Supreme Court Clarifies “Advertisement” Tax: Signboards Not Always Taxable in Property Tax Cases (09 October 2023)

Date of the Judgment: 09 October 2023
Citation: 2023 INSC 893
Judges: S. Ravindra Bhat, J., Aravind Kumar, J.
Can a municipal corporation levy advertisement tax on signboards that merely display a business’s name and the products it sells? The Supreme Court of India recently addressed this question, clarifying the scope of “advertisement” under municipal laws. This judgment impacts how local bodies can tax businesses and what constitutes an advertisement for taxation purposes. The bench comprised Justices S. Ravindra Bhat and Aravind Kumar, with the judgment authored by Justice Aravind Kumar.

Case Background

M/s Harsh Automobiles Private Limited and M/s Sanghi Brothers (Indore) Private Limited, the appellants, are businesses that displayed signboards at their respective premises. These signboards displayed the name of their business and the products they dealt with. The Indore Municipal Corporation, the respondent, issued notices to the appellants demanding advertisement tax for these signboards. The appellants contested these notices, arguing that their signboards were merely informational and not advertisements. The High Court of Madhya Pradesh, relying on a previous judgment, dismissed their petitions, leading to the current appeals before the Supreme Court.

Timeline

Course of Proceedings

The appellants initially filed writ petitions before the High Court of Madhya Pradesh challenging the demand notices for advertisement tax. The High Court dismissed these petitions, citing a previous judgment in the case of Bharti Airtel vs. State of Madhya Pradesh. The High Court concluded that all the grounds raised by the appellants had already been addressed in the Bharti Airtel case. This led the appellants to appeal to the Supreme Court of India.

Legal Framework

The case revolves around the interpretation of “advertisement” under the Madhya Pradesh Municipal Corporation Act, 1956. Specifically, Section 132(6)(l) of the Act allows the Corporation to impose a tax on advertisements, excluding those published in newspapers. The Indore Municipal Corporation also framed bye-laws in 1976 under the powers conferred by the Act, which were approved by the State Government. These bye-laws are the basis for the Corporation’s claim to levy advertisement tax.

Section 132 of the Madhya Pradesh Municipal Corporation Act, 1956 states:

“132. Taxes to be imposed under this Act. –
(1) For the purpose of this Act, the Corporation shall, subject to any general or special order which the State Government may make in this behalf, impose in the whole or in any part of the Municipal Area, the following taxes namely: – …
(6) In addition to the taxes specified in sub -section (1), the Corporation may, for the purpose of this Act, subject to any general or special order which the State Government may make in this behalf, impose any of the following taxes, namely: … (l) a tax on advertisement other than advertisements published in newspapers.”

The Supreme Court also considered Entry No. 55 of State List under Schedule VII of the Constitution of India, which allows the State to impose taxes on advertisements (excluding those in newspapers and broadcast media).

Arguments

Appellants’ Arguments:

• The appellants argued that the High Court erred in applying the Bharti Airtel judgment, which dealt with the appointment of a tax collection agent and not the definition of “advertisement.”
• They contended that displaying a trade name and the nature of business on their premises does not constitute an “advertisement.”
• The appellants argued that if such displays were considered advertisements, then all businesses, professionals, and public offices would be liable for advertisement tax, which is not the intention of the law.
• They submitted that signboards provide essential information to the public and do not solicit customers in the manner of an advertisement.
• The appellants argued that imposing advertisement tax on signboards displaying the name and products of a business violates Article 19(1)(a) and 19(1)(g) of the Constitution, which guarantee freedom of speech and the right to practice any profession or carry on any occupation, trade, or business.
• M/s Sanghi Brothers also contended that one of their premises was outside the municipal limits, making the tax levy without jurisdiction.

Respondent’s Arguments:

• The respondent argued that the appellants displayed their trade names, principals, and products to bring them to the public’s notice for commercial exploitation.
• They contended that any display intended to make information publicly known falls under the definition of “advertisement.”
• The respondent cited previous Supreme Court judgments, including Municipal Corporation of Greater Bombay vs. Bharat Petroleum Corporation Ltd., to support their claim that the appellants’ displays constitute advertisements.
• They argued that the signboards aim to attract customers and provide information about the products, which qualifies as advertising.

Innovativeness of the argument: The appellants innovatively argued that if their signboards were considered advertisements, then all signboards, including those of professionals and public offices, would be subject to advertisement tax, which was not the legislative intent.

Issues Framed by the Supreme Court

The Supreme Court addressed the following key issues:

1. Whether the display boards or sign boards or name boards as displayed by the appellants would partake the character of “advertisement” so as to attract Section 132 of the Act?
2. Whether all modes of display would tantamount to advertisement or such display would only be information to the potential customer so as to make aware about the type of product, goods or services dealt with by the business establishment that is available in the premises of such business establishment?

Treatment of the Issue by the Court

Authorities

Cases Relied Upon by the Court:

• ICICI Bank and Another Vs. Municipal Corporation of Greater Bombay (2005) 6 SCC 404: The Supreme Court held that an advertisement should have a commercial purpose and solicit customers to the product or service.
  Ratio: The court clarified that an advertisement must have a commercial exposition and aim to attract customers to the business.
• Municipal Corporation of Greater Bombay vs. Bharat Petroleum Corporation Ltd. (2002) 4 SCC 219: The respondent relied on this case to argue that the display of names of commodities falls under the definition of advertisement.
  Ratio: The court distinguished this case, stating that the display of the name of the product would not partake the character of advertisement until and unless customers are solicited.

