Raman Nayar, C.J.
1. The question in these cases is whether the issue by the local authority of a stamp of the kind described in Clause (a) of subsection (1) of Section 5 of the Kerala Local Authorities Entertainments Tax Act. 1961, namely, a stamp indicating the proper tax payable in respect of the ticket issued for admission to an entertainment, is a condition precedent to the recovery of the tax by the local authority from the proprietor of an entertainment. In Ismail v. Commr. Mattancherry Municipal Council, 1963 Ker LT 1080 = (AIR 1964 Ker 79) a Full Bench of three Judges of this Court held (on the like provisions of the Traancore-Cochin Local Authorities Entertainments Tax Act, 1951) that it was except in a case covered by Section 4 of the Act--it is because that decision is doubted that these cases are before us--and, although the complaint there was the well-founded complaint that the local authority was collecting in advance the tax payable in respect of tickets to be issued to persons attending the entertainments without issuing stamps of the kind described, in other words, was collecting the prices of the stamps without issuing them, the relief granted in the following terms was much wider:
'x x x we order that mandamus shall issue to the respondent (namely, the local authority) for the issue of labels indicating the proper entertainments tax payable for each ticket of admission for stamping the same, in cases not covered by Section 4 of the Act, as a condition precedent to the levy and collection of entertainments tax.'
The Full Bench also held, what is no longer controverted, that the tax is to be levied, at the percentage prescribed under Section 3 of the Act, on the total amount paid for admission to an entertainment, what we might call the gross price of admission, not on the amount left after deducting from the gross price a sum equivalent to the tax payable in respect of the admission, what wo might call the net price of admission. The petitioners in these cases are two proprietors of cinema theatres within the Municipality of Kottayam. ' The Municipality had been collecting tax from them on the basis of daily returns of the tickets for admission sold by them without issuing stamps of the kind described in Clause (a) of Sub-section (1) of Section 5 of the Act. It had also been levying tax at the prescribed percentage on the net and not on the gross price of admission. As a result of the directions issued to it by the State Government by means of Ext. PI dated 31-5-1965 on the basis of the Full Bench decision referred to above, the Municipality issued notice (Ext, P2 dated 23-2-1966) to the Proprietors to the effect that tax would be collected at the prescribed percentage on the gross price of admission instead of on the net price with effect from 1-6-1965.
It followed this up (alter some intermediate correspondence which is not material) with the notice, Ext. P5 dated 10-8-1966, demanding payment of all arrears up to date within the two days, failing which it threatened legal action for the recovery. Soon thereafter, the two proprietors came with the writ petitions, C. P. Nos. 932 and 936 of 1966. out of which these appeals arise. They prayed that the notices Exts. P2 and P5 be quashed, that the Municipality be restrained from collecting the tax from them except after following the procedure enjoined by Clause (a) of Sub-section (1) of Section 5 of the Act, and that the Municipality be directed to refund the tax which they alleged had been illegally collected from them during the three years preceding the filing of the petitions. The learned single Judge who heard the petitions quashed Exts. P2 and P5 following, as he was bound to, the decision in 1963 Ker LT 1080 = (AIR 1964 Ker 79) (FB). He denied the other reliefs claimed by the petitioners, namely, the second and the third reliefs, the second on the ground that it was unnecessary in view of the Full Bench decision, and the third, namely, the refund of the tax collected, on the ground that it was inexpedient to decide the matter in writ proceedings. Both sides have appealed. The Municipality's appeals are Writ Appeals Nos. 50 and 52 of 1967 and the proprietors' appeals are writ appeals Nos. 923 and 924 of 1969 -- the latter were originally filed as cross-objections, but were subsequently numbered as appeals.
2. It is necessary to read the following provisions of the Act -- we are ignoring the amendments introduced by Act 33 of 1969 which are not material.
Section 3. General provisions regarding the levy of the tax and the rate of tax -- Any local authority may levy a tax (hereinafter referred to as the entertainments tax) at a rate not less than ten per cent and not more than twenty-five per cent on each payment for admission to any entertainment.
Section 4. Composition and consolidated payment of tax-- On the application of the proprietor of any entertainment in respect of which the entertainments tax is payable under Section 3, the local authority may. subject to such rules as may be made by the Government in this behalf, compound the tax payable in respect of such entertainment for a consolidated payment.
