Case Summary
| Citation | Darshan Lal Mehra v. Union of India (1992) 4 SCC 28 : AIR 1992 SC 714 |
| Keywords | taxes, section 172, article 14 |
| Facts | The origin of the lawsuit is due to the Nagar Mahapalika, Lucknow’s levying a “theatre tax” pursuant to the terms of Section 172(2) of the Uttar Pradesh Nagar Mahapalika Adhiniyam, 1959. For the first time, the tax was imposed at Rs. 5/- per theatre show on buildings with an annual rental value of Rupees 10,000/- and above, and at Rs. 3/- per show on the ones with rental value below Rs. 10,000/-. This proposal for imposing the theatre tax was given the go-ahead by the State Government, as per the procedure stipulated by the Act. Thereafter, the Lucknow Nagar Mahapalika Theatre Tax Rules were drawn and implemented from 15 December 1965, with the imposition of the tax actually taking place on 1 June 1967. In due course, the rates of this tax were revised, and finally, a notice issued in the Uttar Pradesh Government Gazette increased the theatre tax to Rs. 25/- per performance for Class-I cinemas with an annual rental value of over Rs. 10,000/- and Rs. 20/- per performance for Class-II cinemas with a rental value of Rs. 10,000/- or below. Aggrieved by this imposition and the subsequent enhancements in the tax rates, the cinema owners and lessees operating within Lucknow approached the Allahabad High Court by filing a writ petition under Article 226 of the Constitution of India, challenging the validity of the tax. Their challenge, however, was unsuccessful, with a single judge of the High Court dismissing their petition. Even this judgment was met with an appeal to a Division Bench of the High Court being dismissed. Still, the owners/lessees of the cinemas invoked the jurisdiction of the Supreme Court of India under Article 32 of the Constitution next, and wrote writ petitions for challenging the levying of the theatre tax, mainly arguing that Section 172(2) of the Act was unconstitutional. The successive hikes in the tax rate indicate an increasing dependence by the local government on this source of income, which is likely to have compounded the apprehensions of the cinema owners over the financial fallout, culminating in the prolonged legal battle that went all the way to the country’s apex court. The fact that the petitioners took their case through several tiers of the judiciary attests to the perceived importance of the legal issues involved and their belief that the tax was levied in an unconstitutional fashion. |
| Issues | Whether this provision amounted to an unconstitutional delegation of essential legislative powers by the state legislature to the Nagar Palikas by empowering them to levy any of the taxes enumerated in the section? Whether the classification of cinema houses based on their annual rental value for the purpose of determining the rate of theatre tax was arbitrary and, consequently, violative of Article 14 of the Constitution of India, which guarantees equality before the law? |
| Contentions | The petitioners argued that the Uttar Pradesh legislature had overstepped its constitutional bounds by delegating what they considered to be essential legislative powers to the Nagar Palikas without providing adequate guidance or control . They contended that the power to levy taxes, as granted under Section 172(2) of the Act, was a fundamental legislative function that could not be so broadly conferred upon a local body . |
| Law Points | The Court clarified that the authority granted to the Mahapalikas to levy taxes under Section 172(2) was specifically “for the purposes of this Act,” which itself details the Mahapalika’s responsibilities. This meant the taxing power was tied to their statutory duties, including providing civic amenities near cinemas. The process for setting tax rates involved public input and final approval by the State Government, and importantly, the tax rules were subject to review and potential modification by the State Legislature. Drawing upon earlier judgments like Gopal Narain v. State of Uttar Pradesh and The Western India Theatres Limited v. Municipal Corporation of the City of Poona, the Court reiterated that while essential legislative functions cannot be delegated, ancillary powers can be, especially with adequate guidelines and oversight mechanisms in place, consistent with the principles established in In re Delhi Laws Act, 1951. The Court found that the Uttar Pradesh Nagar Mahapalika Adhiniyam, 1959 provided sufficient safeguards, demonstrating an orderly empowerment of the local body under the control of the state government and legislature, rather than an abdication of legislative responsibility. The Court found that empowering the Nagar Palikas to levy taxes was not an unconstitutional delegation of power. It also affirmed that classifying cinema houses based on their annual rental value for levying theatre tax was reasonable and did not violate Article 14 of the Constitution . This decision reinforced the principles governing the delegation of legislative powers to local authorities with adequate oversight and recognized annual rental value as a fair basis for tax classification for entertainment establishments. |
| Judgement | The Supreme Court dismissed the cinema owners’ petitions, upholding the constitutional validity of Section 172(2) of the Uttar Pradesh Nagar Mahapalika Adhiniyam, 1959. |
| Ratio Decidendi & Case Authority |
Full Case Details
The relevant provisions of the U.P. Nagar Mahapalika Adhiniyam, 1959 reads:
Section 2.: Definitions – In this Act unless there be something repugnant in the subject or context –
(77) ‘theatre tax’ means a tax on amusement or entertainments.
“172. Taxes to be imposed under this Act.– (1) For the purposes of this Act and subject to the provisions thereof and of Article 285 of the Constitution of India, the Mahapalika shall impose the following taxes, namely,-
(a) property taxes,
(2) In addition to the taxes specified in sub-section (1) the Mahapalika may for the purposes of this Act and subject to the provisions thereof impose any of the following taxes, namely,-
(a) a tax on trades, callings and professions and holding of public or private appointments;
(i) a theatre tax; and
(j) any other tax which the State Legislature has the power under the
Constitution of India to impose in the State:
(3) The Mahapalika taxes shall be assessed and levied in accordance with the provisions of this Act and the rules and bye-laws framed thereunder.
