The State of Bombay Vs. R. M. D. Chamarbaugwala [1957] INSC 33 (9 April 1957)
1957 Latest Caselaw 33 SC

The State of Bombay Vs. R. M. D. Chamarbaugwala [1957] INSC 33 (9 April 1957)

DAS, SUDHI RANJAN (CJ) AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR P.

DAS, S.K.

GAJENDRAGADKAR, P.B.

CITATION: 1957 AIR 699 1957 SCR 874

ACT:

Lottery--Prize competitions, if and when of a gambling mature--Legislation taxing Promoters of such competition carried on through newspaper printed and Published outside the State--Validity-Test-Territorial nexus--Gambling, if trade and commerce within the meaning of the Constitution--Constitutionality of enactment--Bombay Lotteries and Prize Competition Control and Tax Act (Bom. LIV of 1948), as amended by the Bombay Lotteries and Prize Competition Control and Tax (Amendment) Act (Bom. XXX of 1952), ss. 2(I) (d), 12 A--Constitution of India, Arts.

19(1) (g), 301.

HEADNOTE:

The first respondent was the founder and Managing Director of a company, the second respondent in the appeal, which was incorporated in the State of Mysore and conducted a Prize Competition called the R. M. D. C. Cross-words through a weekly newspaper printed and published at Bangalore. This paper had a wide circulation in the State of Bombay, where the respondents set up collection depots to receive entry forms and fees, appointed local collectors and invited the people by advertisements in the paper to participate in the competitions. On November 20, 1952, the Bombay Legislature passed the Bombay Lotteries and Prize Competitions Control and Tax (Amendment) Act of 1952, and widened the scope of the definition of 'prize competition ' contained in S. 2(1) (d) of the Bombay Lotteries and Prize Competition Control and Tax Act of 1948, so as to include prize competitions carried on through newspapers printed and published outside the State and inserted a new section, S. 12A, levying a tax on the promoters of such competitions for sums collected from the State. Thereupon, on December 18, 1952, the respondents moved the High Court of Bombay under Art. 226 of the Constitution and contended that the Act as amended and the Rules framed there under in so far as they applied to such prize competitions were ultra vires the State Legislature and violated their fundamental rights under Art. 19(1) (g) and freedom of inter-State trade under Art. 301 of the Constitution. The Single Judge who heard the matter in the first instance as also the court of appeal found in favour of the respondents, though on somewhat different grounds, and the State of Bombay preferred the appeal. The principal question canvassed in this Court related to the validity. or otherwise of the impugned Act. It was contended on behalf of the appellant that the impugned Act was -a law relating to betting and gambling and as such was covered 875 by Entries 34 and 62 of List II in the Seventh Schedule to the Constitution, whereas the contention of the respondents was that the Act was with respect to trade and commerce and came under Entries 26 and 60 of that List.

Held, that in testing the validity of an Act it was necessary, in the first place, to decide whether it was with respect to a topic assigned to the legislature and, secondly, 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 and, lastly, whether the powers of the legislature were in any other way fettered by the Constitution. So judged, the impugned Act was a perfectly valid legislation and its constitutionality was beyond question.

Regard being had to the purpose and scope of the Act read as a whole there could be no doubt that all the categories of prize competitions included in the definition contained in s. 2(1) (d) of the Act were of a gambling nature. The qualifying' clause appearing at the end of cl. (1) must apply to each of the five kinds enumerated therein, and the word 'or' appearing after the word I promoters' and before the word 'for' in the clause must be read as 'and'.

Similarly, cl. (ii), properly construed, could not include any prize competitions other than those of a gambling nature.

Elderton v. Totalisator Co. Ltd., (1945) 2 All E. R. 624, held inapplicable.

The impugned Act was, therefore, a legislation with respect to betting and gambling and fell under Entry 34 of List II of the Seventh Schedule to the Constitution and was within the competence of the State Legislature.

Taxes on gambling are a well recognised group of indirect taxes and s. 12A of the Act in seeking to tax the gross collections in the hands of the promoters, and not their profits, was only following an easy and convenient way of getting at the gambler's money in their hands and this made no difference in the character of the tax, essentially one on betting and gambling and not on any trade, and, consequently, the section fell within Entry 62 and not Entry 6o of List II of the Seventh Schedule to the Constitution.

A prize competition that did not to a substantial degree depend upon the exercise of skill for its solution would be of a gambling nature and a scrutiny of the prize competitions offered by the respondents clearly showed that there was an element of chance to start with, and, consequently, they must be of a gambling nature and fell within the mischief of the Act.

The doctrine of territorial nexus was a well-established doctrine and could apply only when (1) the territorial connection between the persons sought to be taxed and the legislating State was real and not illusory and (2) the liability sought to be imposed was pertinent to that connection. The existence of sufficient 876 territorial nexus in a particular case was essentially a question of fact. There could hardly be any doubt in the instant case that the impugned Act satisfied all these tests and, consequently, it was unassailable on the ground of extra-territoriality.

Gambling activities were in their very nature and essence extra-commercium although they might appear in the trappings of trade. They were considered to be a sinful and pernicious vice by the ancient seers and law-givers of India and have been deprecated by the laws of England, Scotland, United States of America and Australia. The Constitutionmakers of India, out to create a welfare State, could never have intended to raise betting and gambling to the status of trade, business, commerce or intercourse.

The petitioners, therefore, had no fundamental right under Art. 19(1) (g) or freedom under Art. 301 Of the Constitution in respect of their prize competitions that could be violated and the validity of the impugned Act, in pith and substance an Act relating to gambling, did not fall to be tested by Arts. 19(6) and 304 Of the Constitution.

judicial decisions on Art. 1, s. 8, sub-s. (3) Of the Constitution of the United States and S. 92 of the Australian Constitution should be used with caution and circumspection in construing Arts. 19(1) (g) and 301 of the Indian Constitution.

State of Travancore-Cochin v. The Bombay Co. Ltd. (1952) S.C.R. 1112 and P. P. Kutti Keya v. The State of Madras, A.I.R. (1954) Mad. 621, referred to.

