Judges/Coram: Sudhi Ranjan Das, C.J., P.B. Gajendragadkar, B.P. Sinha, S.K. Das and T.L. Venkatarama Aiyyar, JJ.

Facts:

The second respondent in this appeal was a business that was formed in the State of Mysore, and the first respondent was its founder and managing director. The second respondent ran a prize competition through an advertisement in a weekly newspaper printed and published in Bangalore called the R. M. D. C. Crosswords. In the State of Bombay, where the respondents set up collecting depots to take admission forms and payments, this advertisement was widely published. Additionally, they hired local collectors and circulated newspaper advertising inviting readers to participate in the competitions.

The Bombay Lotteries and Prize Competitions Control and Tax (Amendment) Act, 1952 was enacted by the Bombay Legislature on November 20, 1952 (Act, 1952). The scope of Section 2(1)(d) of the Bombay Lotteries and Prize Competition Control and Tax Act, 1948 (Act, 1948), which defined the term 'prize competition' was expanded vide this amendment.

The amended definition now encompasses 'prize competitions' held through newspapers printed and distributed outside of the State. The amendment also added a new clause, Section 12A, that levies a tax on competition promoters for money received from the State.

The respondents then filed a petition with the High Court of Bombay under Article 226 of the Constitution. It was argued that the Act as amended and the Rules framed under it insofar as they applied to these prize competitions were ultra vires the State Legislature. It was contented to be violative of their basic rights under Article 19(1)(g) and the freedom of inter-State trade under Article 301 of the Constitution.

The Single Judge who presided over the case in the first instance concluded in favour of the respondents. The Court of Appeal of the High Court of Judicature of Bombay confirmed the order of Single Judge.

Being aggrieved by the said judgment of the Court of Appeal, the appellant, herein, applied for and obtained under Articles 132(1) and 133(1) of the Constitution a certificate of fitness for appeal to this Court and hence this appeal.

Issues:

(i) Whether the provisions of Bombay Lotteries and Prize Competition Control and Tax Act, 1948 as amended by the Bombay Lotteries and Prize Competitions Control and Tax (Amendment) Act are constitutional?

(ii) Can the promotion or prize competitions, which are opposed to public policy, be characterised as a 'trade or business' within the meaning of Article 19(1)(g) or 'trade, commerce and intercourse' within Article 301 of the Constitution?

(iii) Whether our Constitution makers ever intended that gambling should be a fundamental right within the meaning of Article 19(1)(g) or within the protected freedom declared by Article 301 of the Constitution?

Law:

Constitution - Article 19(1)(g) - It guarantees freedom, to any citizen of India, to practice any profession or to carry out any occupation, trade or business.

Constitution - Article 301 - It provides that the trade, commerce and intercourse in the country should be free throughout the country.

Constitution - Entry 34 of List II in the Seventh Schedule - Deals with betting and gambling.

Constitution - Entry 62 of List II in the Seventh Schedule - Deals with taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.

Bombay Lotteries and Prize Competition Control and Tax Act, 1948 - Section2(1)(d) - Defines the word 'prize competition', with the qualifying clause "for which the solution is prepared beforehand by the promoters of the competition or for which the solution is determined by lot".

Bombay Lotteries and Prize Competitions Control and Tax Act, 1948 - Section 12A

Contentions:

Appellant

(i) Object of the impugned Act is to control and to tax lotteries and prize competitions.

(ii) It is not the purpose of the Act is to control and tax lotteries and prize competitions.

(iii) Impugned Act deals alike with prize competitions which may partake of the nature of gambling and also prize competitions which call for knowledge and skill for winning success.

(iv) Even if the prize competitions constitute gambling transactions, they are nevertheless trade or business activities. That being so the impugned Act infringes the petitioners' fundamental right under Article 19(1)(g) of the Constitution to carry on their trade or business.

(v) The restrictions imposed by the Act cannot possibly be supported as reasonable restrictions in the interests of the general public permissible under Article 19(6) of the Constitution.

(vi) The trade or business carried on by petitioners is not confined within the limits of the State of Mysore but extends across the State boundaries into other States within the territories of India. It even extends into lands beyond the Union of India. In view of the inter-State nature of their trade or business the restrictions imposed by the impugned Act offend against Article 301 of the Constitution. This Article declares that, subject to the other provisions of Part XIII of the Constitution, trade, commerce and intercourse throughout the territory of India shall be free.

Respondent

(i) Impugned Act is legislation under Entries 26 and 60 in List II of the Seventh Schedule to the Constitution. Same is corresponding to Entries 27 and 46 of List II in the Schedule to the Government of India Act, 1935 (GIA).