Section 5. Admission of persons to entertainments subject to tax-- (1) Save in the cases referred to in Section 4, no person shall be admitted for payment to any entertainment where the payment is subject to entertainments tax, except --
(a) with a ticket stamped with an impressed, embossed, engraved or adhesive stamp issued by the local authority indicating the proper tax for such ticket; or
(b) in special case, with the approval of the local authority, through a barrier, which or by means of a mechanical contrivance which, automatically registers the number of persons admitted.
Unless the proprietor of the entertainment has made arrangements approved by the local authority for furnishing returns of the payments for admission to the entertainment and has given security approved by the local authority for the payment of the entertainment tax.
(2) Nothing contained in Sub-sec. (1) shall be deemed to preclude the local authority from requiring security from the proprietor of an entertainment for the payment of the entertainments tax in any other case.
Section G. Manner of payment of tax-- (1) The entertainments tax shall be levied in respect of each person admitted for payment, and in the case of admission by ticket, shall be paid by means of a ticket referred to in Clause (a) of subsection (1) of Section 5, and in the case of admissions otherwise than by ticket, shall be calculated and paid on the number of admissions.
(2) The entertainments tax in the case of admission otherwise than by ticket shall be recoverable from the proprietor.
(3) x x x x
Section 10. Penalty for non-payment of tax-- (1) If any person is admitted for payment to any place of entertainment and the provisions of Section 5 arc not complied with, the proprietor of the entertainment to which such person is admitted shall, on conviction by a Magistrate, be liable in respect of each such offence to a fine not exceeding two hundred rupees and shall in addition be liable to pay any tax which should have been paid.
(2) x x x x
(3) x x x x
3. It seems to us clear from a reading of these provisions -- and we say this with great respect to the contrary view expressed in 1963 Ker LT 1080 = (AIR 1964 Ker 79) that the tax is squarely imposed on the proprietor, or the entertainer, and in no wise on [the entertaince, if we might use that expression. Section 5 only provides the machinery for ensuring that the tax is paid on each payment for admission as required by Section 3, and compliance with its provisions is in no sense a condition precedent to the collection of the tax from the proprietor. The legislative entry, Entry 62 of List II. 'Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling' permits of the imposition of the tax either on the proprietor or on the entertainee or on both -- see Western India Theatres v. Cantonment Board, Poona, AIR 1959 SC 582--and when, as in this case, the statute imposing the tax makes it recoverable from a person on whom it can properly be imposed, one would require very clear provision to that effect to hold that the tax is really imposed not on him but on some other person and that he is only an instrument or agency for collection, a statutory agent as he is sometimes called, paying the tax in the first instance and passing it on to the other person. (It is said that even for making the tax recoverable from him in the first instance he must be a person on whom it can be lawfully imposed and that therefore that is no ground for holding that the tax is not to be passed on. That might well be so but what we are saying is that there must be clear provision to the effect that the tax is really imposed on some other person and is to be passed on to him) Far from there being such provision in the Act, we are unable to find the least indication that the tax is really payable by the entertainee and not by the proprietor from whom it is undisputedly recoverable,
4. Section 3 of the Act only says that the tax is to be levied on each payment for admission. It gives no indication whatsoever as to who is to pay the tax, the person admitting or the person admitted.
5. Section 4 which deals with the composition and consolidated payment of tax necessarily implies that it is the proprietor that is to make the consolidated payment -- the rules in Part II of the rules made under Act (this part is headed, 'payment of the tax by composition') expressly state so.
6. Section 5 needs some explanation. As we have already said, it is designed to ensure that the tax in respect of each payment for admission is duly paid To this end it lays down how persons are to be admitted to any entertainment which attracts the tax. Three alternative modes are provided, and the proprietor must conform to one or the other of these three alternative modes. Under Clause (a) of Sub-section (1) of the section, admission is to be by ticket stamped with a stamp issued by the local authority indicating the proper tax for such ticket. This as we shall presently see is, 'admission by ticket' within the meaning of the Act. The rules relating to such admission are in Part III of the Rules which part is headed, 'Payment by means of stamps'. The stamp which shows the proper tax to be paid in respect of the ticket is bought by the proprietor from the local authority, the price of the stamp being the amount of the tax shown on it. The stamp is either impressed on the ticket itself or is an adhesive stamp which has to be affixed to the ticket before it is sold to the entertainee, and the stamp is to be defaced by tearing the ticket into two portions across the stamp on the entertainee being admitted -- sec Rule 11(4).
