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J U D G M E N T KAPADIA, J.

This is an appeal filed by All India Federation of Tax Practitioners against the Division Bench judgment of the Bombay High Court dated 22.2.2001 in Writ Petition No. 142/99 upholding the legislative competence of Parliament to levy service tax vide Finance Act, 1994 and Finance Act, 1998. According to the impugned judgment, service tax falls in Entry 97, List I of the Seventh Schedule to the Constitution.

2. The question which arises for determination in this civil appeal concerns the constitutional status of the levy of service tax and the legislative competence of Parliament to impose service tax under Article 246(1) read with Entry 97 of List I of the Seventh Schedule to the Constitution. The issue arising in this appeal questions the competence of Parliament to levy service tax on practising chartered accountants and architects having regard to Entry 60 List II of the Seventh Schedule to the Constitution and Article 276 of the Constitution.

(3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of inter-State trade or commerce.

xxx Article 276. Taxes on professions, trades, callings and employments.(1) Notwithstanding anything in article 246, no law of the Legislature of a State relating to taxes for the benefit of the State or of a municipality, district board, local board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income.

92C. Taxes on services. Entry Nos. 53, 60 and 62 of List II of the Seventh Schedule to the Constitution are as follows:

53. Taxes on the consumption or sale of electricity. xxx 60. Taxes on professions, trades, callings and employments. xxx 62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling. Entry 38 of List III of the Seventh Schedule to the Constitution is as follows: 38. Electricity. Arguments:

15. The basic argument advanced on behalf of the appellant-Federation before us was on Entry 60 of List II of the Seventh Schedule reproduced above. The said Entry refers to taxes on professions, trades callings and employments. The argument advanced by Shri Shyam Divan, learned counsel on behalf of the appellant, was that every entry in the Lists in the Seventh Schedule represents a field of legislation. Therefore, it should be read in a broad sense. The appellant did not dispute before us the proposition that the service tax was a tax on service and that it was not a tax on the service providers. The basic contention of the appellant was that the State Legislature alone has an absolute jurisdiction and legislative competence to levy service tax. It was submitted that service tax was a tax on profession. It was submitted that service tax fell within the ambit of Entry 60 of List II. It was submitted that the word profession in the said Entry was not limited by any restriction/qualification and, therefore, it must be read with the widest possible sense. It was submitted that the word profession has been defined in Blacks Law dictionary to mean a vocation requiring advance education and training. It was submitted that the word profession has been defined in the English dictionary by Collins to mean an occupation requiring special training in the liberal arts or sciences, especially one of the three learned professions, law, theology, or medicine. It was contended on behalf of the appellants that there was no difference between tax on profession and tax on services. According to the learned counsel, the word profession in Entry 60 List II was synonymous with the word service and, therefore, tax on profession would include tax on service, which tax could be levied only by the State Legislature. It was submitted that there cannot be a profession without service. It was submitted that service rendered by a chartered accountant/cost accountant to his client is the service rendered as a professional. It was urged on behalf of the appellant that it was not the case of the appellant that services cannot be taxed. The only argument advanced on behalf of the appellant was that the tax on profession was the State Entry and, therefore, Entry 97 of List I cannot be invoked and that Parliament had no legislative competence to levy service tax. It was submitted that under the Finance Acts, taxability was limited to rendition of professional services and, therefore, tax on profession under Entry 60 of List II would include tax on service. In short, according to the learned counsel, the word profession in Entry 60 of List II was nothing but service and, therefore, levy of service tax came within the competence of State Legislature alone. Placing reliance on Article 276(1), learned counsel on behalf of the appellants submitted that the words used in Article 276(1), namely, no law of the State Legislature relating to taxes in respect of professions, callings etc. were words of widest amplitudes and, therefore, the word profession would cover every aspect connected with it; that the word service was not an aspect of the word profession it was in fact synonymous to each other; that they were inseparable and, therefore, tax on services could be levied only by State Legislature. Learned counsel urged that the expression relating to and the expression in respect of are the two expressions which have linkage to levy of taxes on profession, calling etc. and to the words profession, trade, calling etc. in Article 276(1) and, therefore, if the aforestated two expressions are read in their proper context, they indicate the intention of the Constitution framers in incorporating taxes on profession under a separate Legislative Head. According to the learned counsel, therefore, this Court must give a wide interpretation to the words taxes on professions, trades, callings etc. Learned counsel submitted that the words in respect of professions, trades, callings etc. in Article 276(1) indicate amplitude and the wide field open to the State Legislature to make laws imposing taxes on professions, trades, callings etc.. It was urged that the above two expressions, namely, relating to and in respect of  are known in law as words of widest amplitude and if the significance of the said two expressions is kept in mind, then it becomes clear that the Constitution framers intended the State Legislature alone to be competent to impose taxes on professions, trades, callings and employments and that they did not intend to give such a power to Parliament. Learned counsel submitted that if due weightage is given to the aforestated two expressions then the word profession in Article 276(1) and Entry 60 of List II would cover every aspect of the concept of professions, trades, callings and employments. It was submitted that profession cannot exist without service as service is the core of profession. Learned counsel submitted that if the above two expressions in Article 276(1) are given due weightage then there would be no difference between the words profession and service; that these two words would be interchangeable and if used interchangeably, it is clear that the State Legislature alone has the absolute competence to levy tax on services as there was no difference between the two words, namely, service and profession. Reliance was also placed on Article 276(3) in support of the contention that the Constitution itself had made a dichotomy between taxes on professions, trades, callings and employments on one hand and taxes on incomes arising out of professions, trades, callings and employments on the other and that the said dichotomy between tax on profession (service) vis-a- vis the tax on income arising out of professions, trades, callings etc. itself indicates that a separate field is demarcated for Parliament to enact laws imposing tax on incomes arising out of professions and, at the same time, the State Legislature alone shall have the competence to impose tax on professions, trades, callings etc.

