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2001 Supreme(Mad) 557
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE V.S. SIRPURKAR & THE HONOURABLE MR. JUSTICE A. KULASEKARAN
Indian Institute of Architects - Appellant
Versus
Union of India - Respondents
W.P. Nos. 8539, 345 & 19856 of 2000; 847, 6449 & 7411 of 1999 and 16297, 17833, 17834, 18129 & 20066 of 1998
Decided On : 30 April 2001
A tax on profession is not necessarily connected with income. A tax on profession can be imposed if a person carries on a profession. Such a tax on profession is irrespective of the question of income.
Headnote:
SERVICE TAX - CONSTITUTIONAL VALIDITY - LEGISLATIVE COMPETENCE - TAX ON PROFESSION - ENTRY 60 OF STATE LIST (LIST II) - SERVICE TAX - ENTRY 97 OF UNION LIST (LIST I) - PITH AND SUBSTANCE - NATURE OF TAX - SERVICE TAX LEVIED ON ARCHITECTS AND CHARTERED ACCOUNTANTS - WHETHER TAX ON PROFESSION OR SERVICE TAX - INTERPRETATION OF ENTRIES IN THE CONSTITUTION - DISTINCTION BETWEEN TAX ON PROFESSION AND SERVICE TAX - PROFESSIONAL TAX LINKED WITH INCOME - ART. 276(2) OF THE CONSTITUTION - EXPENDITURE TAX ACT, 1987 - ASPECT THEORY - FEDERATION OF HOTELS AND RESTAURANTS CASE - CONFUSING AND ARBITRARY PROVISIONS - ART. 14 OF THE CONSTITUTION.
Fact of the Case:
The petitioners, Indian Institute of Architects Association, Tamil Nadu Chapter, and various representative bodies of Chartered Accountants, challenged the constitutional validity of the provisions of the Finance Act by which the services offered by Architects and Chartered Accountants were brought under the tax-net, to be charged at five per cent of the value of the taxable service provided to any person by the Architects or the Chartered Accountants.
Finding of the Court:
1. The impugned legislation was a sui generis statute providing for (i) tax on the services; (ii) defining the taxable services; and (iii) providing the measure thereof. 2. The service tax was levied by reason of services which were offered. The imposition was on the person rendering the service. 3. A tax on profession was not necessarily connected with income. A tax on profession could be imposed if a person carried on a profession. Such a tax on profession was irrespective of the question of income. 4. The observations in Western India Theatre Ltd. v. Cantonment Board, Pune, and Kamtaprasad v. State of Bihar remained undisturbed and had not been contradicted so far. 5. The professional tax covered under Entry 60 of List II could not be transferred in sharp contradistinction with the present service tax, which was capable of being transferred to the customers who had the advantage of enjoying the services. 6. A professional tax had to be paid whether a professional actually had given the professional service or not whereas, the service tax would not be payable if a professional like a Chartered Accountant or Cost Accountant had in reality not rendered any professional services to a customer. 7. The service tax levied on Architects and Chartered Accountants was not a tax on profession but a tax on the services provided by them in their professional capacity. 8. The impugned provisions did not in any manner offend Art. 14 of the Constitution of India.
Issues: 1. Whether the impugned legislation was beyond the legislative competence of the Parliament. 2. Whether the service tax levied on Architects and Chartered Accountants was a tax on profession or a service tax. 3. Whether the impugned provisions offended Art. 14 of the Constitution of India.
Ratio Decidendi: 1. The impugned legislation was a sui generis statute providing for (i) tax on the services; (ii) defining the taxable services; and (iii) providing the measure thereof. 2. The service tax was levied by reason of services which were offered. The imposition was on the person rendering the service. 3. A tax on profession was not necessarily connected with income. A tax on profession could be imposed if a person carried on a profession. Such a tax on profession was irrespective of the question of income. 4. The observations in Western India Theatre Ltd. v. Cantonment Board, Pune, and Kamtaprasad v. State of Bihar remained undisturbed and had not been contradicted so far. 5. The professional tax covered under Entry 60 of List II could not be transferred in sharp contradistinction with the present service tax, which was capable of being transferred to the customers who had the advantage of enjoying the services. 6. A professional tax had to be paid whether a professional actually had given the professional service or not whereas, the service tax would not be payable if a professional like a Chartered Accountant or Cost Accountant had in reality not rendered any professional services to a customer. 7. The service tax levied on Architects and Chartered Accountants was not a tax on profession but a tax on the services provided by them in their professional capacity. 8. The impugned provisions did not in any manner offend Art. 14 of the Constitution of India.
Final Decision: All the petitions were dismissed.
V.S. SIRPURKAR, J.
This judgment will govern the above writ petitions, which are filed under Art. 226 of the Constitution of India. Out of the above writ petitions, while W.P. No. 8539 of 2000 is filedby the Indian Institute of Architects Association, Tamil Nadu Chapter on behalf of the Architects in general, who are registered under it as the practicing Architects, rest of the writ petitions pertain to the Chartered Accountantsand have been filed by the various representative bodies of which the practising Chartered Accountants are the members since the question involved in identical in all these petitions and they are being disposed of by this common judgment.
2.Shortly stated, the Architects and Chartered Accountants are challenging the constitutional validity of the provisions of Finance Act by which the services offered by the Architects and Chartered Accountants have been brought under the tax-net, which is to be chargedat five per cent of the value of the taxable service provided to any person by the Architects or the Chartered Accountants. Sec.116 of the Finance Act No. 2 of 1998 is in challenge, as amended by Act 32 of 1994, and has first defined the said services and included them in the tax-net. The relevant portions of the Finance Act are as under :
65. Definitions
In this context, unless the context otherwise requires,
(5) "architect" means any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architects Act, 1972 (20 of 1972) and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture.
(31) Practising "Chartered Accountant" means a person who is a member of the Institute of Chartered Accountants of India and is holding a certificate of practice granted under the provisions of the Chartered Accountants Act, 1949 (38 of 1949) and includes any concern engaged in rendering services in the field of chartered accountancy.(48) "taxable service" means any service provided,
(p) to a client, by an architect in his professional capacity in any manner;
(s) to a client by a practicing chartered accountant in his professional capacity, in any manner;
The other features of the Act are that the providers of the services, i.e. "architects" and "practising chartered accountants" are assessees under the Act and are responsible for collecting the said tax at the prescribed rate. The relevant section, Sec.66 (4), reads as follows :
66. Charge of service tax
(4) with effect from the date notified under section 116 of the Finance (No. 2)Act, 1998, there shall be levied a service tax at the rate of five per cent of the value of the taxable services referred to in sub-clause (p), (q), (r), (s), (t), (u), (v), (x), (y) and (z) of clause 48 of section 65 and collected in such manner as may be prescribed.
The said valuation of the "taxable services" is provided in Sec.67. The relevantprovisions are as under :
67. Valuation of taxable services for charging service tax
For the purposes of this Chapter, the value of taxable services.
(o) in relation to the service provided by an architect to a client, shall be the gross amount charged by such architect from the client for services rendered in professional capacity in any manner;
(r) in relation to the service provided by a practising chartered accountant to a client, shall be the gross amount charged by such accountant from the client for services rendered in professional capacity in any manner :
3.The main and the only challenge to the relevant provisions inflicting the tax liability is on the ground of lack of "legislative competence" on the part of the Parliament. According to the petitioners, the "Architects" and "Chartered Accountants" are the"professionals", which professions are governed and controlledbythe separate enactments and, therefore, considering the pith and substance of thepresentenactment, inflicting the tax, it is nothing but a
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