CASE NAME: The Patna Municipal Corporation & Ors. V. M/S Tribro AD Bureau & Ors.
CASE NO.: Civil Appeal No. 11117 of 2024
DATED: 16th October, 2024.
QUORUM: Ahsanuddin Amanullah, J.
FACTS OF THE CASE
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 (respective Respondents
No.1), wherein 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 whereby 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 2007 the corporation raised the royalty to Rs. 10 per square foot.
In the interregnum, the Patna Municipal Corporation Act, 1951 was
repealed and replaced by the Bihar Municipal Act, 2007 (hereinafter
referred to as the “Act”), 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 dated
02.11.2007, various rates of royalty/penalty under the provisions of the
Act were prescribed and the order was made effective from 24.08.2007.
A writ was filed challenging this demand for royalty, arguing it lacked legislative sanction and violated Article 265 of the Constitution.
The High Court quashed the demand, leading to an appeal in the Supreme Court.
ISSUES OF THE CASE
- Whether the royalty charged by the Corporation is equivalent to a tax if, so;
- Whether it is constitutionally valid without legislative backing?
- Whether the Corporation’s method of imposing penalties and charging enhanced rates was lawful?
LEGAL PROVISIONS
- Article 265 of the Indian Constitution: Article 265 is an important provision that ensures that no taxes can be charged or collected in India except by the authority of law.
- Section 245B of the Income Tax Act, 1961: The Central Government shall constitute a Commission to be called the Income-tax Settlement Commission for the settlement of cases under this Chapter
- Bihar Municipal Act,2007: This act governs taxation and royalties imposed by municipalities
CONTENTIONS BY THE APPELANT
Learned counsel for the appellants submitted that on 29.08.2005, the Corporation had decided with regard to the imposition of royalty in the Meeting held with representatives of advertising agency/cies. It was agreed that advertisers would make payment of royalty to the Corporation at the rate of Re.1 per square foot per annum based on the area of the hoardings concerned. Thus, it was submitted that the issue is limited only to charging of royalty and there is no imposition of any kind of tax, as has been erroneously held by the Single Bench as also by the Division Bench. The appellant claimed that the royalty was not a tax but a fee agreed upon by advertising agencies. They further argued that raising the royalty rate from Re. 1 to Rs. 10 per square foot was within its rights and did not constitute a tax. The Corporation submitted that penalties were imposed only on defaulters who had agreed to the royalty arrangement.
CONTENTIONS BY THE RESPONDENT
On the other hand, learned counsel for Respondent No.1 submitted that the Impugned Judgment has dealt with all relevant aspects and is legally and factually correct, needing no interference. It was submitted that the Division Bench rightly held that tax could not be levied by the Corporation, as such power cannot 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. They argued that the increased royalty was akin to an unlawful tax, as it lacked legislative sanction. They also claimed that the Corporation did not have the power to impose or collect such royalty without proper statutory regulations. It was further submitted that the absence of such power coupled with the fact, that no procedure was adopted before such imposition, would be fatal, as the same cannot be arbitrarily enforced, in the absence of either a provision in law or without any procedure adopted, much less that sanctioned by Regulations, finally made/approved by the State Government as per the provisions of the Act. They objected to the penalties as arbitrary, especially since no regulatory framework existed.
JUDGEMENT
The Supreme Court upheld the royalty demand, concluding it was a fee rather than a tax, which was a result of an agreement between the Corporation and the advertising agencies. The court ruled that royalty and tax are different.
However, the Court set aside the Corporation’s imposition of penalties, as there was no provision for this without a regulatory basis.
ANALYSIS
The Court emphasized that royalty payments are compensation for rights and privileges, whereas tax is a compulsory imposed by a sovereign.
It also noted that even if the Corporation cited the wrong statutory provision, this alone wouldn’t invalidate its authority to charge royalty, as the power arose from the agreement.
The Supreme Court clarified that any future increase in royalty rates should not have retrospective application and advised on a fair and prospective application of rates.
CONCLUSION
This ruling clarifies the legal difference between royalty and tax, which in turn clarifies the importance of explicit legal provisions when imposing penalties. The SC by partly allowing the appeal, permitted the royalty at Rs. 10 per square foot but removed the penalties due to the lack of legislative backing. The Court directed a fair calculation of amounts not met with interest, confirming the royalty agreement’s legitimacy while also keeping in mind the fairness in the process.
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WRITTEN BY: D.V. DEEKSHA.