(4) Nothing in this section shall authorise the imposition of any tax which the State Legislature has no power to impose in the State under the Constitution of India.”
Sub-section (1) of Section 199 of the Act required the Nagar Mahapalika to make a preliminary proposal specifying the tax which it desired to impose under Section 172(2) of the Act, the persons or class of persons to be made liable, the amount or rate leviable for each such person or class of persons and any other information which the Government required. It further required the executive committee of the Nagar Mahapalika to draft the rules in that respect which were finally to be framed by the State Government. The draft rules were to be published in the prescribed manner to enable the affected public to file objections. Section 200 of the Act made it obligatory for the Nagar Mahapalika to consider the objections so received and to re-publish the draft rules in case any change was made as a result of such consideration. After considering all the objections the draft rules were finalised by the Nagar Mahapalika and forwarded to the State Government along with the objections. Section 201 of the Act empowered the State Government to reject, modify or to accept the proposed rules. Under Section 202 of the Act it was only after the rules were finalised by the State Government that the Nagar Mahapalika could pass a special resolution imposing the tax from the date to be specified. Under Section 203 the special resolution was to be sent to the Government and the tax was to be imposed on the publication of the resolution in the Government Gazette. Section 540(4) of the Act provided that all rules made under the Act shall be laid for not less than 14 days before each House of the State Legislature as soon as they were made and they were subject to such modifications as the legislature might make during the session they were so laid.
The proposal of the Nagar Mahapalika, Lucknow to levy theatre tax, @ Rs 5 per cinema show held in a building assessed on annual rental value of Rs 10,000 or more and @ Rs 3 per cinema show held in a building assessed on annual rental value of less than Rs 10,000, was accepted by the State Government by following the procedure laid down under the Act. The rules called The Lucknow Nagar Mahapalika Theatre Tax Rules were framed and enforced with effect from December 15, 1965 and thereafter the tax was levied with effect from June 1, 1967. The rate of tax was increased from time to time and finally by a notification dated October 30, 1979 published in the U.P. Government Gazette dated October 31, 1979 the theatre tax was enhanced to Rs 25 per show on all Class I cinemas with annual rental value of more than Rs 10,000 and Rs 20 per show on all Class II cinemas with annual rental value of Rs 10,000 or less.
KULDIP SINGH, J. – 7. The learned counsel for the petitioners has contended that Section 172(2) of the Act is unconstitutional because the legislature has abdicated its function by delegating the essential legislative powers upon the Nagar Palikas to levy all or any of the taxes enumerated in the section. According to him the said power is unguided and uncanalised. We do not agree with the learned counsel. Section 172(2) of the Act authorises the Mahapalikas to impose the taxes mentioned therein, “for the purposes of this Act”. The obligations and functions cast upon the Mahapalikas are laid down in various provisions of the Act. The taxes under Section 172(2) of the Act, therefore, can be levied by the Mahapalikas only for implementing those purposes and for no other purpose. The Mahapalikas have to provide special civic amenities at the places where cinemas/theatres are situated. So long as the tax has a reasonable relation to the purposes of the Act the same cannot be held to be arbitrary. The rate of tax to be levied and the persons or the class of persons liable to pay the same is determined by inviting objections which are finally considered and decided by the State Government. There is no force in the argument that the legislature has abdicated its function to the Mahapalikas. The tax is levied in accordance with the statutory rules framed by the State Government and the said rules are laid before each House of the State Legislature for not less than 14 days and are subject to such modifications as the legislature may make during the session they are so laid. We, therefore, reject the contention raised by the learned counsel for the petitioners.
8. The second contention raised by the learned counsel for the petitioners is that the classification of cinemas on the basis of annual rental value for the purpose of fixing the rate of tax is arbitrary and as such is violative of Article 14 of the Constitution of India. According to him the classification has no nexus with the objects sought to be achieved. We do not agree. In Western India Theatres Ltd. v. Cantonment Board, Poona Cantonment [AIR 1959 SC 582], the Cantonment Board, Poona imposed entertainment tax on cinemas. Rs 10 per show was levied on the two cinemas of Western India Theatres Ltd. and Rs 5 per show in other cases. The argument raised before this Court to the effect that the Cantonment Board had singled out the two cinema houses for discriminatory treatment by imposing higher rate of tax, was answered as under:
“It may not be unreasonable or improper if a higher tax is imposed on the shows given by a cinema house which contains large seating accommodation and is situate in fashionable or busy localities where the number of visitors is more numerous and in more affluent circumstances than the tax that may be imposed on shows given in a smaller cinema house containing less accommodation and situate in some localities where the visitors are less numerous or financially in less affluent circumstances, for the two cannot, in those circumstances, be said to be similarly situate.”
9. The annual rental value under the Act indicates the extent of the accommodation, its quality, the locality in which it is situated and other factors which relate to the enjoyment of the building. The theatre tax is levied as a tax on amusement and entertainment. The amusement in a building is affected by all those factors which are taken into consideration while fixing the annual rental value of the building. Higher rental value in relation to a cinema house shows that it has better accommodation, better situation and better facilities for amusement and entertainment. The higher annual value is indicative of a better quality cinema house as compared to a cinema house which has a lesser annual rental value. We are, therefore, of the view that there is nothing unreasonable or improper in classifying the cinema houses on the basis of annual rental value. The learned counsel for the petitioners has not raised any other point before us. The writ petitions are dismissed with costs.