The King v. Connare, (1939) 61 C.L.R. 596, The King v. Martin, (1939) 62 C.L.R. 457, Commonwealth of Australia v. Bank of New South Wales, L.R. (195o) A.C. 235, Mansell v. Beck, Australian Law journal Vol. 3o, NO. 7, P. 346, Champion v. Ames, 47 L.Ed. 492, Hipolite Egg Co. v. United States, 55 L.Ed. 364, Hoke v. United States, 57 L.Ed. 523, United States v. Kahriger, 97 L.Ed. 754 and Lewis v. United States, 99 L.Ed.475, discussed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 134 of 1956.

Appeal under articles 132 (1) and 133 (I) (c) of the Constitution of India from the Judgment and Order dated January 12, 1955, of the Bombay High Court in Appeal No. 72 of 1954 arising out of the Judgment and Order dated April 22, 1954, of the Bombay High Court in its Original Civil Jurisdiction in Miscellaneous Application No. 365 of 1952.

C. K. Daphtary, Solicitor-General of India, H. M. Seervai, Porus A. Mehta and R. H. Dhebar, for the appellant.

877 M. C. Setalvad, Attorney-General for India, Sir N. P. Engineer, N. A. Palkhivala, R. A. Gagrat, S. V. Subramanian, and G. Gopal Krishnan, for the respondents.

G. R. Ethirajulu Naidu, Advocate-General, Mysore, Porus A. Mehta and T. M. Sen, for the intervener.

1957. April 9. The Judgment of the Court was delivered by DAS C.J.-This is an appeal by the State of Bombay from the judgment and order passed on January 12, 1955, by the Court of Appeal of. the High Court of Judicature of Bombay confirming, though on somewhat different grounds, the judgment and order passed on April 22, 1954, by a single Judge of the said High Court allowing with costs the present respondents' petition under Art. 226 of the Constitution of India. The said petition was presented before the High Court of Judicature at Bombay on December 18, 1952. In the said petition there were two petitioners who are now the two respondents to this appeal. The first petitioner is an individual who claims to be a citizen of India and the founder and Managing Director of the second petitioner, which is a company incorporated in the State of Mysore and having its registered head office at 2, Residency Road, Bangalore in that State. That petition was further supported by an affidavit sworn by the first petitioner on the same day.

The allegations appearing in the said petition and affidavit may now be shortly stated. In July, 1946 the first petitioner applied for and obtained from the then Collector of Bombay a licence, being Licence No. 84 of 1946, for the period ending March 31, 1947, to conduct what was known as the Littlewood's Football Pool Competitions in India. That licence was granted to the first petitioner under the provisions of the Bombay Prize Competitions Tax Act, (Bom. XI of 1939) (hereinafter referred to as the 1939 Act), which was then in force. The said licence was renewed for a period of one year from April 1, 1947 to March 31, 1948.

During that period the first petitioner paid, by way of competition tax, to the Bombay Provincial 113 878 Government a sum of rupees one lakh per annum. The Government of Bombay having declined to renew the first petitioner's licence for a further period, the first petitioner filed a petition under s. 45 of the Specific Relief Act in the High Court of Bombay, which was eventually, after various proceedings, dismissed by the court of appeal on or about March 28, 1949.

In the meantime, in view of the delay and difficulty in obtaining a renewal of the licence in Bombay, the first petitioner in or about August, 1948, shifted his activities from Bombay to the State of Mysore, where he promoted and on February 26,1949, got incorporated a company under the name of R.M.D.C. (Mysore) Limited, which was the second petitioner in the High Court and is the second respondent before us. The first petitioner, who was the promoter of the second petitioner became the Managing Director of the second petitioner. All the shareholders and Directors of the second petitioner are said to be nationals and citizens of India. The second petitioner also owns and runs a weekly newspaper called " Sporting Star ", which was and is still printed and published at Bangalore in a Press also owned by the second petitioner. It is through this newspaper that the second petitioner conducts and runs a Prize Competition called the R.M.D.C. Crosswords for which entries are received from various parts of India including the State of Bombay through agents and depots established in those places to collect entry forms and fees for being forwarded to the head office at Bangalore.

The 1939 Act was replaced by the Bombay Lotteries and Prize Competition Control and Tax Act (Bom. LIV of 1948), (hereinafter referred to as the 1948 Act) which came into force on December 1, 1948. The 1939 Act as well as the 1948 Act, as originally enacted, did not apply to prize competitions contained in a newspaper printed and published outside the Province of Bombay. So the Prize Competition called the R.M.D.C. Crosswords was not affected by either of those two Acts.

On June 21, 1951, the State of Mysore, however, enacted the Mysore Lotteries and Prize Competition 879 Control and Tax Act, 195 1, which was basedupon the lines of the said 1948 Act. That Mysore Act having come into force on February 1, 1952, the second petitioner applied for and obtained a licence under that Act and paid the requisite licence fees and also paid and is still paying to the State of Mysore the tax at the rate of 15% (latterly reduced to 121%) of the gross receipts in respect of the R.M.D.C. Crosswords Prize Competition and continued and is still continuing the said Prize Competition through the said weekly newspaper "The Sporting Star" and to receive entry forms with fees from all parts of the territory of India including the State of Bombay. It is said, on the strength of the audited books of account, that after distribution of prizes to the extent of about 33% of the receipts and after payment of taxes in Mysore amounting to about 15% and meeting the other expenses aggregating to about 47%, the net profit of the second petitioner works out to about 5% only.

On November 20, 1952, the State of Bombay passed The Bombay Lotteries and Prize Competitions Control and Tax (Amendment) Act (Bom. XXX of 1952). This Act amended the provisions of the 1948 Act in several particulars. Thus, the words " but does not include a prize competition contained in a newspaper printed and published outside the Province of Bombay", which occurred in the definition of Prize Competition in s. 2 (1) (d) of the 1948 Act, were deleted and the effect of this deletion was that the scope and the application of the 1948 Act so amended became enlarged and extended so as to cover prize competitions contained in newspapers printed and published outside the State of Bombay. After cl. (d) of s. 2 (1) the Amending Act inserted a new cl. (dd) which defined the word "Promoter ".

