The inventive genius of taxmen was never more evident as in contriving the idea of entertainment tax. The British rulers are said to have originally entertained the idea of imposing a levy on amusements and melas to discourage people from gathering together and plotting against colonial authorities. Though that objective is no longer relevant, the home-grown fiscal wizards found it a convenient tool to raise revenue.
When the Constitution was drafted, it bestowed the power to extract the levy on state governments by retaining it in List 2 of the Seventh Schedule. States have either carried on with the pre-independence laws or passed new ones, expanding the scope of this tax. Since the entertainment business is growing fast (15 per cent) and taking new forms in this electronic age, the courts have to entertain challenges to the new heads under this tax and have a tough task defining what is entertainment.
For taxmen, the meaning of entertainment is delightfully vague. However, for judges, it is a bleak task to fix it. When there is a dispute whether an event or activity is “entertainment”, they have to take out various dictionaries or search their online avatars to foray into semantic thickets. The result could be more entertaining than enlightening. For instance, last month, the Delhi High Court ruled that taking your mobile phone to the race course would be chargeable to entertainment tax.
Some laws passed by state governments could also provide entertainment to those who are compelled to read them. According to the Kerala law, for instance, a magic show is not included in the long list of entertainments. The law specifically excludes magic as a form of entertainment. Did the magicians mesmerise the legislators en masse when the Bill was voted? One will never know since it happened more than half a century ago.
The Delhi High Court’s race course judgment is the latest instance of judges struggling with dictionaries and case law (Delhi Race Club vs National Capital Territory). The short question that arose in the writ petition was whether entertainment tax is payable on the amount paid by a person for carrying his mobile phone inside the club, under the Delhi Entertainments and Betting Tax Act. The answer was an emphatic yes.
But the judges took a winding course to reach the finishing post. They gave respectful regard to English grammar and punctuation in the legislation: “There is a comma after the words ‘any payment’. There is also a comma after the words ‘by whatever name called for any purpose whatsoever’”. This interpretation of the crucial place of the comma decided the question against the race club and the Delhi government was the richer for it.
Some of the questions regarding the tax are easy to answer. There was a time when almost every high court in the country had had to entertain petitions challenging entertainment tax on video games in public places. There have been contrary conclusions but the question has generally been settled, and tax is payable (Geeta Enterprises vs State of UP). Around the same time, the direct-to-home technology also underwent judicial scrutiny and the industry lost their case.
More From This Section
A dance hall equipped with a floor, piped-in music and strobe lights did not pose much problem to decide. The tax must be paid (East India Hotel vs State of Maharashtra). So also the game of tambola. The ubiquitous religious events are exempt from the tax; if boons are taxed, the gods would not be amused. When the Bangalore Club argued that its New Year celebrations were a religious event according to the Christian calendar, the Karnataka High Court saw through the game and allowed the government to wring out the tax from the club.
But there are borderline cases, when you are not sure whether you are amused, entertained or just using your fundamental right to enter a mela. In the case of Calico Mills vs State of MP, the company built a dome where mannequins paraded saris and other garments. The taxmen struck. However, the high court exempted the mills from the tax stating that the dome was not a place for entertainment, but a mere shop with dummies. “The fact that many fashionable ladies and gents were attracted more towards the show than towards purchase of clothes did not make any difference,” the judgment said.
The exercise of the power to exempt the tax also spawns litigation. A few years ago, the exemption granted to the Michael Jackson show in Mumbai became a huge politically-tinted controversy. Last year, the Uttar Pradesh government was also embroiled in a judicial snarl in the Supreme Court over tax exemption to the organisers of Formula One.
Fund-starved state governments are tempted to cast a wider net, like when the Maharashtra entertained the idea to tax caller tunes on mobile phones. Will laughter be the next? Never underestimate the taxman’s ingenuity, especially in this Budget season.