A division bench of the Delhi High Court, last week delivered a split verdict on the levy of entertainment tax on the sponsorship given to fashion events under the Delhi Entertainment and Betting Tax Act.
A bench of Justices Ravindra Bhatt and Deepa Sharma was hearing a bunch of petitions through which the petitioners sought for refund of entertainment taxes paid by them under protest.
The petitioners, a trade promotion council, organises fashion weeks or fashion shows as part of business promotion. For organizing such events, the petitioner entered into sponsorship agreements with various parties. In return, the sponsors will get certain rights such as title sponsors, Right to get their logo inserted in composite event logo, Right to name a pavilion on agreed title etc.
The grievance of the petitioner was that the State demanded tax from them under section 6(1) of the Delhi Entertainment and Betting Tax Act as per which, payments made for admission to a place of entertainment is subject to tax. The department held that after the amendment of section 2(m), the definition of ‘payment for admission’ includes any payment “connected with an entertainment, which a person is required to make… as a condition of attending, or continuing to attend the entertainment”. According to them, post-amendment, entertainment tax can be levied on Sponsorship.
Justice S. Ravindra Bhatt allowed the petitions and directed the Government to refund the taxes collected by them with interest in 8 weeks.
He opined that the impugned amendment does not result in a valid levy of entertainment tax. “mere amendment to the definition of “payment for admission” under Section 2 (m) of the Act cannot, in the absence of an amendment to the charging section, or introduction of a new charging section, introduce a levy. Therefore, the demands made on the basis of the amendments are hereby declared as contrary to Articles 14 and 265 of the Constitution of India.”
He further opined that the impugned levy, to the extent it does not introduce a separate machinery also fails and a direction to that effect is also issued;
“Arguendo, the impugned amendment is to be valid, it is not clarificatory but in fact a new amendment. Therefore, granting retrospective effect to it, would impose onerous and harsh conditions, that could never have been provisioned for by the event proprietors. As a result, the retrospective effect given to the impugned amendment is void as violative of Articles 14 and 265 of the Constitution of India,” he added.
Dissenting the co-Judge’s verdict, Justice Deepa Sharma said that the Act prohibits the entry to any place of entertainment except as provided in Sections 9 and 10 of the Act and Section 2(m) of the Act defines payment for admission which definition is inclusive. The object and purpose of the Legislature for making the definition of Section 2(m) of the Act so broad and inclusive is to defeat indigenous methods adopted to avoid tax.
It was therefore, concluded that sponsorship amounts are payments for entry to a place of entertainment if it fulfills other requirements of Section 2(m) of the Act. “Similarly, putting up advertisements, display of product/brand name etc. in place of entertainment is admission to an entertainment in terms of Section 2(aa) of the Act. The impugned amendment, whereby Explanation 2 is added retrospectively, is explanatory and clarifactory in nature and does not add any new regime of taxation and the Act has sufficient machinery to levy taxes.”
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