A new section was substituted for the old s. 12 and another new section was inserted after s. 12 and numbered as a. 12A.

By this new s. 12A provision was made for the levy in respect of every prize competition contained in a newspaper or a publication printed outside the State of Bombay for which a licence was obtained under the Act of a tax at such rates as might be specified not exceeding the 880 rates specified in s. 12 or in a lump sum having regard to the circulation or distribution of the newspaper or publication in the State of Bombay. It is pointed out that the margin of net profit being only 5%, if tax has to be paid to the State of Bombay under the 1948 Act, as amended, (hereinafter referred to as the impugned Act) the second petitioner will be unable to carry on its prize competition except at a loss.

Reference is also made to the rules framed by the State of Bombay called the Bombay Lotteries -and Prize Competition Control and Tax Rules, 1952 (herein-' after called the said Rules), which came into force on and from December 8, 1952.

The said Rules require the petitioner to apply for and obtain a licence in Form " H " which imposes certain onerous conditions. The petitioners point out that it would be impossible for them, in a commercial sense and from a practical point of view, to run the prize competitions in the territory of India if they are required to comply not only with the restrictions and conditions imposed by the Mysore State where the newspaper is printed and published but also with the varying and different restrictions, conditions and taxes imposed by the State of Bombay and other States in the territory of India where the said newspaper containing the advertisements; of the said prize competitions are circulated. The petitioners submit that the provisions of the impugned Act and the Rules, in so far as they apply to prize competitions contained in newspapers and other publications printed and published outside the State of Bombay, are ultra vires void and inoperative in law.

Upon the presentation of the petition a Rule was issued calling upon the State of Bombay to appear and show cause, if any it had, why the writ or orders prayed for should not be issued or made. The State of Bombay filed an affidavit raising several technical legal objections to the maintainability of the petition and refuting the allegations and submissions contained therein and in the supporting affidavit. It submitted that, as the second petitioner was a corporation , and the first petitioner, who was a Managing Director 881 thereof, had no rights independent of the second petitioner, neither of them could lay any claim to any fundamental right under Art. 19(1) (g) and no question could arise of any violation of the petitioner's alleged fundamental rights.

It further submitted that, having. Regard to the fact that lotteries and prize competitions were opposed to public policy, there could be no " business " in promoting a lottery or a prize competition and the question of the violation of the petitioners' alleged rights under Art.

19(1) (g) of the Constitution did not arise. It was also contended that if the provisions of the Act and the Rules operated as restrictions, then the same were reasonable and in the interest of the general public. Likewise it was submitted that, having regard to the fact that lotteries and prize competitions are opposed to public policy, there could be no "business " in promoting a lottery or a prize competition and the question of the violation of the provisions of Art. 301 of the Constitution did not arise.

It was denied that ss. 10 and 12 of the Act violated the equal protection clause of the Constitution. An affidavit in reply was filed by the first petitioner traversing the allegations, submissions and contentions set forth in the affidavit in opposition filed on behalf of the State of Bombay.

The main contentions of the present respondents before the trial Judge were:(a)The impugned Act and particularly its taxing provisions were beyond the competence of the State Legislature and invalid inasmuch as they were not legislation with respect to betting and gambling under Entry 34 or with respect to entertainments and amusements under Entry 33 or with respect to taxation on entertainments and amusements, betting. and gambling under Entry 62 of the State List. The legislation was with respect to trade and commerce and the tax levied by the Impugned Act was a tax on the trade or calling of conducting prize competitions and fell within Entry 60 of the State List.

(b) The respondents' prize competition was not a lottery and could not be regarded as gambling 882 inasmuch as it was a competition in which skill, knowledge and judgment had real and effective play.

(c) The impugned Act itself contained distinct provisions in respect of prize competitions and lotteries ,-thereby recognising that prize competitions were not lotteries.

(d) The said tax being in substance and fact a tax on the trade or business of carrying on prize competitions it offended against s. 142A (2) of the Government of India Act, 1935 and Art. 276 (2) of the Constitution which respectively provide that such a tax shall not exceed fifty rupees and two hundred and fifty rupees per annum.

(e) The impugned Act was beyond the legislative competence of the Bombay Legislature and invalid as it was legislation with respect to trade and commerce not within but outside the State.

(f) The impugned Act operated extra-territorially inasmuch as it affected the trade or business of conducting prize competitions ' outside the State and was, therefore, beyond the competence of the State Legislature and invalid.

(g) The impugned Act offended against Art. 301 of the Constitution inasmuch as it imposed restrictions on trade, commerce and intercourse between the States and was not saved by Art. 304 (b) of the Constitution.

(h) The restrictions imposed by the impugned Act on the trade or business of the petitioners were not reasonable restrictions in the interests of the general public and, therefore, contravened the fundamental right of the petitioners, who were citizens of India, to carry on their trade or business under Art. 19 (1) (g) of the Constitution.

(i) That ss. 10, 12 and 12A of the said Act offended against Art. 14 of the Constitution inasmuch as they empowered discrimination between prize competitions contained in newspapers or publications printed and published within the State and those printed and published outside the State.

The State of Bombay, which is now the appellant before us, on the other hand, maintained that 883 (a) The prize competitions conducted by the petitioners were a lottery.

(b) The provisions of the impugned Act were valid and competent legislation under Entries 33, 34 and 62 of the State List.

(c)The impugned Act was not extra-territorial in its operation.

(d)The prize competitions conducted by the petitioners were opposed to public policy and there could therefore be no trade or business of promoting such prize competitions.

(e)As the petitioners were not carrying on a trade or business, no question of offending their fundamental rights under Art. 19 (1) (g) or of a violation of Art. 301 of the Constitution could arise.

