The Supreme Court has held that ‘royalty’ imposed by Municipal Corporation on the advertising companies for putting up hoardings/advertisements could not be termed as ‘tax’.
The bench of Justice Vikram Nath and Justice Ahsanuddin Amanullah has observed that the Resolution to charge enhanced royalty in exercise of purported power under Section 431 of the Act was misplaced as royalty is not tax. It has been authoritatively clarified by this Court that royalty and tax are not one and same. The Corporation’s power to charge royalty cannot be interfered with on the ground that the same is not available, either in the Act or in the Regulations concerned, as there is no question of the said ‘royalty’ being a tax. Section 431 of the Act, therefore, would not come into the picture where royalty, that too by way of and under an agreement/understanding is concerned.
Table of Contents
Background
The appellant/Patna Municipal Corporation has challenged is laid to the Final Judgment and Order passed by a Division Bench of the High Court of Judicature at Patna has been set aside and it has been held that the appellant could not raise any demand of tax/fee/royalty on advertisement(s) since it has been made without any legislative sanction and is, thus, violative of Article 265 of the Constitution of India, 1950.
The Division Bench directed that all amounts recovered by the appellants herein on this count i.e., by way of ‘tax’ on advertisement(s), be refunded to the concerned parties, as also that, as a consequence, there was no question of any imposition of penalty by the Patna Municipal Corporation.
On 29.08.2005, a Meeting was called by the Appellant No.2/Municipal Commissioner-cum-Chief Executive Officer, attended by representatives of the advertising agencies, in which it was resolved that if any agency puts up its advertisement(s), it will have to submit a list of advertisement(s), the place/location, size, etc. to the Authorised Officer of the Corporation, and that the Corporation would charge royalty at the rate of Re.1/- per square foot per year on such hoardings, which would be displayed on the land under the jurisdiction of the Corporation.
The Appellants on 15.01.2007 came out with fresh rates of royalty/tax on advertisements by which different rates of royalty for different kinds of hoardings and advertisements were prescribed, the same being Rs.10/- per square foot per year in the case of the respondent, which was made effective from 02.11.2007.
In the interregnum, the Patna Municipal Corporation Act, 1951 was repealed and replaced by the Bihar Municipal Act, 2007, which came into force with effect from 05.04.2007, vide Section 488(1) of the Act. Thus, the Corporation started operating under the (new) Act.
By Office Order various rates of royalty/penalty under the provisions of the Act were prescribed and the order was made effective from 24.08.2007. The Municipal Commissioner of the Corporation recommended that all those advertisers who had not paid their dues in terms of the order would be liable to be charged twice the rate fixed and further that hoardings displayed without permission should be removed and such persons would be charged a penalty five times the amount due from them.
The Council of the Corporation passed Resolution No.18 to cancel the registration of the advertising agencies that had defaulted in making payment of the enhanced royalty/fee/tax. It was done when it came to the notice of the Corporation that several advertising agencies had illegally displayed hoardings, with some not even having permission to do so from the Corporation and not having paid dues.
In terms of various Resolutions/decisions of the Corporation under the Act, a demand was raised towards royalty/fee/tax on the advertisement companies.
The demand, as also the Office Order dated 02.11.2007 was assailed by filing a writ petition under Article 226 of the Constitution before the Patna High Court, wherein the learned Single Judge ultimately went on to quash ‘the order of demand of penalty by the Patna Municipal Corporation in all the cases’ and directed ‘that the Patna Municipal Corporation should accept the tax/royalty/rent payable by these petitioners in accordance with the 2007 rates fixed by the Patna Municipal Corporation.’
On 18.07.2012, the Corporation sent a Demand Notice to pay Rs.21,98,000 as royalty/fee/tax in light of the Single Bench Judgment, to which the Respondent replied on 28.01.2013 contending that the same was calculated wrongly and, thus, a corrected Demand Notice ought to be sent.
