TMI Blog1991 (7) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... any air-conditioned hotel, restaurant or club. 3.. The case of the applicant may be briefly stated as follows: The Bengal Rowing Club is a company limited by guarantee and was registered on January 8, 1929 under section 26 of the Indian Companies Act, 1913/section 25 of the Companies Act, 1956. It is a social club of members only and its objects as per clause 3 of its memorandum of association are: (a) To offer to its members facilities for boat rowing; (b) To provide for its members, as far as possible, the usual privileges, advantages and amenities of the club. For the promotion of these objects, the club is empowered to raise funds, acquire movable or immovable property, provide and maintain suitable buildings, rooms and other facilities, etc. Sub-clause (i) of clause 4 of the said memorandum provides for supply of refreshments to the members at a tariff, which shall be settled by the committee of management from time to time. Clause 5 of the said memorandum further states that "the income and property of the club whencesoever derived shall be applied solely towards the promotion of the objects of the club" and "no portion thereof shall be paid or transferred directly or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a separate juristic person it cannot be treated as acting as an agent of its members in the matter of supply of refreshments. It has been urged that the judgment of this Tribunal in Automobile Association of Eastern India's case [1991] 81 STC 185 decides this case also. 7.. In the writ application, apart from other issues, the validity of the Amendment Act of the Constitution has been challenged on the ground that it alters the basic structure of the Constitution and has not been ratified by the majority of the States. In view of the decision of the Supreme Court in Builders Association of India v. Union of India [1989] 73 STC 370 upholding the validity of the Amendment Act, no further arguments were advanced on the issue before us, though the applicant did not concede the point. So far as we are concerned, the issue has already been concluded by the Supreme Court and no further consideration is called for. 8.. The main issues for decision before us, therefore, are (a) whether an incorporated club is liable to pay tax after the constitutional amendment and the amendments made thereto in the 1941 Act and (b) whether the applicant-club is merely acting as an agent of its member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration shall be treated as a tax on sale or purchase of goods". In the Statement of Objects and Reasons appended to the said Constitution Amendment Bill it was stated "in the Associated Hotels of India Ltd. case [1972] 29 STC 474 (SC); AIR 1972 SC 1131, the Supreme Court held that there is no sale involved in the supply of food or drink by a hotelier to a person lodged in the hotel". It was further stated in the said Statement of Objects and Reasons that "a new problem has arisen as a result of the decision of the Supreme Court in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [1978] 42 STC 386; AIR 1978 SC 1591. The State had been proceeding on the basis that the Associated Hotels of India Ltd. case [1972] 29 STC 474 (SC); AIR 1972 SC 1131, was applicable only to supply of food and drink by a hotelier to a person lodged in the hotel and that tax was leviable on the sale of food-stuff by a restaurant. But overruling the decision of the Delhi High Court, the Supreme Court had held i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.. It is the case of the applicant that it had no liability to pay any sales tax prior to the Amendment Act and the amendments made thereafter to the 1941 Act; nor is it liable to pay tax after such amendments. We may now discuss the position of the club vis-a-vis these amendments. For the sake of convenience, the contentions of Mr. R.N. Bajoria, the learned advocate for the applicant, in this regard may be divided into two parts(a) the position of an incorporated club where the question of agency and principal relationship is not involved; and (b) where the said club is acting as an agent of its members. Mr. Bajoria contended that section 6 of the Amendment Act does not apply to the club and that it only seeks to validate the tax on hotels and restaurants. He drew our attention to the Objects and Reasons of the Amendment Act as also the provisions of validation and exemption to indicate that sub-clause (f) only covers the supplies of goods and services by a hotel, restaurant or eating-house and does not cover the case of the club. 15.. We are unable to accept the view that supplies of food/drinks by the clubs are not taxable on the ground that the Statement of Objects and Reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices as an agent and not for supply of goods. One cannot supply to oneself, nor can there be any consideration for such purported supply. 17.. It may be pertinent to note that while supplying goods to its members the case of the unincorporated club is analogous to that of an agent providing services to its principal. The provision in the constitutional amendment making a transaction between an unincorporated club and its members a sale may perhaps amount to making a fiction of sale in respect of transactions between the principal and the agent. This observation is, however, based on the assumption that Legislature is competent to create such a fiction. But, so far as the 1941 Act is concerned, sub-clause (e) of clause (29A) was not adopted by the State Legislature by suitable amendment of the definition of "sale" in section 2(g) of the Act. In view of this position, we have already held in the case of Calcutta Swimming Club [1991] 83 STC 197; [1990] 23 STA 413 that an unincorporated club is not a dealer as its transactions with its members do not constitute sale. It was observed therein that though the constitutional amendment armed the State Legislature with powers, it did not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider, who is not a member, cannot be considered as one in which the club is acting as the agent of its members. 22.. Mr. D. Majumdar, the learned State Representative, contended that the applicant-club is not a purely members' club and its sales are not restricted to members only and goods are sold even to non-members, who do not constitute the club. He drew our attention to clause 4 of the articles of association of the club, which indicates that there are five classes of members, viz., ordinary, temporary, honorary, non-resident and rowing, though it also provides that the committee may invite distinguished individuals to become patrons of the club. He contended that though a patron is not a member, he is allowed club facilities. Our attention was also drawn to clause 40, which enables the committee to invite any distinguished person or persons to visit the club and entertain him/them in any suitable manner they think fit. Mr. Bajoria, however, clarified that up till now the committee of the club has not invited anybody to become a patron and that there is no provision in the articles or the bye-laws conferring upon such patrons any rights or privileges of a member. He added t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, etc. It was contended that this clause clearly showed that the club was not the agent of the members. Mr. Bajoria, however, contended that the club being an incorporated body was bound to own such property, but it was for the convenience of the members that this arrangement has been made. He added that it is for the purpose of providing club facilities to its members as indicated in clause 3 of the memorandum that this has been done. He further contended that the holding of the property by the club is not antagonistic to its members and if it holds only for the purpose of providing club facilities it holds such property as an agent of the members. He argued that the respondents proceeded on the assumption as if a formal contract of agency is required before it could be held that the club was in substance acting as an agent of its members. According to him, the question actually is whether in substance the transaction is one where the members through the corporate medium provide themselves with club facilities. 