(f)The second petitioner being a Corporation was not a citizen and could not claim to be entitled to the fundamental right under Art. 19 (1) (g) of the Constitution.

(g)In any event the restrictions on the alleged trade or business of the petitioners imposed by the Act were reasonable restrictions in the public interest within the meaning of Art. 19 (6) and Art. 304 (b) of the Constitution.

The trial Judge held:

(a)The tax levied under ss. 12 and 12A of the Act was not a tax on entertainment, amusement, betting or gambling but that it was a tax on the trade or calling of the respondents and fell under Entry 60 and not under Entry 62 of the State List.

(b)The prize competition conducted by the petitioners was not a lottery and it could not be said to be either betting or gambling inasmuch as it was a competition in which skill, knowledge and judgment on the part of the competitors were essential ingredients.

(c)The levy of the tax under the said sections was void as offending against Art. 276 (2) of the Constitution.

(d)The restrictions imposed by the impugned Act and the Rules there under offended against Art. 301 of the Constitution and were not saved by Art, 884 304(b) inasmuch as the restrictions imposed were neither reasonable nor in the public interest.

(e)The second petitioner, although it was a company, was a citizen of India and was entitled to the protection of Art.

19 of the Constitution.

(f)The restrictions imposed by the impugned Act and the Rules made thereunder were neither reasonable nor in the interests of the general public and were void as offending against Art. 19 (1) (g) of the Constitution.

In the result the rule nisi was made absolute and it was further ordered that the State of Bombay, its servants and agents, do forbear from enforcing or taking any steps in enforcement, implementation, furtherance or pursuance of any of the provisions of the impugned Act and the 1952 Rules made there under and particularly from -enforcing any of the penal provisions against the petitioners, their Directors, officers, servants or agents and that the State of Bombay, its servants and agents, do allow the petitioners to carry on their trade and business of running the Prize Competition mentioned in the petition and do forbear from demanding, collecting or recovering from the petitioners any tax as provided in the impugned Act or the said Rules in respect of the said Prize Competition and that the State of Bombay do pay to the petitioners their costs of the said applications.

Being aggrieved by the decision of the trial Judge, the State of Bombay preferred an appeal on June 8, 1954. The Court of Appeal dismissed the appeal and confirmed the order of the trial Judge, though on somewhat different grounds.

It differed from the learned trial Judge on the view that he had taken that there was no legislative competence in the Legislature to enact the legislation. It held that the topic of legislation was I gambling' and the Legislature was competent to enact it under Entry 34 of the State List. It, however, agreed with the learned trial Judge that the tax levied under s. 12A was not a tax on gambling but that it was a tax which fell under Entry 60. It held that there was 885 legislative competence in the Legislature to impose that tax but that the tax was invalid because it did not comply with the restriction contained in Art. 276 (2) of the Constitution. It also took the view that the tax, even assuming it was a tax on betting or gambling, could not be justified -because it did not fall under Art. 304 (b). It differed from the learned trial Judge when he found as a fact that the scheme underlying the prize competitions was not a lottery and came to the conclusion that the Act applied to the prize competitions of the respondents. It held that the challenge of the petitioners to the impugned provisions succeeded because the restrictions contained in the impugned Act controlling the business of the petitioners could not be justified as the requirements of the provisions of Art. 304 (b) had not been complied with. The High Court agreed with the learned trial Judge that the petitioners' prize competitions were their "business " which was entitled to the protection guaranteed under the Constitution. It took the view that although the activity of the petitioners was a lottery, it was not an activity which was against public interest and, therefore, the provisions of Part XIII of the Constitution applied to the respondents' business.

Being aggrieved by the said judgment of the Court of Appeal, the appellant applied for and obtained under Arts.

132(1) and 133(1) of the Constitution a certificate of fitness for appeal to this Court and hence this appeal before us.

The principal question canvassed before us relates to the validity or otherwise of the impugned Act. The Court of Appeal has rightly pointed out that when the validity of an Act is called in question, the first thing for the court to do is to examine whether the Act is a law with respect to a topic assigned to the particular Legislature which enacted it. If it Is, then the court is next to consider whether, in the case of an Act passed by the Legislature of a Province (now a State), its operation extends beyond the boundaries of the Province or the State, for under the provisions conferring legislative powers on it such Legislature can only make a law for its territories or any part thereof 114 886 and its laws cannot, in the absence of a territorial nexus, have any extra territorial operation. If the impugned law satisfies both these tests, then finally the court has to ascertain if there is anything in any other part of the Constitution which places any fetter on the legislative powers of such Legislature. The impugned law has to pass all these three tests.

Taking the first test first, it will be recalled that the 1948 Act was enacted by the Provincial Legislature of Bombay when the Government of India Act, 1935, was in force. Under ss. 99 and 100 of that Act the Provincial Legislature of Bombay had power to make laws for the Province of Bombay or any part thereof with respect to any of the matters enumerated in List 11 in the Seventh Schedule to that Act.

It will also be remembered that the 1948 Act was amended by Bombay Act XXX of 1952 after the Constitution of India had come into operation. Under Arts. 245 and 246, subject to the provisions of the Constitution, the Legislature of the State of Bombay has power to make laws for the whole or any part of the State of Bombay with respect to any of the matters enumerated in List II of the Seventh Schedule to the Constitution. The State of Bombay, which is the appellant before us, claims that the impugned Act including s. 12A is a law made with respect to topics covered by Entries 34 and 62 of List II in the Seventh Schedule to the Constitution which reproduce Entries 36 and 50 of List II in the Seventh Schedule to the Government of India Act, 1935. On the other hand, the petitioners, who are respondents before us, maintain that the impugned Act is legislation under Entries 26 and 60 in List 11 of the Seventh Schedule to the Constitution corresponding to Entries 27 and 46 of List II in the Schedule to the Government of India Act, 1935, and that, in any event, s. 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 corresponding to Entry 46 of List II in the Seventh Schedule to the Government of India Act, 1935, and not under Entry 62 of List 11 in the Seventh Schedule to the Constitution corresponding to Entry 50 of List 11 in the Seventh Schedule to the 887 Government of India Act, 1935, and that as the tax imposed exceeds Rs. 250/it is void under Art. 276 (2) which reproduces s. 142A of the Government of India Act, 1935.

