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2015 (10) TMI 297 - AUTHORITY FOR ADVANCE RULINGS

2015 (10) TMI 297 - AUTHORITY FOR ADVANCE RULINGS - 2016 (41) S.T.R. 321 (A. A. R.) , [2015] 85 VST 161 (AAR) - Club membership - Membership fee, Annual fee and other charges received from members - refundable security deposit - Whether the relationship between the applicant and members of the club could be considered as provision of ‘service’ by one person (service provider) to another person (service receiver) - Held that:- The relationship between the applicant and members of the club should .....

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nance Act, 1994.

Decided partly in favor of assessee. - Ruling No. AAR/ST/10/2015, Application No. AAR/44/ST/07/2014 - Dated:- 11-9-2015 - V S Sirpurkar And Shri S S Rana, JJ. For The Appellant : Shri B J Raichandani, Adv For The Department : Shri Amresh Jain(AR RULING M/s Emerald Leisures Limited (hereinafter also referred to as applicant) is resident Public Limited Company. Applicant has entered into the business of establishing and running an indoor sports complex and club. The fac .....

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s / ₹ 4.5 lakhs up-to ₹ 10 lakhs to be received from each potential member in addition to non-refundable membership fee for an amount ranging from ₹ 50,000/- to ₹ 5,00,000/- depending on the category of membership. The maximum term of membership is 20 years. The club facility shall be allowed to be used only by the members. 2. Applicant has raised following issues for determination by the Authority. (a) Whether the relationship between the applicant and members of the clu .....

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e entities and hence, there is provision of service by one person (service provider) to another person (service receiver)? (b) Whether refundable security deposit would be subject to Service Tax is in accordance with the applicable provisions of law, in particular, the definition of service contained in Section 65B(44) read with sections 66B, 66D and Section 66E of the Finance Act, 1994 or not. 3. Applicant submits that in order to attract Service Tax, the service provider has to undertake an ac .....

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bers shall use the available passive infrastructure; that no Service Tax is applicable on aforesaid transaction. 4. Further, applicant submits that no service is being provided by one person to another as there is complete absence of identity between the contributors and the beneficiaries thereof; that for a service to be regarded as taxable service, there should be two distinct person i.e. service provider and service receiver; that in the case of the Dalhousie Institute 2005 (180) ELT 18 , the .....

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f Goods Act, 1930 read with Explanation I, if there is no transfer of property from one to another, there is no sale, which would be exigible to tax. The Hon'ble Supreme Court further observed that if the club, even though a distinct legal entity, is only acting as an agent for its members in matter of, supply of various preparations to them, no sale would be involved as the element of transfer would be completely absent; that similar view was taken by Full Bench of the Patna High Court in c .....

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ited Vs U.O.I. reported in 2013 (31) STR 645 (Guj.) held provisions of Section 65(25a), Section 65 (105)(zzze) and Section 66 of the Finance Act, 1994 to levy Service Tax in respect of services purportedly provided by the petitioner club to its members to be ultra vires; that above rulings would apply even after 01.07.2012 in respect of submissions made by the applicant; that explanation to Section 65 B(44) would not apply in the facts of the present case. 5. Revenue submits the as per Section 6 .....

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applicant is in the interest of the shareholders of the Company. Services are provided to the members of the Club. To become a member of the Club, the person is required to pay Membership Entrance Fee (Non-Refundable) and Refundable Security Deposit as specified. Having become the member of the Club, in order to avail the services of the Club, member is required to pay Annual Subscription charge. For specified services provided by the Club, member is required to pay the consideration separately. .....

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as The Club for profit motive. Revenue inter-alia concludes that from the material facts made available, it does not merely seem to be an association or body of persons providing service to the members of such association or body of persons; that the activities under consideration undertaken or proposed to be undertaken by M/s Emerald Leisures Limited, is purely a business activity by M/s Emerald Leisures Limited for profit motives; that the name given The Club does not seem to signify the conve .....

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r consequence for the issue under consideration in view of the material facts. Further, in view of the Section 66B read with Section 65 B (37) and Section 65B (44), the services provided by the applicant, which is a Public Limited Company and the profit of the company is shared amongst shareholders and not to the so called members of the Club is clearly a taxable service provided by one person (applicant) to another person (members of the club) and are accordingly leviable to Service Tax. Princi .....

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) Activity (carried out) b) By one person c) For another person d) For consideration 7. According to the applicant, there is no activity ; that making available passive infrastructure to members by the club is not an activity; that activity means state of being active. Revenue submits that there are services liable to Service Tax, which does not contain state of being active. As example, Revenue state that as per Section 66E(e) of the Finance Act, 1994, agreeing to the obligation to refrain from .....

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is not tenable. 9. Next issue raised by the applicant is that no service is being provided by one person to another as there is complete absence of identity between the contributors and the beneficiaries thereof. Further, for a service to be regarded as taxable service, there should be two distinct persons i.e. service provider and service receiver. Applicant has relied upon the judgment of Hon'ble Supreme Court in Joint Commercial Tax officer, Madras vs. Young Men's Indian Association, .....

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th regard to incorporated club, a distinction has been drawn. Where such 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 license need to 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 case of a proprietary club and would involve sale. Proprietary clubs st .....

