Holding

The District Magistrate must use the maximum permissible seats specified in the cinema licence for calculating tax; a proprietor must obtain a licence amendment under Rule 14 before reducing seating capacity and opting for the composite scheme.

Summary

The respondent, a cinema owner, applied to the District Magistrate for a reduction in seating capacity from 540 to 450 seats and to opt for the composite (compounded) payment of entertainment tax for FY 1995‑96. Both applications were rejected, leading to a writ petition in the Allahabad High Court, which held that the Magistrate had no authority to alter the seating capacity. On appeal, the Supreme Court examined Rule 24‑A of the Uttar Pradesh Entertainments and Betting Tax Rules, 1981 and the accompanying explanation, which tie the calculation of gross collection capacity to the maximum permissible seats specified in the cinema licence issued under the Uttar Pradesh Cinematograph Rules, 1951. The Court held that a proprietor cannot enter into a composite agreement indicating a lower seating capacity than that in the licence, and the District Magistrate cannot consider any figure other than the licence‑specified maximum. To reduce seating capacity, the proprietor must first obtain an amendment of the licence under Rule 14 of the Cinematograph Rules. Consequently, the High Court’s order was set aside and the writ dismissed.

Issues considered

Whether the District Magistrate can accept a reduced seating capacity in a composite tax agreement contrary to the licence.
Whether a cinema proprietor may enter into a composite agreement indicating a seating capacity lower than that specified in the licence.
Interpretation of Rule 24‑A of the Uttar Pradesh Entertainments and Betting Tax Rules, 1981 and its explanation regarding the number of seats.
Whether the High Court erred in holding that the District Magistrate lacked power to change the seating capacity.

Legislation cited

Uttar Pradesh Cinemas (Regulation) Act, 1955s. 12, s. 3
Uttar Pradesh Entertainments and Betting Tax Act, 1979s. 3(i), s. 4, s. 4-A, s. 4-B

Subjects

entertainment taxcomposite paymentseating capacitycinema licenceRule 24-ADistrict MagistrateUttar Pradeshlicensing authoritytax calculation

Judgment

STATE OF UTTAR PRADESH AND ORS. A
v.
VINA Y KUMAR JAIN

NOVEMBER 19, 1996

[B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.] 8

Entertainment Tax-Uttar Pradesh Entertainments and Betting Tax
Act, 1979 : U.P. Entertainments and Betting Tax Rules, 1981-R 24(A):
U.P. Cinematograph Rules, 1951-Rule 14-Compounded paymelll of
Tax-Held, No Composite agreement can be entered into by the proprietor
indicating lesser seats than mentioned in the license-Any proprietor seeking C
to reduce the seating capacity-Has to approach the licencing authority
under Rule 14 of the U.P. Cinematograph Rule, 1951 to have his licence
amended accordingly and produce the amended licence-Then only the
amended seating capacity be taken into consideration for the purpose of
Rule 24-A-District Magistrate has no power to take into consideration
any other seating capacity than what is mentioned in the licence. D
The respondent, owner of a cinema theatre, filed applications
before the District Magistrate, requesting for permission to reduce
the seating capacity and also opting for composite system of payment
of tax for the financial year-1995-96. Both the applications were E
rejected. The respondent filed a writ petition in the High Court
challe'lging the rejection. The High Court allowed the writ petition
and held that there was nothing in the Act and the Rules empowering
the District Magistrate to ignore or change the seating capacity
indicated in the option application. The State filed this appeal against
the order of the High Court. Allowing the appeal, this court F

HELD: I. It is not open to the proprietor to seek to enter into a
composite agreement indicating a lesser number of seating capacity
than the maximum mentioned in the licence. Nor is it open to the
District Magistrate to take any other figure of seating capacity than G

- the maximum seating capacity mentioned in such licence. The remedy
of any proprietor who wants to have the seating capacity of his cinema
theatre reduced, is to approach the licencing Authority under Rule
14 of the U.P. Cinematgraph Rules, 1951, and have his licence amended
accordingly. Only thrn can that amended capacity be taken into
consideration for the purposes of Rule 24-A of the U.P. Entertainments H
777
1is SUPREME COURT REPORTS [1996) SUPP. 8 S.C.R.
i