Reference will hereafter be made only to the relevant Entries of List II in the Seventh Schedule r, to the Constitution, for they are substantially in the same terms as the corresponding Entries of List 11 in the Seventh Schedule to the Government of India Act, 1935. For easy reference, the relevant Entries in List II in the Seventh Schedule to the Constitution are set out below:

" 26. Trade and commerce within the State subject to the provisions of Entry 33 of List III.

34. Betting and gambling.

60. Taxes on professions, trades, callings, and employments.

62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling." In order to correctly appreciate the rival contentions and to come to a decision as to the particular Entry or Entries under which the impugned Act including s. 12A thereof has been enacted, it is necessary to examine and to ascertain the purpose and scope of the impugned legislation. It may be mentioned that the 1939 Act was enacted to regulate and levy a tax on prize competitions in the Province of Bombay.

It did not deal with lotteries at all. That Act was repealed by the 1948 Act which was enacted to control and to levy a tax not only on prize competitions but on lotteries also. It is not unreasonable to conclude that the clubbing together of lotteries and prize competitions in the 1948 Act indicates that in the view of the Legislature the two topics were, in a way, allied to each other. As already indicated, the 1948 Act was amended in 1952 by Bombay Act XXX of 1952 so as to extend its operation to prize competitions contained in newspapers printed and published outside the State of Bombay. In s. 2(1) (d) of the impugned Act will be found the definition of " prize competition " to which reference will be made hereafter in greater detail. Clause (dd) was inserted in s. 2(1) in 1952 defining "promoter".

Section 3 declares that subject to the 888 provisions of the Act, all lotteries and all prize competitions are unlawful. This is a clear indication that the legislature regarded lotteries and prize competitions as on the same footing and declared both of them to be unlawful, subject, of course, to the provisions of the Act. Section 4 creates certain offences in connection with lotteries and competitions punishable, as therein mentioned. We may skip over ss. 5 and 6 which deal exclusively with lotteries and pass on to s. 7. Section 7 provides that a prize competition shall be deemed to be an unlawful prize competition unless a licence in respect of such competition has been obtained by the promoter thereof. There are two provisos to the section which are not material for our present purpose. Section 8 imposes certain a additional penalty for contravention of the provisions of s. 7. -Section 9 regulates the granting of licences on such fees and conditions and in such form as may be prescribed, that is to say prescribed by rules. Section 10 makes it lawful for the Government, by general or special order, to, inter alia, prohibit the grant of licences in respect of a lottery or prize competition or class of lotteries or prize competitions throughout the State or in any area. Section II empowers the Collector to suspend or cancel a licence granted under this Act in certain circumstances therein specified. Section 12 authorises the levy of a tax on lotteries and prize competitions at the rate of 25% of the total sum received Or due in respect of such lottery or prize competition. This section directs that the tax shall be collected from the promoter of such lottery or prize competition as the case may be. Sub-section (2) of s. 12 empowers the State Government by a Notification in the official Gazette, to enhance the rate of tax up to 50% of the total sum received or due in respect of such prize competition as may be specified in the Notification.

Section 12A, which is of great importance for -the purpose of this appeal, runs as follows:

" 12A. Notwithstanding anything contained in section 12, there shall be levied in respect of every lottery or prize competition contained in a newspaper or publication printed and published outside the State, 889 for which a licence has been obtained under section 5, 6 or 7 , a tax at such rates as may be specified by the State Government in a notification in the Official Gazette not exceeding the rates specified in section 12 on the sums specified in the declaration made under section 15 by the promoter of the lottery or prize competition as having been received or due in respect of such lottery or prize competition or in a lump sum having regard to the circulation or distribution of the newspaper or publication in the State." Section 15 requires every person promoting a lottery or prize competition of any kind to keep and maintain accounts relating to such lottery or prize competition and to submit to the Collector statements in such form and at such period as may be prescribed. It is not necessary for the purpose of this appeal to refer to the remaining sections which are designed to facilitate the main purpose of the Act and deal with procedural matters except to s. 31 which confers power on the State Government to make rules for the purpose of carrying out the provisions of the Act. In exercise of powers so conferred on it, the State Government has, by Notification in the Official Gazette, made certain rules called the Bombay Lotteries and Prize Competitions Control and Tax Rules, 1952, to which reference will be made hereafter.

The petitioners contend that the object of the impugned Act is to control and to tax lotteries and prize competitions.

It is not the purpose of the Act to prohibit either the lotteries or the prize competitions. They urge that the 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 and in support of this contention reliance is placed on the definition of "prize competition" in s. 2(1)(d) of the impugned Act. We are pressed to hold that the 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. They also urge that in any event the taxing provisions, 890 namely ss. 12 and 12A, are taxes on the trade of running prize competitions under Entry 60 and not taxes on betting and gambling under Entry 62. We are unable to accept the correctness of the aforesaid contentions for reasons which we proceed immediately to state.

As it has already been mentioned, the impugned Act replaced the 1939 Act which dealt only with prize competitions.