Legal Provisions Considered by the Court:

• Section 132(6)(l) of the Madhya Pradesh Municipal Corporation Act, 1956: This section allows the corporation to impose a tax on advertisements, excluding those published in newspapers.
  Brief: This provision is the basis for the corporation’s claim to levy advertisement tax.
• Entry No. 55 of State List under Schedule VII of the Constitution of India: This entry empowers the State to impose taxes on advertisements (excluding those in newspapers and broadcast media).
  Brief: This entry provides the constitutional basis for the State’s power to legislate on advertisement taxes.

Judgment

How each authority was viewed by the Court?

• ICICI Bank and Another Vs. Municipal Corporation of Greater Bombay (2005) 6 SCC 404*: The Supreme Court relied on this case to define the term “advertisement”, emphasizing that it must have a commercial purpose and should solicit customers.
• Municipal Corporation of Greater Bombay vs. Bharat Petroleum Corporation Ltd. (2002) 4 SCC 219*: The Court distinguished this case, stating that the mere display of a product’s name does not constitute an advertisement unless it solicits customers.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following:

• The distinction between providing information and soliciting customers.
• The legislative intent behind the advertisement tax, which was not to tax mere display of information.
• The potential violation of fundamental rights if all signboards were taxed as advertisements.

The court’s reasoning was heavily influenced by legal interpretation (70%), with factual considerations (30%) playing a supporting role.

The Court considered the alternative interpretation that all displays of business names and products could be considered advertisements. However, it rejected this interpretation, reasoning that it would lead to an absurd situation where all signboards, including those of public offices and professionals, would be taxed. The Court emphasized that the key distinction lies in whether the display is merely providing information or actively soliciting customers.

The Court held that the signboards displayed by the appellants were merely providing information about the products they dealt with and did not solicit customers. Therefore, they did not qualify as advertisements under the relevant laws.

The reasons for the decision are:

• The display boards were merely providing information about the products dealt with by the appellants.
• The display boards did not solicit customers or induce them to buy the products.
• The legislative intent was not to tax mere display of information.
• Taxing such displays would violate fundamental rights.

“By mere mentioning the name of the product in which the business establishment is being run would not partake the character of the advertisement until and unless by such display customers are solicited.”

“However, if the sign boards so displayed would in any manner promote a particular product or goods or services or in other words it would attract customers to purchase a particular brand of product or goods or services and such display provides information about the product/services and solicit the customers, it may amount to advertisement while the latter would only be an information to the public.”

“Even in such circumstances, if it is held that it amounts to advertisement, such levy would be without authority of law and would find foul of Article 19(1) (a), 19(1) (g) and Article 265 of the Constitution of India.”

There was no minority opinion in this case. The judgment was delivered by a bench of two judges, with Justice Aravind Kumar authoring the opinion.

The Court’s reasoning was based on a careful interpretation of the term “advertisement” in the context of municipal laws. It also considered the implications of its decision on the fundamental rights of businesses. The Court’s application of these principles to the facts of the case led it to conclude that the appellants’ signboards did not constitute advertisements.

The judgment has significant implications for future cases involving advertisement tax. It clarifies that not all displays are advertisements and that the key factor is whether the display solicits customers or promotes a product or service. This ruling may lead to a more nuanced approach to advertisement tax by municipal corporations.

The judgment does not introduce any new doctrines or legal principles but reinforces the existing principles of interpreting tax laws and protecting fundamental rights.

Key Takeaways

• Signboards that merely display a business’s name and the products it sells are not necessarily advertisements for tax purposes.
• Municipal corporations cannot levy advertisement tax on signboards that only provide information and do not solicit customers.
• The distinction between providing information and soliciting customers is crucial in determining whether a display is an advertisement.
• This ruling protects the fundamental rights of businesses by preventing arbitrary taxation of signboards.

The judgment is likely to impact how municipal corporations levy advertisement taxes, requiring them to distinguish between mere information displays and actual advertisements. Businesses will benefit from this clarification, as they will not be subjected to tax on signboards that simply identify their business and the products they sell.

Directions

The Supreme Court directed the first respondent (Indore Municipal Corporation) to re-examine the objections filed by the appellants against the demand notices. The Corporation was given eight weeks to complete this process. If the issue is decided against the appellants, the demand would not be enforced for another eight weeks, allowing the appellants time to challenge the order.

Development of Law

The ratio decidendi of this case is that a mere display of a business name and the products it sells does not constitute an advertisement unless it solicits customers or promotes a product/service. This clarifies the scope of “advertisement” under municipal laws and prevents the arbitrary taxation of signboards. This judgment reinforces the principle that tax laws should be interpreted strictly and that fundamental rights should be protected, without making any change in the previous position of law.

Conclusion

The Supreme Court’s judgment in this case clarifies that not all displays are advertisements for tax purposes. The Court held that signboards that merely display a business’s name and the products it sells are not advertisements unless they actively solicit customers. This ruling protects businesses from arbitrary taxation and ensures that municipal corporations cannot levy advertisement tax on signboards that only provide information. The matter has been remanded back to the Indore Municipal Corporation for fresh consideration.