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TMI Blog1970 (2) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... petitions filed under article 226 of the Constitution by the Cosmopolitan Club, Madras, the Young Men's Indian Association, Madras, and the Lawley Institute, Ootaca-mund, challenging the proceedings relating to their assessments to sales tax under the Madras General Sales Tax Act, 1959, hereinafter called the "Act", for supplying food, snacks, beverages and other articles to their members or their guests. It was held by the High Court that each of these clubs could not be regarded as a "dealer" within the meaning of section 2(g) read with Explanation I of the Act nor was any sale involved in the aforesaid activity of the club within the meaning of section 2(n) read with Explanation I of the Act. The Cosmopolitan Club, Madras, is a social recreation club which was started originally in the year 1873 as an unincorporated association. In 1934 it was registered under section 26 of the Indian Companies Act, 1913, as a non-profit-earning institution. Its objects, as disclosed in the memorandum of association, are mainly to promote and facilitate social intercourse, discussion among its members etc. The articles of association provide that the members for the time being only constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "any person who carried on any business of buying, or selling goods" with the following explanation: "A co-operative society, a club, a firm or any association which sells goods to its members is a dealer within the meaning of this clause." The Cosmopolitan Club, Madras, which has been paying tax since 1939 filed a petition under article 226 of the Constitution which was disposed of by Mack, J., in Cosmopolitan Club, Madras v. Deputy Commercial Tax Officer, Triplicane [1952] 3 S.T.C. 77; (1952) 1 M.L.J. 401. According to the learned Judge the supply of refreshments in a members' club purchased out of the club funds and composed of members' subscription was not a transfer of property from the club as such to a member nor did the club do any trade or business in purchasing from outside the requirements of members and supplying the same to them at a fixed charge. The levy of sales tax on such supply of refreshments was held to be illegal. A Division Bench to whom an appeal was taken confirmed the above judgment (Deputy Commercial Tax Officer, Triplicane Division, Madras v. The Cosmopolitan Club [1955] 6 S.T.C. 1; I.L.R. 1955 Mad. 1042.). The definition of "dealer" in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icensing Acts concerning sale because the members are joint owners of all the club property including the excisable liquor. The supply of liquor to a member at a fixed price by the club cannot be regarded to be a sale. If, however, liquor is supplied to and paid for by a person who is not a bona fide member of the club or his duly authorised agent there would be a sale. With regard to incorporated clubs a distinction has been drawn. Where such a club has all the characteristics of a members' club consistent with its incorporation, that is to say, where every member is a shareholder and every shareholder is a member, no licence need be taken out if liquor is supplied only to the members. If some of the shareholders are not members or some of the members are not shareholders that would be the case of a proprietary club and would involve sale. Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club. The supply to them of food or liquor though at a fixed tariff is a sale. (See Halsbury's Laws of England, 3rd Edition, Volume 5, pages 280-281). The principle laid down in Graff v. Evans (1882) 8 Q.B.D. 373., had throughout be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a purely members' club which makes purchases through a secretary or manager and supplies the requirements to members at a fixed rate did not in law sell those goods to the members. On behalf of the appellant reliance has been placed on a decision of this court in Deputy Commercial Tax Officer and Another v. Enfield India Ltd. [1968] 21 S.T.C. 317; [1968] 2 S.C.R. 421. In that case the Explanation to section 2(g) was found to be intra vires and within the competence of the State Legislature. The judgment proceeded on the footing that when a co-operative society supplied refreshments to its members for a price the following four constituent elements of sale were present: (1) parties competent to contract; (2) mutual consent; (3) thing, the absolute or general property in which is transferred from the seller to the buyer, and (4) price in money paid or promised. The mere fact that the society supplied the refreshments to its members alone and did not make any profit was not considered sufficient to establish that the society was acting only as an agent of its members. As a registered society was a body corporate it could not be assumed that the property which it held was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral property in goods belonging to a person is under a contract transferred to another for a price paid or promised, the transaction is a sale. The State Legislature has under the Constitution power to legislate under entry 54, List II, in respect of taxes on sale or purchase of goods and the expression "sale" has the same meaning it bears in the Sale of Goods Act, 1930: see State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 S.T.C. 353; [1959] S.C.R. 379. A transaction which is not of the nature of sale within the meaning of the Sale of Goods Act cannot, therefore, be subjected to tax under a law enacted in exercise of power under entry 54, List II. Whether refreshments, beverages and other articles supplied by a members' club for consideration to its members are in law sold depends upon the circumstances in which the transaction takes place. In each case the liability to tax of the transaction will depend upon its strictly legal form. If an incorporated members' club supplies its property to its members at a fixed tariff, the transaction would readily be deemed to be one for sale, even if the transaction is on a non-profit basis; such a transaction would be liable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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