2014 (2) TMI 186 - HC - Income Tax

Income from hoarding whether income from business or income from other sources - income of Municipal Corporation- Held that - The Corporation merely charges licence fees to regulate granting licences for putting up hoardings in its property - If the Corporation, permits hoardings to be put up in its property by issuing licences, for which it charges licence fees and also charges licence fees from the owners allowing hoardings to be put up in their private properties, the same cannot be said to be business activity of the Corporation - Such licence fees are collected for regulating the activity of putting up hoardings to ensure that it does not damage the public safety and does not offend the public morality and decency - The collection from such licence fees is less than 1% of the total revenue of the Corporation - The view of the Tribunal that such income was not business income, but must be income from other sources , was justified - Decided against Revenue.

Summary

Issues Involved:
1. Classification of income from hoardings as "income from other sources" versus "business income".
2. Applicability of Section 10(20) of the Income Tax Act for exemption of income from hoardings.
3. Tribunal's adherence to previous judgments and its impact on the current case.

Detailed Analysis:

1. Classification of Income from Hoardings:
The primary issue is whether the income generated from hoardings by the respondent-assessee, a municipal corporation, should be classified as "income from other sources" or "business income". The Income Tax Appellate Tribunal (ITAT) had previously held that such income should be classified under "income from other sources". The Revenue contended that this income should be categorized as "business income" and thus not exempt under Section 10(20) of the Income Tax Act.

2. Applicability of Section 10(20) of the Income Tax Act:
Section 10(20) of the Income Tax Act exempts certain incomes of local authorities from being included in their total income. The provision specifies that income from house property, capital gains, or income from other sources, as well as income from trade or business carried out within the local jurisdiction, are exempt. The respondent-assessee argued that the income from hoardings falls under "income from other sources" and is therefore exempt. The Tribunal, despite being convinced by the Revenue's argument that the income from hoardings should be considered as business income, felt bound by its earlier decision in the case of DCIT v. Jamnagar Municipal Corporation, which classified such income as "income from other sources".

3. Tribunal's Adherence to Previous Judgments:
The Tribunal followed the precedent set by a coordinate bench in the case of DCIT v. Jamnagar Municipal Corporation, which held that income from hoardings should be treated as "income from other sources". The Revenue argued that the Tribunal should have independently assessed the merits of the case rather than relying on the previous judgment. However, the Tribunal adhered to the earlier decision, leading to the dismissal of the Revenue's appeal.

Legal Reasoning and Judgment:
The court analyzed the statutory provisions under the Gujarat Provincial Municipal Corporation Act (GPMC Act) to determine the nature of the income from hoardings. The Act outlines the obligatory and discretionary functions of the municipal corporation, including the regulation of public safety, health, and convenience. The court noted that the corporation's activity of granting licenses for hoardings and collecting fees is part of its regulatory functions and not a business activity. The fees collected are for maintaining public safety and decency, not for profit generation.

The court concluded that the income from hoardings should be classified as "income from other sources" and is thus exempt under Section 10(20) of the Income Tax Act. The Tribunal's decision to follow the precedent set in the Jamnagar Municipal Corporation case was upheld. The court found no reason to interfere with the Tribunal's view that such income is not business income but "income from other sources".

Conclusion:
The High Court dismissed the Revenue's appeal, affirming that the income from hoardings for the municipal corporation is "income from other sources" and exempt under Section 10(20) of the Income Tax Act. The Tribunal's reliance on the previous judgment was deemed appropriate, and the classification of the income was upheld.