A and Betting Tax Rules 1981. [785-H, 786-A-B)
2.1. A proprietor seeking to opt for the compounded payment
of entertainment tax shall have to submit an application to the District
Magistrate in Form R with all particulars mentioned therein, fully
and truly. [785-H]
B
2.2. On receipt of the application, the District Magistrate has to
verify the correctness of the particulars in Form R. The District
Magistrate is not bound by the particulars as stated in Form R. So
far as the maximum number of seats are concerned, the only document
he has to see is the licence issued under U.P. Cinematograph Rules,
C 1951. The District Magistrate can not take any other figure of seating
capacity than the maximum seating capacity mentioned in such
licence. Only if he is satisfied with the correctness of the particulars
in application form 'R', then be comes under an obligation to issue
the order in Form 'S' mentioning therein the GCC of the Cinema
D theatre and the weekly tax payable by it. [785-F-G, 785-F]

2.3. The option once exercised shall be valid for the relevant
financial year to which it pertains. [785-G-H]

3. For the purpose of this case, it is not necessary to deal with or
E interpret sub Rule (4) of Rule 24-A which deals with post composite
agreement period. It would be in the fitness of things that the
Government of U.P. recasts the sub-rule at its earliest to make its
meaning clear as such a course would obviate avoidable litigation in
the State. [785-C-D)
F
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 14604 Of
1996.

From the Judgment and Order dated 25.3.96 of the Allahabad High
Court in W.P. No. 1773 (MB) of 1995.
G
Mr. Rakesh Dwivedi, Ashish Kumar and A.K. Goel for the Appellants.

Ashok Kr. Srivastava for the Respondents.

H The Judgment of the Court was delivered by :
STATEOFU.P. v. V.K.JAIN[B.P.JEEVANREDDY,J.] 779

B.P. JEEVAN REDDY, J. The Uttar Pradesh Entertainments and A
Betting Tax Act, 1979 provides for two modes of levy of entertainment
tax on cinemas. Sub-section (I) of Section 3 says that 'subject to the
provisions of this Act, there shall be levied and paid on all payments for
admission to any entertainment, other than an entertainment to which
Section 4 or Section 4-A or Section 4-B applies or a compounded payment
is made under the proviso to this sub-section, an entertainment tax at such B
rate... ". The proviso to sub-section (i), which provides the other mode of
levy, reads :

"Provided that a proprietor of a cinema in a local area having
a population not exceeding one lac, may, in lieu of payment
under this sub-section, pay a compounded payment to the C
State Government on such conditions and in such manner as
may be prescribed and at such rate as the State Government
may from time to time notify, and different rates of
compounded payments may be notified for different
categories of local areas."
D
The respondent is running a cinema theatre in a local area having a
population ofless than one lakh. He took advantage of the aforesaid proviso
and has been entering into composition agreements from year to year. The
year for this purpose means the financial year. On February 22, 1995, the
respondent filed an application before the 'District Magistrate, District E
Entertainment Tax Office, Hardoi" requesting for permission to reduce
the seating capacity of his cinema theatre from 540 to 450 for the ensuing
financial year 1995-96. On March 24, 1995, the respondent submitted an
application opting for the composition system for the ensuing financial
year, 1995-96. No orders were passed by the District Magistrate on either
ofthe said applications whereupon the respondent approached the Allahabad F
High Court by way of a writ petition. By an order dated May 9, 1995, the
High Court directed the Collector to consider the applications and to pass
orders thereon. Accordingly, the District Magistrate passed orders on May
31, 1995 rejecting the application for reduction of seats and consequently
dismissed the application for option, inasmuch as the application exercising G
option for composition scheme was supposed to be linked up with the
-· request for reduction of the seating capacity. The respondent filed writ
petition [No. 1773 of 1995) in the Allahabad High Court challenging the
order dated May 31, 1995. A Division Bench of the High Court has allowed
the writ petition saying that there is nothing in the Act or the Rules
empowering the District Magistrate to ignore or change the seati.ng capacity H
780 SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.

A indicated in the petitioner's option application merely because for the
previous financial year the seating capacity indicated by the applicani was
higher. The High Court observed, "the petitioner has been given liberty to
reduce or increase the number of seats in various classes irrespective of
the fact as to what he has been stating in Form 'R' of the previous financial
year". The High Court observed further that the reasons given by the
8 District Magistrate, viz., there will be a loss of revenue to the State by
reduction of seating capacity is not a relevant reason. The correctness of
the judgment of the High Court is challenged by the State ofUttar Pradesh
in this Special Leave Petition.

Leave granted.
c
Rule 24-A of the Uttar Pradesh Entertainments and Betting Tax Rules,
1981 deals with compounded payment of tax. Sub-rules (I) to (4) of Rule
24-A are relevant for our purposes and must be set out in full :

"24-A. Compounded payment of Tax.-(!) The proprietor
D of a cinema opting to make compounded payment of
entertainment tax under the proviso to sub-section (I) of
Section 3 of the Act shall submit his written option in
duplicate to the District Magistrate before the last date fixed
by the Commissioner in this behalf in Form 'R' appended to
these rules declaring the total number of shows to be exhibited
E in a day, number of seats in the cinema classwise and the
rates of tickets at full price and on reduced price if any.