(v) Significance of Article 276:

31. Learned counsel for the appellants in support of his argument that the words professions and services are synonymous for the purposes of deciding the question of legislative competence of the State Legislature under Entry 60 List II, placed heavy reliance on Article 276, which has been quoted hereinabove.

32. Article 276 corresponds to Section 142A of the GOI Act, 1935. However, under a large number of laws enacted before the 1935 Act came into force, power was conferred on local Governments and local authorities to impose taxes on certain activities which broadly came under the Heads Taxes on professions, trades etc. on one hand and Taxes on income on the other hand. This resulted in the enactment of Section 142A by British Parliament, which saved the power conferred by pre-existing laws to impose tax on professions, callings etc. but limited the amount payable to a specified amount. At that time, it was Rs. 50.00, which was the tax payable on profession. That was in 1935. Article 276 was, therefore, preceded by Section 142A of the GOI Act, 1935. The limit has been subsequently enhanced. The States power to tax professions etc. is founded on Entry 60 of List II and the purpose of Article 276 is not to amend that power but to provide that such tax on professions, trades etc. shall not be invalidated on the ground that it relates to a tax on income. Once the State seeks to exercises its power under Entry 60 List II, it has to comply with the provisions of Article 276. Where, however, the exercise of power by the State overlaps with its power under some other Entry, then the limitation under Article 276(2) shall have no relevance. Thus, Article 276 will not apply to levy of tax on circumstances and property which is referable to Entry 49 and Entry 60 of List II and amongst other Items to Entry 58, taxes on cinematograph shows, taxes on entry of goods. A tax on profession can be imposed if a person carries out a profession whereas a tax on income can be imposed only if there is income. Therefore, a tax on profession is irrespective of the question of income. Article 276 enables the State Legislature to make laws for imposition of taxes on profession, for the benefit of the State, Municipality, District Board etc. by stating that such law shall not be invalid on the ground that it relates to a tax on income. There is a distinction between a tax on professions, trades, callings and employments and a tax on income arising out of such professions, trades etc.. In the former case, it will have to be paid by any person practising that trade, profession etc., whether he derives any income from it or not. This is where the above example of pensioner becomes relevant. A pensioner does not carry out any profession, trade, business or calling. A tax on profession is not a tax on employment. At the time, the tax is levied, the pensioner is not in employment, but he receives an amount of pension that receipt constitutes his income though it might be for past services from an employment.