Thus, the proprietor buys the stamp in advance, and, as the heading of Part III of the Rules says, pays the tax in respect of each payment for admission by means of the stamp, just as you pay court-fee or stamp duty by means of an impressed or adhesive stamp which you buy in advance. Although the entire procedure is not so fully set out in Section I), it is clearly revealed if the section is read with Section 6 and with the rules in Part III -- particular reference may be made to Rule 16 which requires the proprietor to keep a register of entertainments tax stamps bought by him and a register of tickets sold by him, and to Rule 19 which requires the local authority to repay to the proprietor the value of unused and unspoiled stamps 'returned by him after a small deduction, a provision similar to the provisions for the refund of the value of unused court-fee or general stamps.
7. Under Clause (b) of Sub-section (1) of Section 5, in special cases, admission may be, with the approval of the local authority, through a barrier which automatically registers the number of persons admitted. The rules relating to this are in Part IV and they make it clear that it is the proprietor that has to pay the tax -- see in particular Rule 26(2).
8. The third alternative is set out in the 'unless' clause of the Sub-section, the latter part of Clause (b) as Rule 20 calls it. Here, the, proprietor has to make previous arrangements approved by the local authority for furnishing returns of the payments for admission and has to give security approved by the local authority for the payment of the tax ---obviously the payment is to be by him. Even in such a case, admission to the entertainment can be, and usually is, by ticket. But this is not, 'admission by ticket'' within the meaning of the Act. 'Admission by ticket' within the meaning of the Act is admission by a ticket bearing a stamp bought by the proprietor from the local authority for the amount shown on the stamp as the tax in respect of the admission to be effected on the sale of the ticket to the entertainee.
9. Section 6 which is headed, 'Manner of payment of tax' clearly lays down who is to pay the tax- Sub-section (1) of the section says that, in the case of admission by ticket, the tax shall be paid in respect of each person admitted for payment by means of a 'ticket referred to in Clause (a) of sub'-section (1) of Section 5, in other words, by means of a ticket bearing a stamp bought by the proprietor from the local authority for the amount shown thereon as the tax payable. It is clear enough from a reading of this Sub-section, along with subsection (1) of Section 5, that what the 'subsection means when it says, 'admission by ticket' is, admission by a ticket of the kind described in Clause (a) of Sub-section (1) of Section 5. In respect of such admissions, as we have already seen, the tax is paid by the proprietor by means of the stamp affixed to the ticket.
10. Sub-section (1) of Section 6 also says that in the case of admission otherwise than by ticket the tax shall be calculated and paid on the number of admissions, while Sub-section (2) of the. section says that the tax in the case of admission otherwise than by ticket, which means otherwise than in cases where the tax has been paid by the proprietor by means of stamps, the tax shall be recoverable from the proprietor. This means that in all cases where the tax has not been paid by the proprietor by means of stamps, whether or not the case falls within Section 4 or Clause (b) of subsection (1) of Section 5, or the 'unless' clause of that Sub-section, the tax is recoverable from the proprietor.
11. The Act is virtually a copy of the Travancore-Cochin Local Authorities Entertainments Tax Act, 1951 which, it would appear, is modelled on the Madras Entertainments Tax Act, 1939. Sub-sections (1) and (2) of Section 7 of the Madras Act (as it stood in 1951), the section corresponding to Section 6 of the Act, put the matter very clearly:
'7(1). The entertainments tax shall be levied in respect of each person admitted for payment, and in the case of admission by stamped ticket, shall be paid by means of the stamp on the ticket, and, in the case of admission otherwise than by stamped ticket, shall be calculated and paid on the number of admissions.
(2) The entertainments tax in the case of admission otherwise than by stamped ticket shall be recoverable from the proprietor.'
The 'improvement' made by the Travancore-Cochin draftsman and adopted by the Kerala draftsman has tended to obscure the true meaning of the section although luckily not in such a manner as to make it undiscoverable.
12. It is also noteworthy that subsection (1) of Section 6 speaks of the tax being levied 'in respect of each person admitted for payment', hardly what one would say if that person were the person liable to pay it. Sub-section (1) of Section 10 also makes it, clear that the obligation to pay the tax is on the proprietor. He is liable to punishment if the provisions ensuring due payment are not complied with, and is in addition liable to pay any tax which should have been paid.