Section 2(2) of the 1939 Act defined "prize competition" in the terms following:---2(2) "Prize Competition " includes(a) crossword prize competition, missing words competition, picture prize competition, number prize competition, or any other competition, for which the solution is prepared beforehand by the promoters of the competition or for which the solution is determined by lot;

(b)any competition in which prizes are 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 not yet generally known; and (c) any other competition success in which does not depend to a substantial degree upon the exercise of skill, but does not include a prize competition contained in a newspaper or periodical printed and published outside the Province of Bombay." The 1948 Act s. 2(1)(d), as originally enacted, substantially reproduced the definition of " prize competition " as given in s. 2(2) of the 1939 Act. Section 2(1)(d) of the 1948 Act, as originally enacted, ran as follows:

2(1)(d) "Prize Competition " includes (i) cross-word prize competition, missing words prize competition, picture prize competition, number prize competition, or any other competition for which the solution is, prepared beforehand by the promoters of the competition or for which the solution is determined by lot;

(ii)any competition in which prizes are 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 not yet generally known; And 891 (iii)any other competition success in which does not depend to a substantial degree upon the exercise of skill, but does not include a prize competition contained in a newspaper printed and published outside the Province of Bombay; " The collocation of words in the first category of the definitions in both the 1939 Act and the 1948 Act as originally enacted made it quite clear that 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 " applied equally to each of the five kinds of prize competitions included in that category and set out one after another in a continuous sentence. It should also be noted that the qualifying clause consisted of two parts separated from each other by the disjunctive word "or". Both parts of the qualifying clause indicated that each of the five kinds of prize competitions which they qualified were of a gambling nature. Thus a prize competition for which a solution was prepared beforehand was clearly a gambling prize competition, for the competitors were only invited to guess what the solution prepared beforehand by the promoters might be, or in other words, as Lord Hewart C. J. observed in Coles v. Odhams Press Ltd.

(1), " the competitors are invited to pay certain number of pence to have the opportunity of taking blind shots at a hidden target." Prize competitions to which the second part of the qualifying clause applied, that is to say, the prize competitions for which the solution was determined by lot, was necessarily a gambling adventure. On the language used in the definition section of the 1939 Act as well as in the 1948 Act, as originally enacted, there could be no doubt that each of the five kinds of prize competitions included in the first category to each of which the qualifying clause applied was of a gambling nature. Nor has it been questioned that the third category, which comprised " any other competition success in which does not depend to a substantial degree upon the exercise of skill constituted a (1) L.R. (1936) 1 K.B. 416.

892 gambling competition. At one time the notion was that in order to be branded as gambling the competition must be one success in which depended entirely on chance. If even a scintilla of skill was required for success the competition could not be regarded as of a gambling nature. The Court of Appeal in the judgment under appeal has shown how opinions have changed since the earlier decisions were given and it is not necessary for us to discuss the matter again. It will suffice to say that we agree with the Court of Appeal that a competition in order to avoid the stigma of gambling must depend to a substantial degree upon the exercise of skill. Therefore, a competition success wherein does not depend to a substantial degree upon the exercise of skill is now recognised to be of a gambling nature. From the above discussion it follows that according to the definition of prize competition given in the 1939 Act as in the 1948 Act 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. 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." This juxtaposition is important and significant and will hereafter be discussed in greater detail.

As already stated the 1948 Act was amended in 1952 by Bombay Act XXX of 1952. Section 2(1)(d) as amended runs as follows:

Prize competition " includes(i) (1) cross-word prize competition, (2) missing word prize competition, (3) picture prize competition, (4) number prize competition, or (5) any other prize competition, for which the solution is or is not prepared beforehand by the promoters or for which the solution is determined by lot or chance;

(ii) any competition in which prizes are offered for forecasts of the results either of a future event or of 893 a past event the result of which is not yet ascertained or not yet generally known; and (iii) any other competition success in which does not depend to a substantial degree upon the exercise of skill;

It will be noticed that the concluding sentence " but does not include a prize competition contained in a newspaper printed and published outside the Province of Bombay" has been deleted. This deletion has very far reaching effect, for it has done away with the exclusion of prize competitions contained in a newspaper printed and published outside the State of Bombay from the scope of the definition. In the next place, it should be noted that the 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 but 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 qualifying clause has been amended by inserting the words "or is not" after the word "is" and before the word "prepared" and by adding the words "or chain ce" after the word "lot". The qualifying clause appears, as before, after the fifth item in the first category. It will be noticed that there is a comma after each of the five items including the fifth item. The mere assigning a separate number to the five items of prize competitions included in the first category does not, in our judgment, 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. In our opinion, therefore, the qualifying clause continues to apply to each of the five items as before the amendment. There is grammatically no difficulty in reading 115 894 the qualifying clause as lending colour to each of those items.

Accepting that the qualifying clause applies to each of the five kinds of prize competitions included in the first category, it is urged that the qualifying clause as amended indicates that the Legislature intended to include innocent prize competitions within the definition so as to bring all prize competitions, legitimate or otherwise, within the operation of the regulatory provisions of the Act including the taxing sections. The argument is thus formulated. As a result of the amendment the qualifying clause has been broken up into three parts separated from each other by the disjunctive word " or ". The, three parts are (1) for which the solution is prepared beforehand by the promoters, (2) for which the solution is not prepared beforehand by the promoters and (3) for which the solution is determined by lot or chance. The first and the third parts of the qualifying clause, it is conceded, will, when applied to the preceding five kinds of prize competitions, make each of them gambling a ventures; gut it is contended that prize competitions to which the second part of the qualifying clause may apply, that is to say prize competitions for which the solution is not prepared beforehand, need not be of a gambling nature at all and at any rate many of them may well be of an innocent type. This argument hangs on the frail peg of unskilful draftsmanship. It has been seen that in the old -definitions all the five kinds of prize competitions included in the first categorv were of a gambling nature. We find no cogent reason-and none has been suggested-why the Legislature_which treated lotteries and prize competitions on the same footing should suddenly enlarge the first category so as to include innocent prize competitions. To hold that the first category of prize competitions include innocent prize competitions will go against the obvious tenor of the impugned Act. The 1939 Act dealt with prize competitions only and the first category in the definition given there comprised only gambling competitions. The 1948 Act clubbed together lotteries and prize competitions and the first category of the prize competitions 895 included in the definition 'as originally enacted was purely gambling as both parts of the qualifying clause clearly indicated. Section 3 of the Act declared all lotteries and all prize competitions unlawful. There could be no reason for declaring innocent prize competitions unlawful. The regulatory provisions for licensing and taxing apply to all prize competitions. If it were intended to include.

