Shanti Talkies vs Government of Andhra Pradesh and Others

A. Lakshmana Rao, J.—The petitioners in all these writ petitions made applications to the Entertainments Tax Officer, 3rd respondent herein, in form III signifying their intention to opt for payment of tax u/s 5(1) in lieu of tax payable u/s 4 of the A.P. Entertainments Tax Act (10 of 1939) (for short "the Act") for the financial year 1987-88. The 3rd respondents granted a permit in form IV in favour of each one of the petitioners. At the time when the permit in form IV was granted, the area in which the theatres were situated, was a gram panchayat. By a notification published in A. P. Gazette dated September 7, 1987, the State Government declared under sub-section (3) of section 3 of the A.P. Municipalities Act (6 of 1965) that the local area which was within the jurisdiction of Kamareddy gram panchayat shall be Kamareddy municipality with effect from September 7, 1987. Thus, the gram panchayat, Kamareddy, became Kamareddy municipality with effect from September 7, 1987. Sub-section (22) of section 2 of the A.P. Municipalities Act provides as under :

"''Municipality'' means any of the following grades of municipalities declared as such by the Government from time to time by notification in the Andhra Pradesh Gazette.

(i) ''third grade municipality'' means a municipality with an annual income of not more than rupees fifteen lakhs;

(ii) ''second grade municipality'' means a municipality with an annual income of more than rupees fifteen lakhs but not more than rupees thirty lakhs;

(iii) ''first grade municipality'' means a municipality with an annual income of more than rupees thirty lakhs but less than rupees fifty lakhs;

(iv) ''special grade municipality'' means a municipality with an annual income of more that rupees fifty lakhs and above but less than rupees 80 lakhs;

(v) ''selection grade municipality'' means a municipality with an annual income of rupees eighty lakhs and above."

In G.O.Ms. No. 743, Housing, Municipal Administration and Urban Development (M.A.), dated August 24, 1987, it was stated that Kamareddy municipality will be classified as second grade municipality under sub-section (22) of section 2 of the A.P. Municipalities Act, 1965. But, the notification declaring Kamareddy municipalities as second grade municipality was published in Andhra Pradesh Gazette only on April 11, 1988. It is no doubt true that it was mentioned therein that the declaration as second grade municipality was with effect from September 7, 1987. Relying on G.O.Ms. No. 743 dated August 24, 1987, the Entertainments Tax Officer issued notices to the petitioners demanding payment of tax at 16 per cent. of the gross collection capacity multiplied by 21 with effect from September 7, 1987. This tax is leviable in respect of a theatre situated in second grand municipality. As we have already mentioned, at the time when permit in form IV was granted in favour of the petitioners, the tax was at 15 per cent. of gross collection capacity multiplied by 14. Questioning the validity of the demand notices, these writ petitions are filed.

It is submitted by Sri. M. R. K. Chowdary, the learned counsel for the petitioners, that Kamareddy municipality was declared as second grade municipality only by notification published in the A. P. Gazette dated April 11, 1988 and therefore the Entertainments Tax Officer is not justified in issuing the demand notices asking the petitioners to pay the tax with effect from September 7, 1987, at a higher rate leviable in respect of a theatre situated in a second grade municipality. In other words, the contention advanced on behalf of the petitioners is that the local area in which the theatres are situated cannot be said to have been upgraded till the notification declaring the grade of municipality has been published in the A. P. Gazette.

