2011 (4) TMI 1416 - HC - Income Tax

Writ Petition by advertising agencies challenging the vires of the Municipal Corporation (Assessment and Collection of Tax on Advertisement) Rules, 2009 (the Rules) mainly on the ground that the rule is ultra vires to the constitution. Rule has been also impugned being framed in contravention of statutory provisions contained in the U.P. Municipal Corporation Act, 1959 (the Act.) - The State Government in pursuance to power conferred by Section 227 read with Section 192, 219, sub section (1) of Section 540 and Section 550 and Section 21 of the U.P. General Clauses Act (General Clauses Act) and in super session of all the previous rules and order with regard to advertisements had notified the impugned Rules on 27.2.2008 as required by sub Section (2) of section 540. The Rule has been enforced from the date of publication in the Gazette and has been extended to every Municipal Corporation of Uttar Pradesh. A plain reading of the rule shows that the purpose of the rule is to impose 'advertisement tax' and provide the mode of recovery and initiate penal action in the event of contravention of rules by the advertising agencies as well as other related persons. HELD THAT - The impugned Rules could not have been framed by the Government in the manner it has been done. At the most, the proposed Rule or the Model Rules could have been sent to the Corporation and it was for the Corporation to consider the proposal of State Government in pursuance to power conferred by Section 202 and thereupon the Corporation could have directed for imposition of tax w.e.f. the date to be specified in resolution and consequential notification issued u/s 203. In the event of failure on the part of Corporation, government has got option to take recourse in pursuance to power conferred u/s 205 and 206. The other issues are also decided and answered. That State Government has got legislative competence to frame rules but subject to fulfilment of necessary conditions and procedure prescribed under Chapter IX. That Government could not have framed impugned rules for all the Municipal Corporations without taking recourse of not only Section 206 but other statutory provisions contained in Chapter IX of the Act. That Impugned rule 209 is invalid and ultra vires to the Act being framed without following the provisions of Sections 199 to 203 of the Act and other statutory provisions. Provision contained in the Rule 2009 requiring the owner of building to face penal consequences is invalid and violative of Section 195 of the Act.

Summary

Issues Involved:
1. Legislative competence of the State Government to frame the Rules, 2009.
2. Validity of framing general rules for all municipal corporations without following Section 206 of the Act.
3. Delegation of power under the Rules framed by the State Government.
4. Licensing for hoardings/advertisements on public properties owned by private owners via public auction.
5. Violation of Articles 14, 19(1)(a), and 19(1)(g) of the Constitution of India.
6. Validity of the Rules, 2009, in light of non-compliance with Sections 199 to 203 of the Act.
7. Reasonableness and fairness of provisions requiring the owner of the building to pay tax in case of default by the advertising company.
8. Vesting excessive powers in the Municipal Commissioner without guidelines or superior forum for appeal/revision.

Detailed Analysis:

1. Legislative Competence of the State Government to Frame the Rules, 2009:
The court held that the State Government has legislative competence to frame rules under Section 540 of the U.P. Municipal Corporation Act, 1959. However, this power is subject to compliance with the necessary conditions and procedures prescribed under Chapter IX of the Act, which includes Sections 199 to 203. The court emphasized that the rules must be consistent with the provisions of the Act and should not override the autonomy granted to municipal corporations by the 74th Amendment of the Constitution, which aims to empower local self-governments.

2. Validity of Framing General Rules for All Municipal Corporations Without Following Section 206 of the Act:
The court found that the State Government could not have framed general rules for all municipal corporations without adhering to Section 206 of the Act and other statutory provisions in Chapter IX. The Act requires specific procedures for imposing taxes, which include resolutions by the corporation's executive committee and approval or modification by the State Government. The impugned rules bypassed these statutory requirements, rendering them invalid.

3. Delegation of Power Under the Rules Framed by the State Government:
The court observed that the delegation of unfettered powers to the Municipal Commissioner to impose taxes and penalties constitutes excessive delegation. Such delegation must be within the framework of the Act and should not confer arbitrary powers. The court noted that the impugned rules granted excessive and unguided powers to the Municipal Commissioner, which is contrary to the statutory provisions and principles of administrative law.

4. Licensing for Hoardings/Advertisements on Public Properties Owned by Private Owners via Public Auction:
This issue was not conclusively addressed in the judgment, and the court left it open for the regular Division Bench to decide. The court focused on the broader question of the validity of the rules and the procedures for imposing taxes.

5. Violation of Articles 14, 19(1)(a), and 19(1)(g) of the Constitution of India:
The court did not provide a detailed analysis of the constitutional violations in this judgment. However, it acknowledged that the rules must comply with constitutional mandates and should not infringe upon fundamental rights. The court left this issue open for further consideration by the regular Division Bench.

6. Validity of the Rules, 2009, in Light of Non-Compliance with Sections 199 to 203 of the Act:
The court declared the impugned rules invalid as they were framed without following the provisions of Sections 199 to 203 of the Act. These sections outline the procedure for imposing taxes, including the preparation of proposals, public objections, and final approval by the corporation and the State Government. The rules bypassed these procedures, making them ultra vires to the Act.

7. Reasonableness and Fairness of Provisions Requiring the Owner of the Building to Pay Tax in Case of Default by the Advertising Company:
The court found the provision requiring the owner of the building to pay taxes in case of default by the advertising company to be unreasonable and unfair. This provision is contrary to Section 195 of the Act, which holds the beneficiary of the advertisement responsible for compliance. The court held that shifting the liability to the property owner is invalid and violates the statutory framework.

8. Vesting Excessive Powers in the Municipal Commissioner Without Guidelines or Superior Forum for Appeal/Revision:
The court criticized the rules for vesting excessive powers in the Municipal Commissioner without providing guidelines or a superior forum for appeal or revision. This concentration of power is arbitrary and unreasonable, leading to potential misuse and lack of accountability. The court emphasized the need for checks and balances to prevent excessive delegation and ensure fair administration.

Conclusion:
The court concluded that the impugned rules were framed in contravention of the statutory provisions of the U.P. Municipal Corporation Act, 1959, and the constitutional mandate of the 74th Amendment. The rules were declared invalid and ultra vires to the Act. The court directed that the matter be listed before the appropriate Division Bench for further consideration of the remaining issues.