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D. Murali

Behind the cable TV soap beamed into your home is another interesting story that revolves round this question - do TV signals constitute entertainment?

WHAT happens inside the Supreme Court doesn't show on TV. But the converse was true when the State of West Bengal and a multi system operator (MSO), Purvi Communication P Ltd, argued whether TV signals are `entertainment'.

Purvi uses "state-of-the-art control rooms" to receive TV signals "broadcast by various satellite channels... from their earth up-linking stations at various parts of the world" and provides the same to "individual cable operators of various localities", under franchise agreements.

All was well, and everybody enjoyed the entertainment, which was when sobbing got triggered off in control rooms by the Cable Television Networks (Regulation) Act, 1995, for it sought to regulate the operation of cable television network in the country.

To add to Purvi's woes, the West Bengal Legislature took the cue and amended its Entertainment-cum-Amusement Tax Act, 1982, through the Finance Act, 1998. It imposed tax on MSOs, using the power that Entry 62 of List II of Seventh Schedule to the Constitution gives for taxing "luxuries, including taxes on entertainments, amusements, betting and gambling."

If you trace the history of the 1982 Act, you'd learn that it had first levied tax on holders of TV sets; then in 1983, it extended to VCR. The 1998 amendment brought in a new sub-section 4a to Section 4A, taxing MSOs, at a rate not exceeding 25 per cent of monthly gross receipts.

`Cable operator' is defined as "any person who provides cable service directly to customers or transmits signal to sub-cable operator through a cable-television network and otherwise controls or is responsible for the management and operation of a cable television network." And `sub-cable operator' is one who, "on the basis of an agreement, contract or any other arrangement made between him and such cable operator, receives signal from such cable operator and provides cable service for exhibition of performance, film or any programme to the customers".

The Act defined `cable service' as "transmission or retransmission of programmes including broadcast television channel signals or satellite television channel signals or both through or any other means." The phrase `cable television network' was defined as "any system consisting of a set of closed transmission paths and associated signals generation, control and distribution equipment, designed to provide cable service for reception by multiple customers." And a `subscriber' is "a person who receives the signals of cable television network at a place indicated by him to the cable operator, without further transmitting it to any other person."

To Purvi, however, all this was far from `entertainment'. When demand notices for entertainment tax were served on the company, it said that the 1998 amendment had no vires. The Chairman of the West Bengal Taxation Tribunal too seemed to concur, for he said that the State Legislature was not competent to levy the tax on the `entertainer' i.e., the `sub-cable operator' and/or the `entertainee', namely, the viewer. However, two other members of the Tribunal held an opposite view, and said that the cable operator was the exhibitor and provider of entertainment. Upset at the majority view, Purvi strode up to the High Court, where the decision was that the amendment was ultra vires, leaving the State aggrieved.

If all this seems as gripping as a quick-paced soap, there was more action at the apex court, with Dushyant Dave arguing for the company, and V.R. Reddy, for the State. Reddy pointed out that Purvi controlled, and also was responsible for the management and operation of, the cable television network. Purvi not only received signals but also sent "certain visual images and audio and other information by means of telecommunication network for presentation to members of the public" through "feeder line i.e. coaxial cable or any other device". At the other end, the sub-cable operators were only franchisees who could telecast to viewers only when Purvi sent the signals. The source of entertainment is Purvi, argued Reddy.

He also averred that the High Court had erred by not appreciating that "the taxable event need not necessarily be the actual utilisation or the actual consumption of the luxury or entertainment." A luxury or entertainment that can reasonably be said to be amenable to a potential consumption does provide the nexus, said Reddy. The very signal transmitted through a cable operator's cable instantly reached the sub-cable operator and also the viewer's television threshold, he explained. This was, therefore, an instance of `ready entertainment in the form of audio visual signal' originating from Purvi.

"Once this movement is done, the show is on. It is not at all like a roll of cinematic film lying in a can in the godown of a distributor waiting for an exhibitor to take to his cinema hall and put it in show when the exhibitor feels like it. What has gone on the TV network is in the process of being exhibited and cannot be postponed in time," is an interesting analogy from Reddy.

Dave argued forcefully that Purvi's role was that of a "nodal, technical and scientific receptionist and supplier of signals". MSOs were not only giving signals to local cable operators, but also performing "value-added services such as the Internet, telephony, and transmission of data." Purvi's activity was not entertainment, he said, and added that at best, the company was "providing one of the inputs for the ultimate creation of an output, which may be said to be entertainment." His view was that it was wrong to treat MSOs as cable operators, and `artificially' label cable operators as sub cable operators.

Is there a `close and direct connection' with entertainment, asked Dave, and explained again with a cinema analogy. "In the case of exhibition of a movie in the cinema hall, it is the proprietor of the hall, who is taxed, as he obviously is the person who provides the entertainment by charging the necessary monetary compensation. All other persons who had participated in the production and distribution of the movie are not liable to pay entertainment tax. Similarly, the cable operator in a locality who is actually providing the entertainment to this subscribers may be liable to pay tax but those who function at an intermediary stage cannot be held liable to pay the said tax," was Dave's contention.

Dr A.M. Singhvi, who appeared as `intervenor', spoke of `unconstitutional enlargement of the concept of entertainment' through `backward integration'. He visualised, quite dangerously, that "there would be no logical basis then to not treat distributors, producers, broadcasters and even the writer, author and creator of the film, show or serial in question as being an entertainer and hence exigible to entertainment tax."

Justices S.N. Variava, AR. Lakshmanan and S.H. Kapadia heard both the sides. Purvi's arguments were "very attractive at the first blush," they said, but added that "on deeper examination" the company's stand was not sustainable. First, there was no bar on the State to levy tax on entertainment through more than one legislation. Two, the cable operator was the one providing the source of entertainment, and had `direct and proximate nexus'. Three, tax may be imposed on "the person offering or providing entertainment or the person enjoying it", and the State could choose the target.

An important observation of the apex court was that the sub cable operators alone weren't the givers of entertainment, because "in a world of indirect links between individuals made possible by the electronic age, the indirect meeting between the cable operator and the consumer through a technical link has been made possible." Another significant point that emerged was about theoretical entertainment, to explain which the court cited Express Hotels Private Ltd vs State of Gujarat: "Existence of means of providing entertainment would be sufficient to support a law imposing tax thereon." Thus, `the means of providing entertainment provides the nexus' between the State's taxing power and the subject of tax.

Well, now you can flick the remote, since I can hear the MSO around the corner, muttering just what Antonio said in Twelfth Night: "Pardon me, sir, your bad entertainment."

Cases@TheHindu.co.in

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