innocent prize competitions in the first category, one would have expected the Legislature to have made separate provisions for the legitimate prize competitions imposing less rigorous regulations than what had been imposed on illegitimate prize competitions. It will become difficult to apply the same taxing sections to legitimate as well as to illegitimate competitions. Tax on legitimate competitions may well be a tax under Entry 60 on the trader who carries on the trade of innocent and legitimate competition. It may be and indeed it has been the subject of serious controversy whether an illegitimate competition can be regarded A a trade at all and in one view of the matter the tax may have to be justified as a tax on betting and gambling under Entry 62. Considering the nature, scope and effect of the impugned Act we entertain no doubt whatever that the first category of prizecompetitions does not include any innocent prize competition. Such is what we conceive to be the clear intention of the Legislature as expressed in the impugned Act read as a whole and to give effect to this obvious intention, as we are bound to do, we have perforce to read the word "or" appearing in the qualifying clause after the word "promoter" and before the word "for" as "and". Well known canons of construction of Statutes permit us to do so. (See Maxwell on the Interpretation of Statutes, 10th edition, page 238).

A similar argument was sought to be raised on a construction of cl. (ii) of s. 2(1) (d). As already stated, in between the first and the third categories of prize competitions which, as already seen, are of a gambling nature the definition has included a second category of competitions in which prizes are offered for forecasts of the results either of a future event or of a past event 896 the result of which is not yet ascertained or not yet generally known. It is said that forecasts of such events as are specified in the section need not necessarily depend on chance, for it may be accurately done by the exercise of knowledge and skill derived from a close study of the statistics of similar events of the past. It may be that expert statisticians may form some idea of the result of an uncertain future event but it is difficult to treat the invitation to the general public to participate in these competitions as an invitation to a game of skill. The ordinary common people who usually join in these competitions can hardly be credited with such abundance of statistical skill as will enable them, by the application of their skill, to attain success. For most, if not all, of them the forecast is nothing better than a shot at a hidden target. Apart from the unlikelihood that the Legislature in enacting a statute tarring both lotteries and prize competitions with the same brush as indicated by s' 3 would squeeze in innocent prize competitions in between two categories of purely gambling varieties of them, all the considerations and difficulties we have adverted to in connection with the construction of the ,first category and the qualifying clause therein will apply mutatis mutandis to the interpretation of this second clause.

Reliance is placed on s. 26 of the English Betting and Lotteries Act, 1934 (24 and 25 Geo. V c. 58) in aid of the construction of the second category of prize competitions included in the definition given in the impugned Act. The relevant portion of s. 26 of the aforesaid Act runs thus:

" 26. (1) It shall be unlawful to conduct in or through any newspaper, or in connection with any trade or business or the sale of any article to the public (a) any competition in which prizes are offered for forecasts of the result either of a future event, or of a past event the result of which is not yet ascertained or not yet generally known;

(b) any other competition success in which does not depend to a substantial degree upon the exercise of skill.

897 It will be noticed that this section is not a definition section at all but is a penal section which makes certain competitions mentioned in the two clauses unlawful. Clause (a) of that section which corresponds to our second category is not sandwiched between two categories of gambling prize competitions. In Elderton v. Totalisator Co. Ltd. (1) on which the petitioners rely the question was whether the football pool advertised in newspapers by the appellant company came within the wide language of cl. (a) of that section which was in Part II of the Act. Whether the appellant company's football pool called for any skill on the part of the "investors" or whether it was of a gambling nature was not directly relevant to the discussion whether it fell within cl. (a). The penal provisions of the English Act and the decision of the Court of Appeal throw no light on the construction of our definition clause. Seeing that prize competitions have been clubbed together with lotteries and dealt with in the same Act and seeing that the second category of the definition of " prize competition " is sandwiched in between the other two categories which are clearly of a gambling nature and in view of the other provisions of the impugned Act and in particular s. 3 and the taxing sections, we are clearly of opinion that the definition of " prize competition " on a proper construction of the language of s. 2(1) (d )in the light of the other provisions of the Act read as a whole comprises only prize competitions which are of the nature of a lottery in the wider sense, that is to say, of the nature of gambling. The Court of Appeal took the view that although as a matter of construction the definition did include innocent prize competitions, yet by the application of another principle, namely, that a literal construction will make the law invalid because of its overstepping the limitsof Entry 26, which comprises only trade and commerce within the State, the definition should be read as limited only to gambling prize competitions so as to make it a law with respect to betting and gambling under Entry 34. It is not necessary for us in this case to consider whether the (1) (1945) 2 A.E.R. 624.

898 principle laid down by Sir Maurice Gwyer C. J. in the Hindu Women's Right to Property Act case (1) can be called in aid to cut down the scope of a section by omitting one of two things when the section on a proper construction includes two things, for we are unable, with great respect, to agree with the Court of Appeal that on a proper construction the definition covers both gambling and innocent competitions. In our view, the section, on a true construction, covers only -gambling prize competitions and the Act is a law with respect to betting and gambling under Entry 34. As, for the foregoing reasons, we have already arrived at the conclusion just stated, it is unnecessary for us to refer to the language used in the third category and to invoke the rule of construction which goes by the name of noscitur a sociis relied on by learned counsel for the appellant.

The next point urged is that, although the Act may come under Entry 34, the taxing provisions of s. 12A cannot be said to impose a tax on betting and gambling under Entry 62 but imposes a tax on trade under Entry 60. Once it is held that the impugned Act is on the topic of betting and gambling under Entry 34, the tax imposed 'by such a statute, one would think, would be a tax on betting and gambling under Entry 62. The Appeal Court has expressed the view that s. 12A does not fall within Entry 62, for it does not impose a tax on the gambler but imposes a tax on the petitioners who do not themselves gamble but who only promote the prize competitions. So far as the promoters are concerned, the tax -levied from them can only be regarded as tax on the trade of prize competitions carried on by them.

