, Selection Grade municipalities, Special Grade Municipalities, first Grade Municipalities, Second Grade municipalities and Third Grade Municipalities. ( 3 ) ACCORDING to the petitioners, the entertainment tax fixed for Second Grade municipality of all categories of theatres situated in that Municipality is 16% of the gross collection capacity for show multiplied by 21. At the said rate, all these petitioners claiming to be paying the entertainment tax. ( 4 ) HOWEVER, the third respondent seems to have issued notices to these petitioners claiming that the Yemmiganur municipality has been upgraded from Second grade Municipality to First Grade municipality by the first respondent as per the proceedings in G. O. Ms. No. 133 dated 16-3-1996 and directed the petitioners to pay the entertainment tax on the basis of the said G. O. ( 5 ) THE grievance of the petitioners is that on account of the upgradation of the yemmiganur Municipality from Second grade Municipality to First Grade municipality, they have to pay an additional tax of one per cent from the date of issuance of the impugned G. O. It is alleged by these petitioners, as provided under sub-section (22) of Section 2 of the Andhra Pradesh municipalities Act, 1965, the gradation of municipalities would depend upon their annual income. A municipality to be categorized as second grade should have an annual income of more than one crore and less than two crores and for a First Grade municipality, the annual income should be more than two crores and less than three crores. It is also alleged, though as provided under Rule 4 of the Andhra Pradesh municipalities (Gradation of Municipalities, councils and Nagar Panchayats) Rules, 1995, the Government is competent to declare by notification any Municipality, as of any grade irrespective of its annual income, but the authorities must record the reasons in writing while doing so. ( 6 ) SRI E. Ayyapu Reddy, learned senior Counsel appearing on behalf of the petitioners contends that though the government is competent to upgrade a municipality from Second Grade to First grade by a Notification irrespective of its annual income, while recording reasons. Learned Senior Counsel contended, in the instant case, no reasons are recorded by the Government in the impugned G. O. while upgrading the Yemmiganur municipality from Second Grade to First grade and according to the Senior Counsel, the upgradation smacks of arbitrariness and as such, the impugned G. O. is liable to be set aside on this ground alone. ( 7 ) ON behalf of the respondents, two separate counters are filed, one by the government - first respondent and the second by the Commissioner, Yemmiganur municipality - second respondent. ( 8 ) ON behalf of the first respondent- government, it is pointed out that the upgradation of Yemmiganur Municipality from Second Grade to First Grade is made in accordance with Rule 4 of the A. P. Municipalities (Gradation of Municipalities, councils and Nagar Panchayats) Rules, 1995. It is also indicated that the action taken by the Government is proper on the basis of the material on record and the writ petition which is filed with a mala fide intention to escape from payment of enhanced entertainment tax by the petitioners, is liable to be dismissed. ( 9 ) THE counter filed on behalf of the second respondent is also on the same lines supporting the stand taken by the first respondent. ( 9 ) THE counter filed on behalf of the second respondent is also on the same lines supporting the stand taken by the first respondent. It is pleaded that the commissioner of the second respondent municipality had recommended to the government for upgradation of the yemmiganur Municipality from Second grade to First Grade and on that basis the government had issued the impugned G. O. upgrading the Yemmiganur Municipality to first Grade. ( 10 ) LEARNED Government Pleader appearing on behalf of the respondents supported the stand of the Government contending that there is no arbitrary action on behalf of the Government in upgrading the Yemmiganur Municipality from Second grade to First Grade and seeks dismissal of the writ petition. ( 11 ) THE point for consideration is whether the action of the respondents in upgrading Yemmiganur Municipality from second Grade to First Grade by issuing the impugned G. O. Ms. No. 133 M. A. dated 16th march, 1996 is sustainable? ( 12 ) SUB-SECTION (22) of Section 2 of the Andhra Pradesh Municipalities Act, 1965 defines municipality to mean a Municipality of such grade as may be declared by the government from time to time, by notification in the Andhra Pradesh Gazette on the basis of its income and such other criteria as may be prescribed. From this definition, it is discernible that gradation of a Municipality depends upon its annual income and such other criteria as may be fixed by the Government from time to time. As the impugned G. O. is issued on 16-3-1996 upgrading the Yemmiganur municipality from Second Grade to First grade, the relevant rules in force at that time are the Andhra Pradesh Municipalities (Gradation of Municipalities, Councils and nagar Panchayats) Rules, 1995 which are issued in G. O. Ms. No. 32, Municipal administration dated 3-2-1995. Rule 3 of the said Rules prescribes as under : ( 13 ) GOVERNMENT from time to time by notification in the Andhra Pradesh Gazette, may declare the grades of the Municipalities and Nayar