27.. His further submissions in this regard are on the following lines. Clause 4 of the memorandum empowers the club to do various acts for the purpose of carrying out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omprising it. Mr. Bajoria, however, brought in the underlying theory of agency, even though the club may structurally be a corporate body. According to him, the fact of incorporation does not destroy in any way the principle of agency, when the very purpose of such incorporation is to facilitate or effectuate the avowed objective of the members. He had relied heavily on the English law on the subject followed in the case of Young Men's Indian Association v. Joint Commercial Tax Officer [1963] 14 STC 1030, decided by a Division Bench of the Madras High Court as also the decision of the Supreme Court in the case of Joint Commercial Tax Officer v. Young Men's Indian Association [1970] 26 STC 241. The cases, Commissioner of Income-tax v. Merchant Navy Club [1974] 96 ITR 261 (AP), Commissioner of Income-tax v. Darjeeling Club Ltd. [1985] 153 ITR 676 (Cal) and the State of Tamil Nadu v. Madras Advocates' Co-operative Society Limited [1976] 38 STC 297 (Mad.) were also cited in support. 30.. Actually, the fact of incorporation of a club by itself is not a determining factor. What is important is whether it is acting as an agent of its members and the terms of such incorporation are not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, J., were only a logical extension of the majority view and do not constitute a minority view contradicting the majority view. According to him, both Shah, J., delivering a separate judgment, and Grover, J., delivering the judgment of the majority, accepted the finding of the High Court that the clubs in question were acting as agents of their members. He pointed out that Grover, J., noted the view taken by various High Courts on the subject and also indicated the position of English law relating to clubs but apparently did not express any opinion on that. He further contended that the decision in Enfield India's case [1968] 21 STC 317 (SC) is still good law and there is no conflict between the decision in the said case and that in Young Men's Indian Association's case [1970] 26 STC 241 (SC). 34.. It is not necessary for us to enter into the controversy regarding form and substance and whether there is a conflict between the majority view and the views of Shah, J. It is, however, pertinent to note that Shah, J., did not hold that incorporation by itself is a determining factor; otherwise he could not have accepted the view that the Cosmopolitan Club in Young Men's Indian Associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot, therefore, be said that there is identity between the members and the club. In the matter of supply of refreshment it cannot be held that the club has transactions only with its constituent members, that is, the principal. It has transactions with others also, who are not the principal. The obvious conclusion is that the applicant-club is not a members' club and hence the question of agency does not arise at all. 38.. It is an accepted position in law that where a members' club prepares refreshments by investing its monies in the first instance and distributes such products by recouping the same from the members to whom supplied, there cannot be any sale. In such a members' club, which has been incorporated in keeping with the objective of providing amenities to its members, the supply of articles by it to a member is akin to delivery by an agent to the principal. The case is analogous to a mess where several people combine together, purchasing the various articles required for supplying refreshments and the expenses incurred therefor being divided among, and shared by, the members participating in the mess. Apart from the fact that the ingredients of a members' club sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not distributed in precisely the same proportion in which the members contributed to the surplus. 43.. The position is, however, different in the case of rowing members. As pointed out earlier, they do not have the privileges and facilities of ordinary members, who virtually constitute the club, The rowing members certainly are not shareholders and undoubtedly not the principals, in case the club is treated as an agent. If the surplus of the catering establishment is used, though partially, for meeting the deficit of the rowing and regatta activities, it cannot be held that the surplus is given back to the constituent members. In fact, part of the surplus is used for giving benefits to the rowing members. There is, therefore, absence of mutuality between the contributors and the participants. This strikes at the very root of the principle of agency. 44.. In view of the reasons given above, we come to the conclusion that the applicant-club is not acting as an agent of its members. The facts of the cases cited by the learned advocate for the applicant are distinguishable, as those cases related to members' clubs where they were acting as agents of their members. These cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent class of clubs with richer people can afford. This is certainly a rational basis of classification, which envisages imposition of a differential rate of tax on a certain class of food consumed by a comparatively affluent section of the people, who have the ability to pay a higher rate. The Legislature's right to classify like this in taxation matters, where a certain latitude is permitted, cannot be disputed, as it is rational and in keeping with the social and economic policies of the State. As regards the yardstick for air-conditioning, according to common parlance, it is fairly well-known which club is air-conditioned and which is not. There is no vagueness about it. 48.. It is not a tax on air-conditioning or luxury, as has been alleged by the applicant. Air-conditioning is just a criterion for classification on the premise that air-conditioned clubs serve costly food, which is consumed or paid for by comparatively affluent sections of the people. Cooked food of the costly variety supplied in air-conditioned clubs constitutes a distinct class with a discernible difference from the cooked food of non-air-conditioned clubs. To impose a higher rate of tax on such costly food ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