13. Of course if, irrespective of what the statute says, you start with_ the assumption that the law imposes the tax on the entertainee and that the proprietor is only a statutory collecting agency, paying the tax in the first instance and passing it on to the entertainee, you can readily explain away all these provisions of the Act as provisions for collecting the tax from the person who is in the first instance bound to pay it. But that would scarcely be the correct approach. You would, before making the assumption, look for some indication in the statute that the tax is really payable not by the person from whom it is to be collected but by some other person. But of that, as we have said, there is not even a whisper of a suggestion. Of course, it is much easier to collect the tax if you look to the proprietor for payment. To collect it from the entertainee might not be a practicable proposition except for the proprietor who can collect it along with the price of admission. But, in the absence of provision authorising the proprietor to collect the tax as tax from the entertainee -- and there is no such provision in the Act -- that would be no ground for holding that the Act really imposes the tax on the entertainee and not on the proprietor.
On the contrary, that seems to be the very reason why the Act imposes the tax on the proprietor and not on the entertainee. As we have seen the legislature could have imposed the tax either on the proprietor or the entertainee or on both. It has chosen to make the tax recoverable from the proprietor and has said so in express terms. It has said nothing which suggests even the whisper of an implication that the tax is imposed on the entertainee. Then what reason can there be for thinking that the tax is really imposed on the entertainee unless it be the preconceived notion that since the tax is a tax on what, having regard to the language of the legislative. entry has been referred to in the course of the argument as the luxury of an entertainment, he must pay the tax since it is he that enjoys (or suffers) the luxury having paid for it. But, if you must start with a preconceived notion, equally or with more reason, might you start with the notion that the proprietor must pay the tax (as indeed the statute says he must) since it is he who provides (or inflicts) the luxury and enjoys the benefit of the money he takes for it.
14. As we have already said, tax was being recovered from the writ petitioners on the basis of daily returns. They were not buying stamps from the Municipality for affixture to the tickets to be issued by them although the Municipality was impressing a rubber stamp on the tickets without collecting the price, in other words, without collecting the amount payable as tax in respect of the ticket, a stamp which, it is the common case, does not answer the requirements of Clause (a) of Sub-section (1) of Section 5. Tax was being recovered from the proprietors after each entertainment on the basis of returns of the tickets sold. Therefore, there was no admission by ticket, or payment by means of a ticket, within the meaning of Sub-section (1) of Section 6 read with Clause (a) of Sub-section (1) of Section 5.
15. It is said that this cannot fall within the 'unless' clause of Sub-section (1) of Section 5, since there has been no compliance either by the Municipality-or by the proprietors with the provisions of that clause or with the rules in Part IV of the Rules. But, as we have already shown, this does not in any way affect the liability of the proprietor to pay the tax. That is squarely imposed on him by Sub-section (2) of Section 6, whether or not the admission was in a manner authorised by Section 5. If the admission was in a manner not authorised by Section 5, the result is not to wipe off the liability of the proprietor under Sub-section (2) of S 6, but, to add to this liability, the liability to the penalty under Sub-section (1) of Section 10 on conviction by a Magistrate. That Sub-section, it will be recalled, not merely makes the proprietor liable to a fine but makes it clear that he shall, in addition, be liable to pay any tax which should have been paid.
16. As we have said at the beginning, it seems to us clear that the Act and the Rules make the proprietor, and the proprietor alone, liable to pay the tax. They do not in any way cast legal} liability on the entertainee.
17. Following K. Viswanathan v. State of Madras, (AIR 1961 Mad 525); 1963 Ker LT 1080 (AIR 1964 Ker 79) (FB) held that the proprietor was only a collecting agency for the local authority and that the person on whom the' Act there considered, namely, the Travancore-Cochin Local Authorities Entertainments Tax Act, 1951, imposed the tax was the entertainee. From this it was an easy step to hold that, having failed in its statutory duty to supply the collecting agency with the stamp required for the purpose of passing on the tax to the entertainee from whom it was really due, the local authority was not entitled to collect the tax from the collecting agency. In our view, for the reasons we have already stated in full, the premise on which this holding proceeds, namely, that the legal liability to pay the tax is really on the entertainee and not on the proprietor, and that the latter is merely a collecting agency, has no basis in the provisions of the Act. Section 5 only embodies the safeguards to be taken in order to ensure that the tax is duly paid, and compliance therewith whether by the local authority or the proprietor in no sense constitutes a condition precedent for the latter's liability to pay the tax. But, since non-compliance with its provisions would expose him to penalty, the proprietor can insist on the local authority playing its appointed part and probably mandamus would issue to compel that. That, however, has nothing to do with the proprietor's liability to pay the tax in respect of each person admitted for payment.
