SC held that ‘royalty’ imposed on advertising companies, by the Municipal Corporation, for putting up hoardings/advertisements could not be termed as 'tax'

Recently, the Supreme Court (SC) bench of Justice Vikram Nath and Justice Ahsanuddin Amanullah held that the ‘royalty’ imposed on advertising companies, by the Municipal Corporation, for putting up hoardings/advertisements could not be termed as 'tax'. The bench said, “The appellant(s) herein 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.” It added, “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… As stated previously, royalty and tax cannot be equated – the nomenclatures cannot be used interchangeably in law, both carrying starkly different imports and connotations…we are unable to maintain as tenable the argument that the demand made by the Corporation was a compulsory exaction. Equally, we are unable to state that the demand was/bore the hallmarks of a tax.”

The top Court opined that the conduct of the parties and acquiescence would preclude a party from turning around and assailing a decision acquiesced to, except where there is an inherent lack of jurisdiction, or the exercise of authority is perverse or malafide, in law or in fact. The bench added, “...we are also equally unhesitant to hold that the Resolution to charge enhanced royalty in exercise of purported power under Section 431 of the Act (Patna Municipal Corporation Act, 1951) 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. 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 facts of the case are that on August 29, 2005, a Meeting was called by Appellant No.2 (Municipal Commissioner-cum-Chief Executive Officer), attended by representatives of the advertising agencies, wherein it was resolved that if any agency puts up its advertisement(s), it would have to submit a list of advertisement(s), the place/location, size, etc. to the Authorized 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. On January 15, 2007, the appellants 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 November 02, 2007. Further, the Corporation started operating under the Bihar Municipal Act, 2007, which replaced the Patna Municipal Corporation Act, 1951.

The Municipal Commissioner of the Corporation recommended that all those advertisers who had not paid their dues in terms of the order dated November 02, 2007, 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. On December 15, 2010, 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. On February 11, 2012, in terms of various Resolutions/decisions of the Corporation under the Act, a demand was raised towards royalty/fee/tax on Respondent No.1 to the tune of Rs.64,50,040/-  The matter was, therefore, mentioned before the Patna High Court. It ordered “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.” Further, the matter was mentioned before the top Court.

After hearing the contentions, the SC bench ordered, “In order to balance equities, the Court would indicate that the enhanced rate of Rs.10 per square foot would be payable by the respective Respondents No.1/advertising companies and other similarly-situated persons in terms of the Resolution of the Corporation from the date the same was made public/communicated to the concerned parties whichever is later, with simple interest at the rate of 6% per annum. The Corporation is directed to furnish computation of amounts due to the parties concerned within 4 weeks. Payments be made within 16 weeks thereafter by the parties concerned, failing which they shall carry interest @ 10% per annum and be recoverable as arrears under the Bihar and Orissa Public Demands Recovery Act, 1914. Needless to state, amount(s), if any, paid over and above Re.1 per square foot, for the period in question, shall be adjusted towards the final liability to be determined by the Corporation vis-a-vis the respective Respondents No.1 herein and all other similarly-situated persons.”