New Delhi: In a significant ruling, the Supreme Court of India today affirmed that entertainment tax cannot be levied on the internet service provided by cinema owners under the Tamil Nadu Entertainment Tax Act, 1939. The verdict brings clarity to the contentious issue of additional charges for online ticket bookings.
The judgment, delivered by a bench comprising Justice B.V. Nagarathna and Justice Nongmeikapam Kotiswar Singh, underscored that the extra fee for booking tickets online from home is a service charge, not an entertainment tax. Justice Nagarathna emphasized that this service facilitates convenience, allowing customers to book tickets remotely, thereby saving time, energy, and travel expenses.
“See the transaction: for sitting at home and buying a ticket, a service is provided. The object is that you are saving energy, time, petrol. For the service of online booking, you are charged Rs. 30 extra,” Justice Nagarathna remarked. The Supreme Court asserted that such a service could not be subjected to entertainment tax, as it is not an integral part of the entertainment itself but an ancillary service.
The bench also drew attention to the distinction between different types of services provided by cinema owners. For instance, gold class seats, which include food and drink services, are priced higher, reflecting the additional amenities offered. This, however, does not fall under the purview of entertainment tax, which is levied solely on the ticket price for entry into the cinema hall.
The Supreme Court dismissed the Special Leave Petition (SLP) that sought to compare online booking charges with optional charges at drive-in theatres. The Court termed the comparison erroneous, stating that online booking charges are an optional facility, not a condition for entry into the cinema.
The impugned order from the Madras High Court had earlier opined that payments made for any purpose connected with entertainment would be taxable under the Tamil Nadu Entertainment Tax Act, 1939, only if such payments were mandatory for entry. The Supreme Court upheld this view, noting that online booking fees do not meet this criterion.
“It is an additional payment for an extra facility provided by the cinema hall owner. With the advent of the internet, much after the said enactment of 1939, even though amended from time to time, the said Act could not have provided for the levy of tax on the service of the internet provided by the cinema owner,” the Supreme Court elaborated.
The ruling clarified that entertainment tax applies only to the cost of the ticket that grants entry to the cinema hall. As online booking is optional and not a mandatory condition for attending the cinema, it does not fall within the scope of Section 3(7)(c) of the Act.
About the Tamil Nadu Entertainment Tax Act, 1939
The Tamil Nadu Entertainment Tax Act, 1939, is a legislative framework established to impose a tax on entertainment activities within the state of Tamil Nadu. Originally enacted to regulate and tax various forms of entertainment, including cinema shows, amusement parks, and other public performances, the Act has undergone several amendments to address the evolving nature of entertainment and associated services.
The Act defines “entertainment” broadly to include any exhibition, performance, amusement, game, or sport to which persons are admitted for payment. Under Section 3 of the Act, an entertainment tax is levied on the payment for admission to any entertainment, calculated as a percentage of the admission charge. The primary purpose of this tax is to generate revenue for the state government.
Over the years, the scope of the Act has been interpreted and reinterpreted to accommodate new forms of entertainment and related services. However, with the advent of the internet and online services, questions have arisen regarding the applicability of the tax to digital and online transactions. The recent Supreme Court ruling has clarified that internet service fees charged by cinema owners for online ticket bookings do not fall under the purview of the entertainment tax, as these charges are for a separate service and not a mandatory condition for entry into the cinema hall.
This decision marks a significant clarification in the interpretation of the Tamil Nadu Entertainment Tax Act, 1939, providing relief to both cinema owners and patrons who prefer the convenience of online ticket bookings.