18. It might be as well to emphasize that we are here concerned only with the legal incidence of the tax, on whom does the law impose the tax; not with its economic incidence, whose pocket does it really touch -- the latter might be a pertinent matter for enquiry by economists, taxation enquiry committees and legislatures, rarely by the courts except, perhaps, when the true character of a tax is called in question. The use of the equivocal phrase, 'pass on the tax' often leads to confusion. Strictly speaking we suppose it means passing on the tax as tax, in other words, the passing on of the legal incidence of the tax by the person from whom it is in the first instance collected (and who is only a collecting agency) to the person on whom it is really imposed by law and from whom it is collected as tax. But the phrase is often used in the sense of passing on the economic incidence of the tax which every businessman must do if he is to survive in business just as he passes on the economic incidence of his other items of expenditure and of his profit to his customers by including all these elements in the price he charges the customer -- that one or the other of these elements is separately shown in his bill does not mean that legal liability in respect of that element is on the customer. And the customer in turn passes on the economic incidence to some other person and so on ad infinitum. But, having once used the phrase without a clear appreciation as to whether what is meant is the passing on of the legal incidence or of the economic incidence, it is later easy to fall into the error of assuming that what is passed on is the legal incidence.
19. We see nothing wrong with the collections already made by the Municipality from the petitioners on the basis of the returns of the tickets sold by them. The petitioners have no case that anything more has been collected than the prescribed percentage of the payments for admission received by them -- their only objection to the collection is that stamps of the kind described in Clause (a) of Sub-section (1) of Sec. 5 have not been affixed by the local authority to the tickets for admission. Nor can we find anything wrong with the notices Exts. P2 and P5 demanding the arrears of tax. The notices do not state the amounts due and we make it clear that we are not pronouncing on what amounts are due or that any amount is due at all.
20. We allow the Municipality's appeals, Writ Appeals Nos. 50 and 52 of 1967 and dismiss the writ petitions, O. P. Nos. 936 and 932 of 1966. Wo dismiss the proprietors' appeals, Writ Appeals Nos. 923 and 924 of 1969. We make no order as to costs since it is the Municipality that is to blame for not having administered the Act properly -- a reference to the neighbouring State of Madras which has been working the Act since 1939 might have disclosed how the Act ought to be worked. But that does not seem to have been attempted either by the Municipality or those above it.
Govindan Nair, J.
21. Admissions for payments of persons to the theatres owned by the petitioners in original petitions 932 and 936 (the appeals are from the judgment disposing of these original petitions) have been under the latter part of Section 5(1) (b) of the Kerala Local Authorities Entertainments Tax Act, 1961. The tickets issued seem to be in conformity with Rule 27 in Part IV of the Kerala Local Authorities Entertainments Tax Rules, 1962 (hereinafter referred to as the Rules). Payments of tax have been made on the basis of returns submitted by the two petitioners. This accords with the provision in Rule 26 of the Rules. The returns submitted by the petitioners were called 'daily collection reports' and a sample copy of the reports has been produced marked as Ext. P2 along with each of the counter affidavits in the two cases. These reports give more or less the details required to be furnished by the returns to be submitted according to the Rules and the actual tax due can easily be determined on the basis of these reports. No specific sanction as required by the Rules seems to have been granted and no security has been furnished. But the non-compliance with these Safeguards intended for ensuring proper and full payment of tax cannot detract from the liability to pay the tax. Once it is admitted that there has been 'admissions for payment' to the theatre and the quantum of the total payment for admission is known, the tax in accordance with the percentage on the total payment for admission has to be paid. This has admittedly not been paid though part had been paid; the demand in Ext. P5 is that the balance should also be paid. I can see no reason to interfere with this demand. I would therefore concur with the conclusion that writ appeals 50 and 52 taken by the Municipality should be allowed and the original petitions 936 and 932 dismissed. It naturally follows that writ appeals 923 and 924 have to fail.
22. I wish to express no opinion on the question as to whether the incidence of the tax imposed by the Act is on the entertainer or on the 'entertainer'. Nor am I called upon on the facts of the case to answer the question whether if the petitioners had insisted that tickets envisaged by Section 5(1) (a) of the Act should be issued by the local authority and the local authority refused to do so, this Court would have directed the local authority to issue such tickets though I am inclined to take the view that this Court would have so directed as was done in 1963 Ker LT 1080 = (AIR 19(54 Ker 79 (FB)).
23. I agree with the conclusion. Order accordingly.