TMI Blog1994 (12) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... 954. 3.. The case of the applicant is that it is a club with the object of providing accommodation and a club house together with usual privileges, advantages and conveniences for its members and their friends. The management of the club is vested in a committee of 21 members. Office bearers are annually elected. No one other than a member or a member's guest can use the club facilities. A guest should always be accompanied by a member or spouse or child between 14 and 21 years of age, of a member, who is responsible to bear the expenses for entertaining the guest and also to pay the guest fee. There is a limit of the number of guests brought into the club at a time, i.e., not exceeding 6 guests, and the number of guests who may be introduced at a time, i.e., not exceeding 12 guests. The committee is empowered to frame rules, regulations and byelaws for internal management of the club and for regulation of services and amenities available to members. Rules and bye-laws of the club were last revised with effect from December 1, 1992. According to rules 66 and 67 of the General Rules, tariff to catering services to members should be settled by a committee of management from time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sales tax, but must be regarded as rendering service for satisfying the human need or ministering to the bodily want of human beings. After the said Amendment Act, the provisions of the 1941 Act including the definition of "sale" in section 2(g) were accordingly amended. With effect from April, 1988, Schedule IV of the 1941 Act was amended by inserting an item therein regarding cooked food served in or supplied from any air-conditioned hotel, restaurant, refreshment room, club or eating house. Under section 5 of the 1941 Act, sales tax is payable at the rate of 15 per cent on sales of goods falling under Schedule IV. But the rate of tax is only 8 per cent in respect of similar goods which are not served in or supplied from the above specified premises. 5.. The further case of the applicant is that in the first week of August, 1988, officers of the Commercial Tax Department of the State Government visited the club and made enquiries about its activities and then directed the applicant to get itself registered as a dealer with the appropriate commercial tax authority. It was alleged by them that the applicant was a dealer under the 1941 Act and was liable to pay sales tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, and it has no lodging facility and therefore there is no supply of food, etc., to a person lodged. The club was not being made to pay tax even prior to September 7, 1978, assuming that it is treated as analogous to a restaurant or eating house. Prior to the decision in the Northern India Caterers' case [1978] 42 STC 386 (SC); AIR 1978 SC 1591 tax was being levied on restaurant and eating house but not on a club on the basis that transaction between a club and its members did not amount to "sale", as it was merely acting as agent of its members. According to the applicant, it is evident from paragraphs 3 and 8 of the Statement of Objects and Reasons of the 46th Amendment Act that sub-clause (f) of article 366(29A) only covers supplies of goods and services by a hotel, restaurant or eating house, but does not cover a club. Support in favour of this interpretation is drawn from section 6(2) of the 46th Amendment Act by which exemption was given in respect of transactions during the specified period. The dates mentioned in sub-clauses (a) and (b) of section 6(2) of the said Amendment Act are such dates as January 4, 1972 and September 7, 1978, being the respective dates of the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (WBTT); (1992) 25 STA 41 (WBTT) and the leave to appeal was granted by an order dated November 18, 1991. Respondents have been treating the applicant as a dealer under the Acts of 1941 and 1954 and have been regularly assessing it for the relevant periods. The applicant has also been depositing taxes and filing returns. 8.. The case of respondents in their affidavit-in-opposition is, inter alia, that the fact that the club has become the sole applicant before us is evidence of separate identity thereof distinct from and independent of its members. As an incorporated club, it is a distinct juristic person and its assets and liabilities are distinct from those of its shareholders. One of the objects of the club is to sell cooked food, drinks and provisions amongst members and their friends. Whatever goods are purchased by the applicant, the property therein vests in the club as a juristic person. From the memorandum of association it is clear that the club may collect money by way of gift and donation from even other sources. The club does not stand in the position of an agent in relation to its members and particularly so in the matter of sale of food, drinks and other articles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC); AIR 1978 SC 1591 has no universal application. Following the 46th Amendment of the Constitution, section 26A was inserted in the 1941 Act with effect from October 1, 1983, and the definition of "sale" in section 2(g) was amended by adding sub-clause (iv) to section 2(g) with effect from August 16, 1991. Thus, the definition of "sale" was widened on the line of the 46th Amendment. Schedule IV of the 1941 Act was also suitably amended. Sales of cooked food, etc., from air-conditioned hotel, club, restaurant or eating house was made taxable at the rate of 15 per cent, whereas sales thereof from non air-conditioned similar places were made taxable only at 8 per cent on the basis of a valid classification. Denying that the Commercial Tax Officer had asked the applicant to get itself registered as a dealer, the respondents submit that the club rightly registered itself as a dealer under the 1941 Act and had it not registered itself in that way, it would have attracted the mischiefs of sections 7 and 22 of the 1941 Act. Respondents Nos. 2 and 1 respectively took the correct view that the club is a "dealer". It is alleged that the activity of supply of cooked food, drinks, etc., car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r accommodation of members and for providing a club house to be used by members and their friends either gratuitously or upon such terms as agreed upon and generally to afford them all usual privileges, advantages and conveniences of a club. Some other objects are to collect money as monthly subscription or otherwise from members or as gifts and donations and to purchase, sell, distribute