(ii) In any event, Section 12A of the impugned Act, in so far as it imposes a tax, comes under Entry 60 of List II in the Seventh Schedule to the Constitution. Same is corresponding to Entry 46 of List II in the Seventh Schedule to the GIA. Same is not falling under Entry 62 of List II in the Seventh Schedule to the Constitution, corresponding to Entry 50 of List II in the Seventh Schedule to the GIA.

(iii) As the tax imposed exceeds Rs. 250/- it is void under Article 276(2) of Constitution, which reproduces Section 142A of the GIA.

(iv) As prize competitions are opposed to public policy there can be no "trade" or "business" in promoting a prize competition. Question of infraction of the petitioner's fundamental right guaranteed Article 19(1)(g) or that declared by Article 301 of Constitution, does not arise at all.

(v) In any event if Article 19(1)(g) or Article 301 applies at all, the restrictions imposed by the impugned Act are reasonable restrictions necessary in the interest of the general public. Same is saved by Article 19(6) and by Article 304(b) of the Constitution.

Analysis:

Test for validity Bombay Lotteries and Prize Competition Control and Tax Act, 1948 as amended by the Bombay Lotteries and Prize Competitions Control and Tax (Amendment) Act

(i) In testing the validity of an Act it was necessary, to preliminary decide:

• Whether it was with respect to a topic assigned to the legislature?
• Where it was so and the legislature was a State Legislature and the Act purported to operate beyond the State, whether there was sufficient territorial nexus to validate such operation?
• Whether the powers of the legislature were in any other way fettered by the Constitution?

Topic Assigned to Legislature - Act of 1948 was enacted to control and to levy a tax not only on prize competitions but on lotteries also.

(i) Impugned Act in its entirety or at any rate in so far as it covers legitimate and innocent prize competition is a law with respect to trade and commerce under Entry 26 and not with respect to betting and gambling under Entry 34.

(ii) According to the definition of prize competition given in Act of 1939 Act as in the Act of 1948, as originally enacted, the five kinds of prize competitions comprised in the first category and the competition in the third category were all of a gambling nature.

(iii) In between those two categories of gambling, competitions were squeezed in, as the second category, "competitions in which prizes were offered for forecasts of the results either of a future event or of a past event the result of which is not yet ascertained or is not yet generally known."

(iv) Definition of prize competition still comprises three categories as before. The second and the third categories are couched in exactly the same language as were their counterparts in the earlier definitions. It is only in the first category that certain changes are noticeable.

The five kinds of prize competitions that were included in the first category of the old definitions are still there. Instead of their being set out one after another in a continuous sentence, they have been set out one below another with a separate number assigned to each of them. The mere assigning a separate number to the five items of prize competitions included in the first category does not affect or alter the meaning, scope and effect of this part of the definition.

The numbering of the five items has not dissociated any of them from the qualifying clause. If the qualifying clause were intended to apply only to the fifth item, then there would have been no comma after the fifth item. Qualifying clause continues to apply to each of the five items as before the amendment. There is grammatically no difficulty in reading the qualifying clause as lending colour to each of those items.

Impugned Section, on a true construction, covers only gambling prize competitions. Impugned Act is a law with respect to betting and gambling under Entry 34.

Tax imposed by Section 12A is a tax on betting and gambling

(i) Tax sought to be imposed by the impugned Act is a percentage of the aggregate of the entry fees received from the State of Bombay. It is a tax on each entry fee received from each individual competitor who remits it from the State of Bombay. In gigantic prize competitions, it is extremely difficult and indeed well nigh impossible for the State to get at each individual competitor. Provision for collecting the tax from the promoters after the entry fees come into their hands is nothing but a convenient method of collecting the tax.

(ii) If taxation on betting and gambling is to be regarded as a means of controlling betting and gambling activities, then the easiest way of doing so is to get at the promoters who hold the gamblers' money in their hands. To collect encourage and promote the unsocial activities and collect the tax from the promoters is not to tax the promoters. It is a convenient way of imposing the tax on betting and gambling and indirectly taxing the gamblers themselves.

(iii) Tax here is not on the profits made by the petitioners. It is a percentage of the total sum received by them from the State of Bombay as entrance fees without the deduction of any expense. This circumstance also indicates that it is not a tax on a trade. There are marked distinctions between a tax on gross collection and a tax on income, which for taxation purposes means gains and profits.