Panchayat on the basis of the annual Income prescribed below: (I) Third Grade Municipality means a municipality with an Annual Income of rupees One Crore or less than one crore. (ii) Second Grade Municipality means a municipality with an Annual Income of rupees more than One Crore and less than Two Crores; (iii) First Grade Municipality means a municipality with an Annual Income of rupees more than Two Crores and less than Three Crores; (iv) Special Grade Municipality means a municipality with an annual income of rupees more than Three Crores and less than Four Crores. (v) Selection Grade Municipality means a municipality with an annual income of rupees Four Crores and above. Provided that the Municipalities located at district Head Quarters such normally be classified as not lower than First Grade municipality irrespective of its annual income. Rule 4 of the said rules further provides thus:"notwithstanding anything contained in rule "3" it shall be competent for the government to declare by Notification any municipality, as of any grade irrespective of its Annual Income for reasons to be recorded in writing. " ( 14 ) THUS, a combined reading of subsection (22) of Section 2 of the A. P. Municipalities Act, 1965 and Rules 3 and 4 of the A. P. Municipalities (Gradation of municipalities, Councils and Nagar panchayats) Rules, 1995 would make it clear that gradation of Municipalities would not only depend upon the annual income of the municipality but also such other criteria as could be prescribed by the Government from time to time. Rule 4 of the said Rules further makes it clear that irrespective of the income, the Government shall be competent, by recording reasons in writing to declare by Notification any Municipality as of any grade irrespective of its annual income. ( 15 ) THE attack of the petitioners on the upgradation of the Yemmiganur Municipality from Second Grade to First Grade is that the respondents have not assigned any reasons while issuing the impugned G. O. but in an unilateral and arbitrary manner resorted to such upgradation, on account of which the petitioners who are the cinema theatre owners, have to pay entertainment tax at a higher rate. ( 16 ) IN order to examine the correctness of the statement made on behalf of the petitioners, we summoned the connected records from the Government. Pursuant to our direction, the Government Pleader for municipal Administration placed the relevant record before us. ( 16 ) IN order to examine the correctness of the statement made on behalf of the petitioners, we summoned the connected records from the Government. Pursuant to our direction, the Government Pleader for municipal Administration placed the relevant record before us. We have verified the records, however, we could neither find any reasons nor any material which prompted the Government to upgrade the yemmiganur Municipality from Second grade to First Grade. The record only discloses that the Commissioner of yemmiganur Municipality desired that the said Municipality be upgraded and the government on such recommendation, seems to have issued the impugned G. O. upgrading the Yemmiganur Municipality without any justifying reasons. ( 17 ) AS discussed by us in the foregoing paragraphs, though the Government is competent as provided under Rule 4 of the rules, 1995 (extracted above) to declare by notification any Municipality as of any grade without regard to income criteria, but it shall do so only by recording reasons in writing. In the instant case, though the government invoked the provisions under rule 4 of the said Rules while issuing the impugned G. O. , but unfortunately, no reasons, much less cogent reasons, are assigned while upgrading Yemmiganur municipality from Second Grade to First grade. Therefore, in the absence of any reasons assigned by the Government in issuing the impugned G. O. , the same cannot be sustained. We accordingly set aside g. O. Ms. No. l33/ma dated 16-3-1996. We declare, for all purposes, the Yemmiganur municipality shall be treated as Second grade Municipality only. Consequently, the petitioners shall be entitled to pay the entertainment tax at the rate which is applicable to Second Grade Municipality. However, we make it clear, this order would not come in the way of the Government from upgrading the Yemmiganur municipality from Second Grade to First grade if the Government have justifying reasons to do so. ( 18 ) COUNSEL for the petitioners submits that since this Court has set aside the impugned G. O. , and declared that yemmiganur Municipality shall be treated as Second Grade Municipality, the petitioners shall be permitted to pay the entertainment tax at the rate applicable to Second Grade municipality. In the facts and circumstances of the case, we permit the petitioners to file a representation before the appropriate competent authority seeking payment of entertainment tax at the rate applicable to second Grade Municipality. In the facts and circumstances of the case, we permit the petitioners to file a representation before the appropriate competent authority seeking payment of entertainment tax at the rate applicable to second Grade Municipality. When such representation is filed, the respondents shall re-fix the entertainment tax at the rate applicable to Second Grade Municipality, as expeditiously as possible. ( 19 ) THIS writ petition is allowed in the above terms. No costs.