or deal with any property of the club and specially all stores, provisions and other articles in which clubs usually deal in amongst members and their friends for consumption. The articles of association of the club are at pages 36 to 55 and the amended rules and bye-laws effective from December 1, 1992 are at pages 56 to 69. Mr. Bajoria referred to clauses 3 to 7 of the articles of association and submitted that there were different categories of members, namely, (i) general members of two classes, namely, local and non-resident members, (ii) life members, (iii) temporary members and (iv) honorary members. Non-resident general members are those who are not ordinarily residents within 100 kms. of the limits of Calcutta municipal area. Referring to the declaration given by the Secretary of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in clause (g) of section 2 of the 1941 Act and in section 2(1d) of the 1954 Act. Supply of goods, being food or any other article for human consumption or any drink, will be "sale", if there is transfer of property in goods for cash or deferred payment or other valuable consideration. In the instant case, although admittedly members make payments to the club against bills for supply of food, drinks or other articles for human consumption, Mr. Bajoria submitted that there was no "sale" due to identity of the club with its members and due to operation of the law of agency between the club and its members. According to him, the payments made against bills for supplies of foods, drinks, etc., are neither price nor valuable consideration, but by way of contribution as members for the facilities made available by the club. 12.. Mr. Bajoria dwelt upon the 46th Amendment of the Constitution of India by which, inter alia, clause (29A) was inserted in article 366 of the Constitution. He made two submissions on that amendment. Firstly, the new sub-clause (e) of the said clause (29A) enables a State Legislature to enact a law imposing tax on supply of goods by any unincorporated associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , deferred payment, or other valuable consideration, but where the identity of the supplier is different from that of the receiver of supply on the strength of the law laid down by the Supreme Court of India in [1970] 26 STC 241; AIR 1970 SC 1212 (Joint Commercial Tax Officer v. Young Men's Indian Association). Mr. D. Majumdar, learned State Representative, submitted that the law of agency is irrelevant in view of sub-clause (f) of clause (29A) and he did not agree with Mr. Bajoria that subclause (f) applied to hotels, restaurants, eating places, etc., but not to a members' club. Mr. Majumdar also submitted that reference to Statement of Objects and Reasons is not necessary for interpretation of the sub-clauses of clause (29A) of article 366. It is true that the Statement of Objects and Reasons is not a part of the statute. Nevertheless, it provides an indication as to the purpose of legislation and the remedy sought to be achieved by the relevant provision, thereby helping in determining the intention of the Legislature but it is in no way conclusive even to that extent. In other words, the Statement of Objects and Reasons is one of the means to find out the legislative intent. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, a registered society, also supplied food to its members and their guests against payment. The Lawley Institution was managed by a board of trustees. In all these institutions or clubs, no one other than a member (or a guest of a member) was entitled to participate in the amenities provided therein including supply of food and refreshments. The High Court of Madras found that each of those institutions stood on the footing of an agent or mandatory investing his own monies for preparing things for consumption of the principal and later recouping himself for the expenses incurred. In affirming the decision of the High Court, the Supreme Court held that no transaction of sale was involved in the supply of refreshments and preparations by those institutions to their members and no tax should be levied under the Madras General Sales Tax Act, 1959. This case was followed by this Tribunal in several cases. The first such case decided by this Tribunal was that of Automobile Association of Eastern India (hereinafter referred to as the AAEI), reported in [1991] 81 STC 185, to which one of us was a party. The main objects of AAEI were to maintain and conduct a club for accommodation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rested on a finding that rowing members of the club formed a class of members different from permanent or full members; and this Tribunal held that because of such rowing members who made payments for refreshments, it could not be said that there was identity between the club and its members. But he stated that this question did not arise in the course of arguments by the parties. According to him, it found place in the judgment on the basis of information received from the rules and bye-laws of the club. Mr. Bajoria thought that, had this question been raised in the course of arguments, he might satisfy this Tribunal that the presence of rowing members would not be material and in spite of their presence, Bengal Rowing Club might be held to be a members' club having identity between the club on the one hand and its members on the other. A point decided in the case of Bengal Rowing Club [1993] 88 STC 389 (WBTT); (1992) 25 STA 41 cannot be reopened by any means in this case. But it may be noted that Mr. Bajoria argued that a club cannot be held to lose the character of a members' club having identity with its members, merely because there were several categories of members. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members, it was held, may not participate equally in the matter of refreshments. If the surpluses are used for providing amenities to members, these actually are shared by all members equally and not necessarily in the same proportion of their contribution. In the said case, it was held that the club could not be said to be a members' club on the basis of the fact that there was one class of members, known as rowing members, who were not shareholders of the club and who could not take part in general meetings, in the management and election of governing body of the club, but who were entitled to certain specified privileges as prescribed in the rules and bye-laws. They were not permitted to introduce guests, but could enjoy certain facilities such as playing badminton and table tennis free of charge and using the swimming pool on payment of a fee. They could use the cards and billiard rooms only as guests of ordinary members and had to pay for refreshments with coupons available for cash. In such circumstances, this Tribunal held that there could not be said to be identity between rowing members and the club and therefore it was not a members' club. It was further found that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucing guests. He is also subject to rules, bye-laws and regulations of the club and to any restrictions that may be prescribed by the executive committee for them. No such limitation is, however, prescribed for honorary members. But it appears from clause 26(c) that office bearers and members of the executive committee shall be elected from amongst the permanent members of the club. That being so, honorary members are not entitled to participate in elections or to vote, like temporary members. There appears to be no further restriction on the privileges of honorary members for availing of the amenities and facilities provided by the club. The difference between a temporary member on the one hand and an honorary member on the other, is that the latter does not have any obligation to pay any entrance fee or subscription. In the scheme of clause 12 there is no such exemption from payment for food or refreshments taken from the club. The learned State representative submitted that honorary members are not shareholders of the club and, therefore it cannot be said that there is identity between the club and honorary members so that the club will function as an agent of honorary members f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws adopted by the executive committee of the club, which are in force from December 1, 1992, at annexure pages 57 to 67 of the main application. Rule 67 lays down that a tariff shall be instructed by the committee "from time to time . Thus, representatives of permanent members who form the committee, decide upon the tariff of food and refreshments from time to time and such tariff is recovered against vouchers vide rule 68. A temporary member has no say in the fixation of tariff and has no representation in the committee which fixes the tariff, but the tariff applies equally to a permanent as well as a temporary member. Clause 3 with its several sub-clauses of the memorandum of association lays down the objects of the club. In terms of sub-clause (c) the club may collect and "accumulate monies by monthly subscription or otherwise from members or by accepting gifts and donations. Therefore, if there is any surplus in the catering activity, it is to be accumulated for the purpose of the club. Sub-clause (d) requires that monies of the club will be invested and dealt with as may be determined from time to time, which means, as may be determined by the executive committee. Clause 38(h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers for food and refreshments, does not enure to the benefit of temporary members during the period of vacuum of their membership. In our opinion, the principle of mutuality which is the essence of agency cannot be invoked in the case of temporary members during the period of 10 months or more in a year, when their membership does not exist. 18.. We are now briefly mentioning the other cases to which Mr. Bajoria and Mr. Majumdar referred in the course of their arguments. Mr. Bajoria referred to the cases of Enfield India Ltd. Co-operative Canteen Ltd. [1968] 21 STC 317 (SC), Merchant Navy Club [1974] 96 ITR 261 (AP), Darjeeling Club [1985] 153 ITR 676 (Cal), Madras Advocates' Co-operative Society [1976] 38 STC 297 (Mad.), Ram Chandra Trivedi AIR 1976 SC 2547, Raghubir Singh [1989] 74 STC 313 (SC); AIR 1989 SC 1933, Delhi Gymkhana Club [1985] 155 ITR 373 (Delhi), Sports Club of Gujarat [1988] 171 ITR 504 (Guj) and National Association of Local Government Officers [1934] 18 TC 499 (KB). The case of Enfield India [1968] 21 STC 317 (SC) decided by a three-Judge Bench was discussed in Young Men's Indian Association [1970] 26 STC 241 (SC); AIR 1970 SC 1212 which was decided by a six-Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontributors and participants in a common fund so as to attract the principle of mutuality. It was further held that the essence of mutuality lies in the return of what one has contributed to a common fund, and if profits are distributed to shareholders as shareholders, the principle of mutuality is not satisfied. Mr. Bajoria distinguished this case too. What the benefit fund was doing was that it was collecting interest from loans granted to its shareholders and then distributing the profit among the shareholders equally as dividend, though some of the shareholders were not contributing in the sense that they were not taking loans and, therefore, did not pay any interest to the fund. On such facts, the Supreme Court held that principle of mutuality was missing. 20.. Mr. Bajoria's contentions are really two-fold. Firstly, according to him, presence of different classes of members in the instant case could not destroy the character of the club as fully a members' club. Secondly, he contended as an alternative argument that at least transactions of the club with the permanent members should be treated as governed by the principle of mutuality, because to that extent there was comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 2(g) of the Bengal Finance (Sales Tax) Act, 1941 and section 2(1d) of the 1954 Act in view of sub-clause (f) of article 366(29A) of the Constitution and such transactions should be exigible to sales tax under the said 1941 Act and 1954 Act as the case may be, but similar transactions of the club with its permanent members should be saved from sales tax under the 1941 Act and the 1954 Act. It will be sufficient to note that neither in the case of AAEI [1991] 81 STC 185 (WBTT) nor in Bengal Rowing Club [1993] 88 STC 389 (WBTT); (1992) 25 STA 41 (WBTT) there was any alternative argument on behalf of the applicant, as advanced in the instant case, to the effect that only a part of the turnover relatable to non-members or persons other than full-fledged members having no identity with the club, may be liable to tax. 22.. It may be noted that while the memorandum of association and the articles of association of the applicant-club, annexed to the application, do not appear to have undergone amendment, the rules and bye-laws were amended with effect from December 1, 1992, whereas the impugned order of the Additional Commissioner was passed on October 22, 1992 and the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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