As the Corporation did not respond to this, the Respondent continued paying royalty/fee/tax as self-assessed by it i.e. at the rate of Re.1 per square foot.
The advertising companies preferred intra-Court appeal before the Division Bench of the High Court assailing the Single Bench Judgment.
The Division Bench, by way of the Judgment, quashed the enhancement itself, and held that the Corporation had no power to charge royalty/fee/tax under the Act, since it was necessary to frame Regulations.
The Judgment reasoned that in the absence of such Regulations, there was no authority in law to levy/impose/collect tax, as sought to be imposed by the Corporation. Apropos the Regulations framed on 04.07.2012, published in the Gazette on 13.08.2012, the Division Bench held that the said Regulations pertain only to licensing provisions and not taxing provisions.
It added that when the Regulations were silent and do not speak of tax on advertisement, the same could not be levied by the Corporation. It went on to hold that even the decision of the Corporation to auction-settle the right to collect advertisement tax from advertisers to private individuals is totally impermissible as the State/its instrumentalities cannot trade in taxation.
The Division Bench was of the view that to levy, assess and raise any demand of tax is a sovereign function, which cannot be auction-settled to private individuals.
Arguments – Whether Royalty Imposed By Municipal Corporation is Tax or Not?
The appellant contended that “royalty” and “tax” have different connotations in law and royalty, unlike tax, is not based on any statutory provision, but on agreement between the parties. Further, it was stated that the enhancement of the rate of royalty to Rs.10 per square foot from Re.1 per square foot, notified under Office Order dated 02.11.2007 was challenged by the Respondent No.1 only in the year 2012. The Corporation came out with fresh rates of royalty on advertisements which were accepted by the Respondent and were made effective from 02.11.2007 at the rate of Rs.10 per square foot.
The advertising companies contended that the Division Bench rightly held that tax could not be levied by the Corporation, as power can’t be exercised by the Corporation on its own, as it is in the domain of the Legislature to confer such power, which has not been done.
The companies argued that there is no Regulation for levy of taxes in terms of Section 147 read with Section 423 of the Act. In absence, the Corporation could not have acted in the manner it did.
Conclusion – Royalty Imposed By Municipal Corporation
The Court held that the Resolution to charge enhanced royalty in exercise of purported power under Section 431 of the Act was misplaced as royalty is not tax. It has been authoritatively clarified by this Court that royalty and tax are not one and same. As such, the Corporation’s power to charge royalty cannot be interfered with on the ground that the same is not available, either in the Act or in the Regulations concerned, as there is no question of the said ‘royalty’ being a tax.
The court held that Section 431 of the Act, therefore, would not come into the picture where royalty, that too by way of and under an agreement/understanding is concerned.
The court held that payment of enhanced rate of Rs.10 per square foot was not made retrospective by the Corporation, as it was made effective from November, 2007, i.e., 10 months after the resolution which was passed in January, 2007, and thus, we do not find any occasion to interfere in such demand from the date it was made effective by the Corporation as there is no element of retrospectivity involved.
FAQs
Is Royalty Imposed By Municipal Corporation is Tax or not?
No. The Supreme Court in the case of The Patna Municipal Corporation & Ors. V/S M/S Tribro Ad Bureau & Ors. has held that ‘royalty’ imposed by Municipal Corporation on the advertising companies for putting up hoardings/advertisements could not be termed as ‘tax’.
In which case Supreme Court upheld the Royalty Imposed By Municipal Corporation?
The Supreme Court in the case of The Patna Municipal Corporation & Ors. V/S M/S Tribro Ad Bureau & Ors. has held that ‘royalty’ imposed by Municipal Corporation on the advertising companies for putting up hoardings/advertisements could not be termed as ‘tax’.
Case Details
Case Title: The Patna Municipal Corporation & Ors. V/S M/S Tribro Ad Bureau & Ors.
Case No.: Civil Appeal No. 11117 Of 2024
Date: 16/10/2024