(2) The option once exercised shall be valid for the period of
a financial year.
F
(3)(i) The District Magistrate shall within a week of the receipt
of the application, communicate to the proprietor the gross
collection capacity and the weekly tax payable by the cinema
in Form 'S'.
G (ii) The gross collection capacity shall be calculated by
multiplying the numberofseats in various classes in a cinema
by the respective current ticket rates (including payment for ·-
admission and entertainment tax thereon) and multiplying
the sum so derived by such number of shows as the proprietor
H of the cinema declares to give in a day.
STATEOFU.P.v. V.K.JAIN[B.P.JEEVANREDDY,J.] 781

Explanation-For purposes of this sub-rule 'the number of A
seats in various classes in a cinema' means the maximum
permissible number of seats in various classes mentioned in
the licence thereof and shall include any increase in the
maximum number of seats by an amendment allowed by the
licensing Authority.
B
(4) The proprietor shall strictly adhere to the declaration
under sub-rule ( 1) and shall obtain permission of District
Magistrate before effecting any change in the number of seats,
the ticket rate and the number of shows. The licensing
authority shall have the power to revise the compounded
amount to tax upwards ifthe gross collection capacity increases C
as a result of such permitted change."

Form 'R' referred to in sub-rule (I) is an application indicating the
applicant's option to be governed by the composition scheme under the
proviso to Section 3( 1) of the Act. It is both an application exercising
option and also a declaration containing several particulars including the D
total number of seats in the cinema, the classes into which they are
categorised and ticket rates. At the foot of the application the applicant has
to append a declaration to the effect: "Certified that information given
above is correct; kindly permit compounded payment of tax. I shall abide
by all the conditions and restrictions imposed in this behalf'. Form 'S' E
referred to in sub-rule (3) is the form in which the District Magistrate
grants the permission to the applicant to come under the composition
scheme. This order also contains several relevant particulars including the
number of seats in the cinema, the classes into which they are divided, the
rate of tickets for each class and so on. Clauses (2), (3) and (4) of Form
·s·~~: F
'\2) He is hereby directed to--

(i) make payment of weekly tax as per rules.

(ii) inform the undersigned at least three days in advance if
G
any show/shows is/are proposed to be held at reduced price
of tickets.

(iii). obtain permission for any change in respect of number
of seats, number of shows and ticket rates. H
782 SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.

A (iv) make available to the inspecting authorities a copy of
the order along with the copy of the applicatiun for option
and declaration if required by him.

(3) No rebate shall be permitted for any show not held.

B (4) for the purposes of calculating the gross collection
capacity, the maximum permissible number ofseats mentioned
in the licence and where the maximum number is increased
by amendment by the licensing authority, such increased
number shall be taken into account."

c (Emphasis added)

These conditions appear to be consistent with sub-rule (4) of Rule
24-A, both of which deal with post-composition agreement period. We
are, however, not concerned \vith that situation in this case.
D
It is necessary to read closely Rule 24-A and the above Forms for
the purpose of appreciating and adjudicating the controversy arising herein.
Sub-rule (I) of Rule 24-A says that a proprietor ofa cinema theatre seeking
to opt for the compounded payment of entertainment tax has to submit
Form 'R' with all the particulars mentioned therein. Sub-rule (3) requires
E the District Magistrate to communicate his order in Form 'S' to the
proprietor of the cinema theatre within a week of the receipt of the
application Form 'R' mentioning in his order the gross collection capacity
(G.C.C.] and the weekly tax payable by the cinema theatre. The Explanation
appended to sub-rule (3) is of crucial significance. It says that for the
purpose of sub-rule (3), the expression "the number of seats in various
F classes in a cinema' means the 1naximum permissible number of seats in
various classes mentioned in the licence thereof and shall include any
increase in the maximum number of seats by an amendment allowed by
the licencing authority. Sub-rule (4) says that the proprietor shall strictly
adhere to the declaration in Form 'R' and shall obtain the permission of
G the District Magistrate for effecting any change in the number of seats, the
ticket rate and the number of shows. The licencing authority is empowered
to revise the compounded amount of tax upwards if the G.C.C. increases
as a result of such permitted change.