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s but were rendering a service to their members. 11. It is noticed from the above judgment of the Hon'ble Supreme Court that with regard to incorporated club, if some of the shareholders are not members or some of the members are not shareholders that would be case of a proprietary club and would involve sale. In the instant case before us, members may not be shareholders and shareholders may not be members of the club. Therefore, members are not owners of or interested in the property of th .....

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of the Hon'ble Supreme Court is in favour of the Revenue. 12. Applicant also relied upon the judgment of Full Bench of Patna High Court in CIT vs. Ranchi Club wherein it is held that members' club can seek exemption from the tax liability under the Income Tax Act only if it could satisfy the test of mutuality in respect of its receipts and not on any other ground, subject to the provisions of the Act. Whether the surplus in the hands of the club has resulted out of transactions entered i .....

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012, a deeming provision has been introduced to the effect that the club and its members are separate persons. Therefore, the principles of mutuality are not applicable to the issue before us. 14. Further, Hon'ble Supreme Court in Chelmsford Club vs. C.I.T.(MANU/SC/3001/2000) also mentioned 3 conditions stipulated by the Judicial Committee in the case of English & Scottish Joint Cooperative wholesale Society Ltd. vs. Commissioner of Agriculture Income Tax, Assam 1948 AC 405, existence of .....

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iced that in the instant case before us, the applicant has number of businesses and share-holders, who may not be members of the club and vice-versa. Further, the applicant's prime objective is profit making and dividends are distributed among share-holders, who may not be members. Therefore, condition number (b) and (c) above are not satisfied and thus principles of mutuality are violated. Similarly, ratio of judgments of Hon'ble High Courts relied upon by the applicant in Ranchi Club L .....

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o emphasize that in view of principles of mutuality, no service tax is payable by the applicant. The Hon'ble High Court observed that principally there should be existence of two sides / entities for having transaction as against consideration - In a members club, there is no question of two sides - members and club, both are same entity. We observe that with effect from 01.07.2012, new system of taxation of services has been introduced by the Government. Besides other changes, the word serv .....

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High Courts relied upon by the applicant, are no more applicable to facts of the case before us. Therefore, the contention of the applicant that club and its members are not two distinct persons, is incorrect. 16. Second issue raised by the Applicant before the Authority for determination is; Whether refundable security deposit would be subject to Service Tax is in accordance with the applicable provisions of law, in particular, the definition of service contained in Section 65B(44) read with se .....

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on said deposits results in enriching the applicant by additional consideration which should be taken as part of gross consideration under Section 67 of the Finance Act, 1994; that if members do not give said interest free security deposits, the cost of providing services would increase and such burden would shift to members. Revenue further submits that the legislative intent for determining value under Section 67 ibid is to determine the true value of the service in ordinary course of trade a .....

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further submits that refundable security deposit not retained by him, cannot be considered as a consideration; that receipt of said deposit is a condition of the contract and not consideration. Applicant relied upon the judgment CIT vs. Tollygunge Club Ltd. (1977) 2 SCC 790 and CIT vs. Bijli Cotton Mills (P) Ltd (179) 1 SCC 496 in support of his contention, besides some other judgments. 19. Applicant submits that Section 67 of the Finance Act, 1994 provides that value of taxable services shall b .....

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value of taxable service; that notional interest on security deposits can be included in the value of the service only if the Revenue is in a position to establish that same has led to depression or reduction in the value of taxable service; that such is not the situation here. 20. The question raised before this Authority in short is whether refundable security deposit would be subject to Service Tax. From the submission made by the applicant and Revenue, it is noticed that the thrust of argum .....

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embers. The Refundable Security deposit is for security towards various facilities and amenities in the club. Applicant has submitted that the facilities and amenities to be provided at the upcoming indoor sport complex and club include the following: lawn tennis courts, badminton court, squash court, swimming pool, table tennis, billiards, card room, board games, virtual sports, kids play area, a library, restaurant, spa, gymnasium, banquet hall and rooms to stay. Section 67(1) of the Finance A .....

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be such amount in money, with the addition of Service Tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. 22. It is noticed from Section 67(1)(i) ibid that consideration received in money for services rendered is liable to Service Tax. In the case before us, refundable security deposit ranging from ₹ 1.50 lakhs to ₹ 10 lakhs is to b .....

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from proposed members and same is not a consideration for service provided or to be provided, as same would be refunded to members. Further, Section 67(1)(i) ibid inter-alia envisages that Service Tax chargeable on any taxable service with reference to value, be the gross amount charged by the service provider for such service provided or to be provided by him. Therefore, charged means amount collected or to be collected by the service provider for service provided or to be provided by him. Noti .....

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aised an issue that receipt of interest free security deposit between two contractees i.e. service provider (club) and service receiver (member) is a condition of contract between two persons. Therefore, same would tantamount to additional consideration and be part of gross amount under Section 67 of the Finance Act, 1994. It is noticed that in CIT vs. Tollygunge Club Ltd. (1977) 2 SCC 790, the assessee was a Company and owned a Social and Sports Club, one of whose activities consisted of conduc .....

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's taxable income. The court ruling in favour of the assessee observed as under; The surcharge is undoubtedly a payment which a race-goer is required to make in addition to the price of admission ticket if he wants to witness the race from the Club enclosure, but on that account it does not become part of the price for admission. The admission to the enclosure is the occasion and not the consideration for the surcharge taken from the race-goer. 25. Applying the ratio of judgment of Hon'b .....

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