In order to appreciate this contention, it will be necessary to refer to the relevant provisions of the A.P. Municipalities Act, 1965 and the A.P. Entertainments Tax Act, 1939. Section 3 of the A.P. Municipalities Act deals with the constitution of municipalities. Whenever a local area with a population of not less than 25,000 is intended to be constituted into a municipality, the State Government shall declare their intention by notification published in the A. P. Gazette to constitute such local area as municipality. Any resident of a local area or a tax-payer is entitled to object to anything contained in the notification and submit his objection in writing to the Government within six weeks from the date of publication of the notification. After the expiry of the period of six weeks from the date of publication of the notification and after consideration of the objections, if any, which have been submitted, the State Government may declare the local area to be a municipality. In exercise of its power, the State Government issued the notification under sub-section (3) of section 3 of the A.P. Municipalities Act constituting Kamareddy municipality which was published in the A. P. Gazette dated September 7, 1987. From sub-section (22) of section 2 of the A.P. Municipalities Act, it is event that municipalities can be classified into different grades such as third grade, second grade, first grade, special grade and selection grade, depending upon the annual income of the municipality. It provides that the grade of a municipality shall be declared by notification published in the A. P. Gazette. The grade of a municipality has relevance with reference to some of the provisions of the A.P. Municipalities Act.

So far as the A.P. Entertainments Tax Act, 1939, is concerned, the rate of tax payable by the proprietor of a theatre depends upon the location of the theatre. Sections 4 and 5 of the A.P. Entertainments Tax Act which are the charging sections contain provisions prescribing the rate of tax leviable in respect of a theatre, having regard to its location in a particular grade of municipality. Higher the grade of the municipality, higher is the rate of tax.

In view of the provisions of the A.P. Municipalities Act, the notification issued by the State Government constituting Kamareddy municipality and the notification declaring it as second grade municipality, it is evident that Kamareddy municipality was declared as a second grade municipality only on April 11, 1988, when the notification to that effect was published in the A. P. Gazette dated April 11, 1988. By the time the notification was published, the permits in form IV granted in favour of the petitioners for the financial year 1987-88 expired. A municipality cannot be considered to be of a particular grade unless it has been so declared by way of notification published in the A. P. Gazette. Till such notification is published declaring the grade of a municipality, the Entertainments Tax Officer has no power to determine the tax on the basis of the grade of a municipality. In all these cases, notice demanding the tax at a higher rate of 16 per cent. of gross collection capacity multiplied by 21 leviable in respect of a theatre situated in a second grade municipality, was issued to the petitioners long before the notification was published in the A. P. Gazette declaring Kamareddy as a second grade municipality and the petitioners were asked to pay at the higher rate of tax with effect from September 7, 1987. Sub-section (5) of section 5 of the A.P. Entertainments Tax Act provides that the option permitted u/s 5 of the A.P. Entertainments Tax Act shall continue to be in force till the end of the financial year in which such option is granted. The option exercised by the petitioners in the instant case was due to expire by March 31, 1988. Sub-section (6) of section 5 of the A.P. Entertainments Tax Act provides that it shall be lawful for the prescribed authority to vary the amount of tax during the period of option, if the local area in which the theatre is located, has been upgraded. As we have already mentioned, there was no upgradation of the local area till March 31, 1988, by which date the period of option had expired.

It is, however, submitted by the learned Government Pleader appearing for the respondents that the State Government issued G. O. Ms. No. 743 dated August 24, 1987, whereunder it was stated that Kamareddy municipality will be classified as a second grade municipality and therefore the Entertainments Tax Officer is justified in demanding the higher rate of tax payable in respect of a theatre situated within the second grade municipality. We are unable to accept this contention. Even according to the learned Government Pleader, G.O.Ms. No. 743 dated August 24, 1987, whereunder the State Government expressed that Kamareddy municipality will be classified as a second grade municipality, was not published in the A. P. Gazette. Admittedly, the notification declaring Kamareddy municipality as second grade municipality was published in the A. P. Gazette only on April 11, 1988. Therefore we have no hesitation in holding that the impugned demand notices issued by the Entertainments Tax Officer are illegal. Accordingly, the impugned demand notices are quashed. However, this order does not preclude the authorities from making a demand at a higher rate with effect from April 1, 1988. The writ petitions are accordingly allowed. No order as to costs. Advocate''s fee Rs. 150 in each.

Writ petitions allowed.