AI Structured Summary
Not yet generated for this judgment
Judgment
Venkatadri, J.—This petition has been filed to quash the order dated 20th April, 1963, of the Entertainment Tax Officer, Madurai VII,
calling upon the petitioner to pay a further sum of Rs. 21,539-32 being the balance of tax due and payable by the petitioner in respect of the period
from 30th April, 1961 to 24th September, 1962. The petitioner is the lessee of the Imperial Cinema, Madurai. He is the holder of a permit in Form
IV, issued under R. 21 of the Madras Entertainment Tax Rules. He was filing returns as required by the provisions of the Madras Entertainment
Act, 1939. The returns were accepted, taxes levied and also collected from him by the departmental authorities. While so, during a surprise
inspection of the theatre at 10-40 P.M. on 25th September, 1962, the departmental officers seized records such as pocket note-books, diary etc.
from the theatre premises. The Officer found from these records that the petitioner had suppressed the true income by sale of tickets during the
relevant period. Accordingly, the Officer concerned issued notice calling upon the petitioner to explain the various irregularities, as found in the
records seized from him. The petitioner submitted his explanation. The Department accepted his explanation in regard to some of the items, and
finally concluded that a sum of Rs. 21,529-32 was still due from the petitioner, and accordingly issued the notice of assessment and demand dated
30th April, 1963, calling upon the petitioner to pay the said amount within 21 days from the date of service of the notice and also intimating the
petitioner that failing which the amount would be recovered as provided in S. 14 of the Act. In these circumstances, the petitioner has rushed to
this Court praying for the issue of a writ of certiorari to call for the records and quash the order dated 30th April, 1963.
In this writ petition, the petitioner has submitted that he is not to be assessed to entertainment tax on the basis of the whole gross collections, that
the Rules do not provide for the normal safeguards for the protection of the record''s seized by the Officers, and that the Department having
accepted the returns submitted by him and levied tax and also collected them, there is no scope for proceedings to make the assessment on best
judgment basis.
The contention of the Department is that the petitioner ought to have availed himself of the remedy by way of appeal as provided in the Act, that
the petitioner did not keep true and proper accounts during the relevant period but was keeping secret accounts which were unearthed at the time
of the inspection and that though returns were submitted they were neither correct nor complete and as such the provisions of R. 26-A (best
judgment assessment) are clearly attracted to the facts of the case.
For a proper disposal of this writ petition, it is necessary for me to trace the history in detail of this entertainment tax which has come into
existence in the State from 1927. For the first time, the Madras Local Authorities Entertainment Tax Act (V of 1927), was passed, and the
charging section, S. 5, provided that the entertainment tax shall be charged in respect of each person admitted for payment, and, in case of
admission by stamped ticket shall be paid by means of stamp on the ticket and in the case of admissions otherwise than by stamped ticket shall be
calculated and paid on the number of admissions. This Act was repealed by the Madras Entertainments Tax Act, 1939 (X of 1939). It provided
fop levy of entertainment tax in respect of each person admitted on payment and should be calculated and paid on the number of admissions. The
Rules framed under the Act provided for the keeping of true and correct accounts and submission of returns in the manner specified in the permit in
Form IV. In the year 1952, the Amending Act V of 1952 was passed. S. 7-A introduced by the Amending Act provided, for the first time, for the
submission of returns relating to payments for admission, to such authority, in such manner and within such periods as may be prescribed. The
returns should be in Form II and should contain the price of admission, serial number of tickets issued, number of tickets sold, number of free
passes issued, amount received on account of tickets sold and the amount of entertainment tax. If the prescribed authority is satisfied that any
returns submitted is correct and completed, it shall assess the proprietor on the basis thereof. S. 7-A(3) provides that if no return is submitted by
the proprietor of the entertainment or if the return submitted by him appears to be incorrect or incomplete, the prescribed authority shall, after
making such inquiry as it considers it necessary determine the tax due under S. 4 or 4-A or under both the sections and assess the proprietor to the
best of its judgment. R. 26-A is to the similar effect. Clause (4) of Form IV mentioned in R. 26-A says that a return giving the totals in respect of
the particulars in Form II appended to the Madras Entertainments Tax Rules, 1939, for all performances during the week from Monday to Sunday
(both days inclusive) shall be sent so as to reach the office of the Entertainments Tax Officer on the Tuesday immediately following at the latest.
This in brief is the history of the legislation relating to entertainments tax.
It is common case for both the petitioner and the respondent-officer that during the relevant period, the petitioner submitted returns as per the
Rules. His returns were accepted, tax levied and also collected by the authorities from the petitioner herein. As stated already, if the authorities are
not satisfied with the returns submitted, on the ground that they are incorrect or incomplete, then they should make an enquiry and determine the
tax due u/s 4 or 4-A of the Act, to the best of his judgment. I fail to see how the officers, after accepting the returns, levying the tax and collecting
it, can say that the returns submitted to them are incorrect and incomplete. The Officers, in such a case as the present one, cannot resort to the
producer of best judgment.
The only other provision or procedure that can be adopted is to assess the petitioner on the basis of escaped turnover or income. That will give
rise to the question as to whether there is any provision in this statute to assess the petitioner for escaped income or turnover. ''Escaped income'' in
the taxing statute is a phrase familiar to the taxing authorities, well-conversant with legal draftsman, and very notorious with the assessee on account
of the dubious methods adopted by them in the suppression of real income. Other taxation laws provide for assessment of escaped income or
turnover. For instance S. 19 of the Madras General Sales-Tax Act of 1939, and R. 17 of the Rules made under that Act provide for assessment of
any turnover which has escaped assessment. S. 16 of the Madras General Sales Tax Act of 1959 deals with (sic) assessment. Similarly S. 35 of
the (sic). Agricultural income tax Act provides for escaped assessment. Again the Indian income tax Act, by S. 34 of the 1922 Act and S. 147 of
the 1961 Act provides for income escaping assessment. Thus, in all these statutes there is provision for assessment or re-assessment as the case
may be. But curiously, ever since the Entertainments Act has been enacted, there is no provision made for assessment of escaped income or
turnover with the result a person like the present petitioner can escape paying the amount of tax legally due and payable by him. The petitioner will
be following the well-known principle in the taxing statute. viz., that an assessee can avoid the tax but not evade the tax.
In Kamalammal Vs. Board of Revenue by the Commissioner of Commercial Taxes and Another, , weekly returns were filed under S. 7-A of
the Madras Entertainments Tax Act. All of them were accumulated and a consolidated single assessment was made on the best of judgment basis,
on the ground that certain defects were noticed at an inspection and there was material that some of the returns were defective. Srinivasan, J. held
that the procedure adopted was illegal, and that S. 7-A and the Rules would go to show that each return was independent of the rest and had to
be assessed separately from the rest. In this case weekly returns were filed, accepted, tax levied and also collected from the petitioner. When such
is the case, the petitioner cannot be called all of a sudden, may be after inspection, to pay accumulated tax, on the materials alleged to have been
unearthed during a search of the premises. Unless the statute is amended, the taxing authorities will have no jurisdiction to call upon the petitioner to
pay tax on escaped income or escaped turnover. The result is the petitioner succeeds and the rule is made absolute. There will however, be no
order as to costs.