Supreme Court Directs Fresh Adjudication in Advertisement Tax Dispute

The Supreme Court of India has ruled in favor of M/S Harsh Automobiles Private Limited and M/S Sanghi Brothers (Indore) Private Limited in their challenge against the Indore Municipal Corporation’s demand for advertisement tax. The judgment clarifies that displaying a business name and nature of business on a signboard within one’s own premises does not necessarily constitute an advertisement subject to taxation. The Court directed the municipal authorities to reassess the tax demands in light of this ruling.

Background of the Case

The appellants, M/S Harsh Automobiles and M/S Sanghi Brothers, are automobile dealers operating in Indore. They had displayed name boards on their business premises to indicate the nature of their businesses and the products they deal in. The Indore Municipal Corporation issued demand notices imposing advertisement tax, arguing that these displays constituted advertisements under Section 189-A of the Municipal Act, 1965.

The appellants challenged these notices, arguing that merely displaying their trade names and the nature of their business did not amount to an advertisement. They contended that the signage was necessary to inform the public about their business locations and should not be subject to taxation. However, the Madhya Pradesh High Court dismissed their petitions, relying on its earlier decision in Bharti Airtel v. State of Madhya Pradesh.

Arguments by the Appellants

The appellants raised the following key arguments:

The High Court’s reliance on the Bharti Airtel case was misplaced because that case dealt with the appointment of a tax collection agency and not the definition of an advertisement.
Displaying a name board within business premises does not fall under the category of an advertisement since it merely identifies the business location for the public.
If such a tax were to be imposed, every signboard, including those of government offices, hospitals, educational institutions, and professional establishments, would be liable for advertisement tax.
The imposition of advertisement tax on a business nameboard violates Articles 19(1)(a) (freedom of speech) and 19(1)(g) (freedom to practice any profession) of the Constitution of India.

Arguments by the Respondent (Indore Municipal Corporation)

The Indore Municipal Corporation defended the tax imposition, arguing:

The signboards displayed by the appellants were intended to attract customers and therefore fell under the definition of an advertisement.
The signage was not just for identification but also promoted the products and services of the appellants.
Various Supreme Court rulings had previously upheld the taxation of commercial signboards that served the purpose of advertisement.

Supreme Court’s Analysis and Ruling

The Supreme Court noted that the High Court had erred in relying on the Bharti Airtel case, as that judgment did not address whether displaying a trade name amounted to an advertisement. The Court observed:

“If merely putting up a business nameplate is considered an advertisement, then signboards of government offices, professionals such as doctors and lawyers, and educational institutions would also fall under the definition of an advertisement, which is not the legislative intent.”

Definition of Advertisement

The Court examined various dictionary definitions of “advertisement” and concluded that for something to qualify as an advertisement, it must involve an effort to attract customers or promote a product. The Court cited its earlier ruling in ICICI Bank v. Municipal Corporation of Greater Bombay (2005), where it was held that an advertisement should have a commercial intent and should actively solicit customers.

Violation of Constitutional Rights

The Court also considered the appellants’ argument that imposing advertisement tax on business signboards violated their fundamental rights. It held that:

“Forcing a business to pay a tax merely for displaying its own name within its premises would place an unreasonable restriction on the right to freely practice a profession under Article 19(1)(g) of the Constitution.”

Final Orders

The Supreme Court set aside the Madhya Pradesh High Court’s ruling.
The demand notices issued by the Indore Municipal Corporation were quashed.
The Corporation was directed to reconsider the tax imposition after reviewing the appellants’ objections.
If the tax was still found applicable, the authorities were barred from enforcing the demand for another eight weeks, giving the appellants time to challenge any adverse decision.

Conclusion

This ruling is significant as it protects businesses from arbitrary taxation on signboards that merely identify their establishments. The Court has clarified that advertisement tax cannot be imposed unless the signage actively solicits customers or promotes a product. The judgment serves as a safeguard for businesses against excessive municipal taxation and upholds their fundamental rights under the Constitution.

Petitioner Name: M/S Harsh Automobiles Private Limited, M/S Sanghi Brothers (Indore) Private Limited.
Respondent Name: Indore Municipal Corporation.
Judgment By: Justice S. Ravindra Bhat, Justice Aravind Kumar.
Place Of Incident: Indore, Madhya Pradesh.
Judgment Date: 09-10-2023.

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