This.' with respect, is taking a very narrow view of the matter. Entry 62 talks of taxes on betting and gambling and not of taxes on the men who bet or gamble. It is necessary,, therefore, to bear in mind the real nature of the tax. The tax imposed by s. 12A is, in terms, a percentage of the sums specified in the declaration made under a. 15 by the promoter or a lump sum having regard to the circulation and distribution of the newspaper, or (1) (1941) F.C.R. 12. 899 publication in the State. Under s. 15 the promoter of a prize competition carried on in a newspaper or publication printed and published outside the State is to make a declaration in such form and at such period as may be prescribed. Form 'J' prescribed by r. 11 (c) requires the promoter to declare, among other things, the total number of tickets/coupons received for the competition from the State of Bombay and the total receipts out of the sale of the tickets/coupons from the State of Bombay. The percentage under a. 12A is to be calculated on the total sums specified in the declaration. It is clear, therefore, that the 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. On ultimate analysis 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 which the prize competitions run by the petitioners undoubtedly are, it is extremely difficult and indeed well nigh impossible for the State to get at each individual competitor and the 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. In other words, the taxing authority finds it convenient in the course of administration to collect the duty in respect of the gambling activities represented by each of the entries when the same reaches the hands of the promoters. The tax on gambling is a well recognised group of indirect taxes as stated by Findlay Shirras in his Science of Public Finance, vol. II p. 680. It is a kind of tax which, in the language of J. S. Mill quoted by Lord Hobhouse in Bank of Toronto v. Lambe (1), is demanded from the promoter in the expectation and intention that he shall indemnify himself at the expense of the gamblers who sent entrance fees to him. That, we think, is the general tendency of the tax according to the common understanding of men. It is not difficult for the promoters to pass on the tax to the gamblers, for they may charge the proportionate percentage on the amount of (1) L.R. (1887) 12 A.C. 575.

900 each entry as the seller of goods charges the sales tax or he may increase the entrance fee from 4 annas to 5 annas 6 pies to cover the tax. If in particular circumstances it is economically undesirable or practically impossible to pass on the tax to the gamblers, that circumstance is not a decisive or even a relevant consideration for ascertaining the true nature of the tax, for it does not affect the general tendency of the tax which remains. If taxation on betting and gambling is to be regarded as a means of controlling betting and gambling activities, then the easiest and surest way of doing so is to get at the promoters who encourage and promote the unsocial activities and who hold the gamblers' money in their hands. To collect the tax from the promoters is not to tax the promoters but is a convenient way of imposing the tax on betting and gambling and indirectly taxing the gamblers themselves. It is to be noted that the tax here is not on the profits made by the petitioners but 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.

According to the general understanding of men, as stated by Lord Warrington of Clyffe in Rex v. Caledonian Collieries Ltd. (1), there are marked distinctions between a tax on gross collection and a tax on income which for taxation purposes means gains and profits. Similar considerations may apply to tax on trade. There is yet another cogent reason for holding that the tax imposed by s. 12A is a tax on betting and gambling. In enacting the statute the Legislature was undoubtedly making a law with respect to betting and gambling under Entry 34 as here in before mentioned. By the amending Act XXX of 1952 the Legislature by deleting the concluding words of the definition of 'prize competition', namely, " but does not include etc., etc., " 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 Art. 276 which reproduced s. 142A of the Government of India Act, (1) L.R. (1928) A.C. 358.

901 1935, they could not impose a tax exceeding the sum of Rs. 250 on any trade or calling under Entry 60. If the tax can be referable either to Entry 60 or to Entry 62, -then in view of the fact that s. 12A will become at least partially, if not wholly, invalid as a tax on trade or calling under Entry 60 by reason of Art. 276(2), the court must, in order to uphold the section, follow the well established principle of construction laid down by the Federal Court of India and hold that the Legislature must have been contemplating to make a law with respect to betting and gambling under Entry 62, for there is no constitutional limit to the quantum of tax which can be imposed by a law made under that Entry.

For reasons stated above, we are satisfied that s. 12A is supportable as a valid piece of legislation under Entry 62.

The next point urged by the petitioners is that under Arts.

245 and 246 the Legislature of a State can only make a law for the State or any part thereof and, consequently, the Legislature overstepped the limits of its legislative field when by the impugned Act it purported to affect men residing and carrying on business outside the State. It is submitted that there is no sufficient territorial nexus between the State and the activities of the petitioners who are not in the State. The doctrine of territorial nexus is well established and there is no dispute as to the principles.

As enunciated by learned counsel for the petitioners, 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. Sufficiency of the territorial connection involves a consideration of two elements, namely (a) the connection must be real and not illusory and (b) the liability sought to be imposed must be pertinent to that connection. It is conceded that it is of no importance on the question of validity that the liability imposed is or may be altogether disproportionate to the territorial connection. In other words, if the connection is sufficient in the sense mentioned above, the extent of such connection affects merely the policy and not the validity of the legislation. Keeping these principles in mind we have to ascertain if in the case before us there 116 902 was sufficient territorial nexus to entitle the Bombay.

Legislature to make the impugned law. The question whether in a given case there is sufficient territorial nexus is essentially one of fact. The trial court took the' view that the territorial nexus was not sufficient to uphold the validity of the law under debate. The Court of Appeal took a different view of the facts and upheld the law. We find ourselves in agreement with the Court of Appeal. The newspaper "Sporting Star" printed and published in Bangalore is widely circulated in the State of Bombay. The petitioners have set up collection depots within the State to receive entry forms and the fees. They have appointed local collectors. Besides the circulation of the copies of the " Sporting Star ", the petitioners print over 40,000 extra coupons for distribution which no doubt are available from their local collectors. The most important circumstance in these competitions is the alluring invitation to participate in the competition where very large prizes amounting to thousands of rupees and sometimes running into a lakh of rupees may be won at and for a paltry entrance fee of say 4 annas per entry. These advertisements reach a large number of people resident within the Stat.

The gamblers, euphemistically called, the competitors, fill up the entry forms and either leave it along with the entry fees at the collection depots set up in the State of Bombay or send the same by poet from Bombay. All the activit