It is equally evident-and also beyond dispute-that the words 'the
H maximum permissible number of seats in various classes mentioned in the
STATEOFU.P.v. V.K.JAIN[B.P.JEEVANREDDY,J.] 783

licence thereof in the Explanation to sub-rule (3) mean and refer to the A
relevant provisions of the Uttar Pradesh Cinemas Regulation Act, 1955
and the U.P. Cinematograph Rules, 1951. [The Uttar Pradesh Cinemas
Regulation Act, 1955 repeals the Cinematograph Act, 1918 but at the same
time continues the rules made thereunder and it is by virtue of the said
provision contained is Section 12 that the 1951 Rules made under the
repealed enactment are continued and are treated as the Rules made under B
the 1955 Act.] The 1955 Act regulates all aspects of the construction ofa
cinema theatre including the seating capacity therein. Clause (v) of Rule 2
of the Cinematograph Rules defines the expression 'licence' in the following
words:

"(v) 'Licence' means a written authorisation by the Licensing C
Authority to give cinematograph exhibitions and granted in
the form set out in Appendix I to these rules and shall be
subject to necessary modifications or amplifications in
accordance with any terms or conditions imposed under sub-
section (3) of Section 5 of the Act."
D
Section 3 of the U.P. Cinemas [Regulations] Act, 1955 deals with
'licence'. The U.P. Entertainments and Betting Tax Act, 1979 or the Rules
·framed thereunder, it may be mentioned, do not defjne the expression
"licence".
E
Sub-rule (I) of Rule 14 of the 1951 Rules provides that 'the Licensing
Authority shall determine the maximum number of seats for each class
separately and the same shall be specified in the licence and prominently
displayed near the entrance door to every class in the cinema." The Form
of licence granted to a cinema theatre is prescribed in appendix-I to the
said Rules. Condition No. 8 of the licence reads: "(8) that the total number F
of seats in the auditorium and the seats for each class shall not exeedy the
number specified in the Schedule thereto appended nor shall the number
and description of fire appliances, exhaust fans, electric fans on sanitary
requirements by less than those therein specified." The Schedule to the
Rules contains the particulars of seats class-wise. Now, therefore, when G
the Explanation to sub-rule (3) of Rule 24-A of the Entertainment Tax
Rules speaks of "the maximum permissible number of seats in various
classes mentioned in the licence thereof', it refers to "the maximum number
of seats for each class separately" mentioned in the licence as per Rule 14
of the 1951 Rules read with Form-I licence. In short, according to the
aforesaid Explanation, the District Magistrate shall take the maximum H
784 SUPREMECOURTREPORTS [!996] SUPP. 8 S.C.R.

A number of permissible seats specified in the licence issued under the U.P.
Cinema [Regulation] Act and the Cinematograph Rules as the basis for
working out/calculating the G.C.C. and the weekly tax payable by the
cinema theatre and which figures he mentions in Form 'S'. The District
Magistrate is not concerned with the actual number of seats fixed in a
cinema theatre for the purposes of Rule 24-A. He will only look to the
B maximum number of seats specified in the licence [Form-I issued under
the U.P. Cinematograph Rules, 1951] and take that as the basis for
determining the G.C.C. and the weekly tax payable. This fact necessarily
means that if any person wants to enter into a composition agreement
with a reduced seating capacity [i.e., reduced with reference to the previous
financial year], he must go to the Authority under Rule 14 of the U.P.
C Cinematograph Rules, 1951 * have his licence amended and produce his
licence before the authority under Rule 24-A to take the maximum so
specified therein as the basis for clacualting the G.C.C. and the weekly tax
payable. The fact that the District Magistrate mentioned in Rule 24-A of
the Uttar Pradesh Entertainments and Betting Tax Rules, 1981 also happens
to be the licencing authority under Rule 14 of the U.P. Cinematograph
D Rules, 1951 for the time being makes no difference in law. In law, they
are two different authorities acting under two different statutory provisions.
It is open to the government to amend Rule 4 of the 1951 Rules and
specify any other person or authority as the licencing authority. There is
-
yet another aspect which requires to be clarified in view of the submissions
E made by Sri Srivastava, learned counsel for the respondent. Though sub-
rule (3) of Rule 24-A uses the expression "shall'', it does not mean that the
Disirict Magistrate is bound by the particulars as stated in the application
Form 'R'. The District Magistrate is entitled to-and is obliged to-verify
the correctness of the particulars stated in the application Form 'R' including
the particulars relating to the maximum number of seats and their classes.
F So far as the maximum number of seats and the classes are concerned, the
only document he has to see ·is the licence issued under the Cinematograph
Rules only ifhe is satisfied with the correctness of the particulars stated in
the application Form 'R' that the District Magistrate comes under an
obligation to issue the order in Form 'S' with relevant particulars. This is
G the position if any proprietor wants to enter into a composition agreement
for the ensuing financial year with reduced seating capacity. It may be
mentioned that the case before us deals with such a situation. In other
*Though Rule 14 does not expressly provide for alteration or amen~ment of the licence,
it is obvious that the power to ''determine the maximum number of seats'' conferred upon
·' 'the licencing authority necessarily implies and includes the po\verto amend it including
H the increase or reduction in the maximum seating capacity specified in the licence.
STATEOFU.P. v. V.K. JAIN [B.P.JEEVANREDDY,J.] 785