Legislative Competence - State Legislature made a law with respect to betting and gambling under Entry 34

(i) In enacting the statute the Legislature was undoubtedly making a law with respect to betting and gambling under Entry 34. By the Amending Act of 1952, the Legislature deleted the concluding words of the definition of 'prize competition', namely, "but does not include etc., etc.,".Vide this modification they extended the operation of the Act to prize competitions carried on in newspapers printed and published outside the State of Bombay.

They knew that under Article 276 of Constitution which reproduced Section 142A of the GIA, they could not impose a tax exceeding the sum of Rs. 250 on any trade or calling under Entry 60. Legislature must have been contemplating to make a law with respect to betting and gambling under Entry 62. There is no constitutional limit to the quantum of tax which can be imposed by a law made under that Entry. Section 12A is supportable as a valid piece of legislation under Entry 62.

Territorial Nexus - Under Articles 245 and 246 of Constitution, the State Legislature can only make a law for the State or any part thereof

(i) If there is a territorial nexus between the person sought to be charged and the State seeking to tax him, the taxing statute may be upheld.

(ii) Sufficiency of the territorial connection involves a consideration of two elements. These are (a) the connection must be real and not illusory and (b) the liability sought to be imposed must be pertinent to that connection.

(iii) Filling up of the forms and the payment of money take place within the State which is seeking to tax only the amount received by the petitioners from the State of Bombay. The tax is on gambling although it is collected from the promoters. All these constitute sufficient territorial nexus which entitles the State of Bombay to impose a tax on the gambling that takes place within its boundaries. The impugned law cannot be struck down on the ground of extra territoriality.

True meaning, import and scope of the freedom guaranteed by Articles 19(1)(g) and 301 of Constitution

(i) Scheme of our Constitution is to protect the freedom of each individual citizen to carry on his trade or business. This it does by Article 19(1)(g) of Constitution.

(ii) This guaranteed right is, however, subject to Article 19(6) of Constitution. This Article protects a law which imposes, in the interest of the general public, reasonable restrictions on the exercise of the fundamental right guaranteed by Article 19(1)(g).

(iii) Article 301 of Constitution proclaims the freedom of trade, commerce and intercourse throughout the territory of India. This freedom is subject to the provisions of Articles 302-305 of Constitution. It permits the imposition of reasonable restriction by Parliament and the State Legislatures.

Gambling cannot be a fundamental right within the meaning of Article 19(1)(g) or within the protected freedom declared by Article 301 of Constitution

(i) Gambling was never intended to form any part of this ancient country's trade, commerce or intercourse to be declared as free under Article 301 of Constitution.

(ii) Whatever else may or may not be regarded as falling within the meaning of these words, gambling cannot certainly be taken as one of them.

(iii) The real purpose of Articles 19(1)(g) and 301 of Constitution could not possibly have been to guarantee or declare the freedom of gambling. Gambling activities from their very nature and in essence are extra- commercium. They are not protected either by Articles 19(1)(g) and 301 of Constitution of our Constitution.

(iv) Impugned Act is in pith and substance an Act with respect to betting and gambling. To control and restrict betting and gambling is not to interfere with trade, commerce or intercourse as such. It is to keep the flow of trade, commerce and intercourse free and unpolluted and to save it from anti-social activities.

Impugned Act deals with gambling which is not trade, commerce or business. The validity of the Act has not to be decided by the yardstick of reasonableness and public interest laid down in Articles 19(6) and 304 of Constitution.

Conclusion:

(i) Impugned law is a law with respect to betting and gambling under Entry 34 of List II in the Seventh Schedule to the Constitution.

(ii) Impugned taxing Section is a law with respect to tax on betting and gambling under Entry 62 of List II in the Seventh Schedule to the Constitution.

(iii) It was within the legislative competence of the State Legislature to have enacted impugned provisions / law.

(iv) There is sufficient territorial nexus to entitle the State Legislature to collect the tax from the petitioners who carry on the prize competitions through the medium of a newspaper printed and published outside the State of Bombay.

(v) The prize competitions being of a gambling nature, they cannot be regarded as trade or commerce.

(vi) Petitioners cannot claim any fundamental right under Article 19(1)(g) of Constitution in respect of such competitions. They are also not entitled to the protection of Article 301 of Constitution.

(vii) Order of the lower court was set aside. Appeal was allowed.

Important Precedents:

1. State of Travancore-Cochin and Ors. vs. The Bombay Co. Ltd. MANU/SC/0068/1952

2. P.P. Kutti Keya and Ors. vs. The State of Madras and Ors. MANU/TN/0304/1954

3. State of Bombay vs. R.M.D. Chamarbaugwalia and Ors., MANU/MH/0060/1956