B. P. Jeevan Reddy, J. - (1.) The Uttar Pradesh Entertainments and Betting Tax Act, 1979 provides for two modes of levy of entertainment tax on cinemas. Sub-section (1) 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 rate.........." The proviso to sub-section (1), 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 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."
(2.) The respondent is running a cinema theatre in a local area having a population of less 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 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 of the said applications whereupon the respondent approached the Allahabad 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 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 seating capacity indicated in the petitioners option application merely because for the previous financial year the seating capacity indicated by the applicant 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 From R of the previous financial year". The High Court observed further that the reasons given by the 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 of Uttar Pradesh in this Special Leave Petition.
(3.) Leave granted. Rule 24-A of the Uttar Pradesh Entertainments and Betting Tax Rules, 1981 deals with compounded payment of tax. Sub-rules (1) to (4) of Rule 24-A are relevant for our purposes and must be set out in full: "24-A compounded payment of Tax- (1) The proprietor of a cinema opting to make compounded payment of entertainment tax under the proviso to sub-section (1) 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 appeneded to these rules declaring the total number of shows to be exhibited 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. (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. (ii) The gross collection capacity shall be calculated by multiplying the number of seats 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 of the cinema declares to give in a day. Explanation:- For purposes of this sub-rule the number of 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. (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 if the gross collection capacity increases as a result of such permitted change." ;