words, the case before us does not deal with the situation where the A
. proprietor, having entered into a composition agreement, is seeking to
~ reduce his seating capacity during the currency of the composition
agreement. This is a case where the respondent is asking the District
Magistrate to enter into a composition agreement with him taking the
seating capacity in his cinema theatre as 450 whereas the maximum seating
capacity of his cinema theatre as per the licence issued under the B
Cinematograph Rules is 540. The District Magistrate has no power or
authority to agree to such a request-nor can the respondent make such a
request, as explained hereinabove so long as the licence of the cinema
theatre shows the maximum seating capacity as 540.

For the purposes of this case, it is not necessary to deal with or c
interpret sub-rule (4) of Rule 24-A, which deals with the post-composition
agreement period. The language of the sub-rule leaves much to be desired.
It would be in the fitness of things that the Government of Uttar Pradesh
recasts the sub-rule at its earliest to make its meaning clear. Such a course
would obviate avoidable litigation in the State.
D
In short, the position emerging from the above discussion may be
stated in the following terms:

( l) A proprietor of a cinema theatre seeking to opt to be governed
by the compounded payment of entertainment tax system shall have to E
submit an application in Form 'R' with all the necessary particulars as
specified in the said Form, truly and fully.

(2) On receipt of the application Form 'R', it is open to the District
Magistrate to verify the correctness of the particulars stated in Form 'R'.
If he is satisfied with the correctness of the particulars in Form 'R', he F
shall issue an order in Form 'S' mentioning therein the G.C.C. of the
cinema theatt~ and the weekly tax payable by it. While calculating the
G.C.C. and the weekly tax payable, the District Magistrate shall take the
maximum number of seats in various classes mentioned in the licence
[issued under the U.P .. Cinematograph Rules, 1951] as the basis.
G
~ (3) The option once exercised shall be valid for the relevant financial
year to which it pertains.

(4) It ;s not open to any proprietor to seek to enter into a composition
agreement indicating a lesser seating capacity than themaximum mentioned H
786 SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.

A in his licence [issued under the U.P. Cinematograph Rules, 1951] nor is it
open to the District Magistrate to take any other figure of seating capacity .-
than the maximum seating capacity mentioned in such licence. The remedy
of any proprietor who wants to have the seating capacity of his cinema
theatre reduced is to approach the licencing authority under Rule 14 of the
U.P. Cinematograph Rules, 1951 and have his licence amended accordingly.
B Only then can that amended seating capacity be taken into consideration
for the purposes of Rule 24-A of the Uttar Pradesh Entertainments and
Betting Tax Rules, 1981.

Now, coming back to the facts of this case, the judgment under
appeal was rendered by the High Comt on March 25, 1996 by which date
C the Financial Year 1995-96 [for which the respondent had opted through
his application dated March 24, 1995] had practically come to an end. We
are told that because of the absence of any composition agreement, the
respondent's cinema theatre was governed by the main limb of sub-section
(I) of Section 3 of the Uttar Pradesh Entertainments Act and not by the
proviso to sub-section (I) of Section 3. During the current financial year,
[) 1996-97, it is stated, the respondent's cinema theatre is operating with the
reduced capacity as per the impugned orders of the High Court. We do not
know whether any composition agreement has been entered into for the
financial .Year, 1996-97 or whether the respondent's cinema theatre is.
governed by the admission system provided by the main limb of sub-
section (I) of Section 3 of the Uttar Pradesh Entertainments Tax Act.
E These are the matters for the appropriate authorities to look into and pass
necessary consequential orders.

In as much as the judgment under appeal does not refer to or deal
with the aforesaid relevant Rules and has also not correctly appreciated
the legal position flowing therefrom, we are obliged to set aside the
F impugned judgment and dismiss the writ petition filed by the respondent
in the High Court. It is open to the respondent to adopt such proceedings
and take such steps as are open to him in law in the light of the legal
position adumbrated herein.

G The appeal is allowed in the above terms. No costs.

A copy of this judgment shall be communicated by the Registry of •
this Cou1ts to the Secretary, Finance Department [Entertainment Tax],
Government of Uttar Pradesh, for appropriates action.

H H.K. Appeal allowed.