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2019 (10) TMI 160

..... e permanent members during the quarter ending 30-6-2002 - scope of “sale“ in terms of Section 2(30) of the West Bengal Sales Tax Act, 1994 - Deemed transfer - club and association services -taxability under service tax - situation post 1/7/2012. HELD THAT:- When profits and gains of a mutual insurance company are sought to be brought to tax, they are so done by express reference to the fact that the business of insurance is carried on by a mutual insurance company. The absence of any such language in subclause (e) of Article 366(29-A) is also an important pointer to the fact that the doctrine of mutuality cannot be said to have been done away with by the said 46th Amendment. Deemed transfer - HELD THAT:- It can be seen from the provision of Deemed Transfer that profits or gains arising from a transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business, is by a deeming fiction brought to tax, despite the fact that there is no transfer in law by the owner of a capital asset to another person. Modalities such as these to bring to tax amounts that would do away with any doctrine of mutuality are conspicuous by .....

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..... VERSUS YOUNG MEN´S INDIAN ASSOCIATION, MADRAS AND OTHERS [1970 (2) TMI 87 - SUPREME COURT] - Young Men’s Indian Association is expressly based upon the English judgments which disregarded the corporate form and stated that there could not be a sale, on the facts of those cases, between two persons because Foster, i.e. a member of the club, could be regarded as vendor as well as purchaser - What is essential is that the holding of the property by the trustee or agent must be a holding for and on behalf of, and not a holding antagonistic to, the members of the club. Young Men’s Indian Association (supra) made no distinction between a club in the corporate form and a club by way of a registered society or incorporated by a deed of trust. What is the essence of the judgment is that the holding of property must be a holding for and on behalf of the members of the club, there being no transfer of property from one person to another. Proprietary clubs were distinguished, as there the owner of the club would not be the members themselves, but somebody else. Also it must be noted that from 2005 onwards, the Finance Act of 1994 does not purport to levy service tax on member .....

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..... Taxes issued a notice to the respondent Club assessee apprising it that it had failed to make payment of sales tax on sale of food and drinks to the permanent members during the quarter ending 30-6-2002. After the receipt of the notice, the respondent Club submitted a representation and the assessing authority required the respondent Club to appear before it on 18-10-2002. The notice and the communication sent for personal hearing was assailed by the respondent before the Tribunal praying for a declaration that it is not a dealer within the meaning of the Act as there is no sale of any goods in the form of food, refreshments, drinks, etc. by the Club to its permanent members and hence, it is not liable to pay sales tax under the Act. A prayer was also made before the Tribunal for nullifying the action of the Revenue threatening to levy tax on the supply of food to the permanent members. 3. It was contended before the Tribunal that there could be no sale by the respondent Club to its own permanent members, for doctrine of mutuality would come into play. To elaborate, the respondent Club treated itself as the agent of the permanent members in entirety and advanced the stand that no c .....

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..... not obliterated. The expression of the aforesaid view persuaded the High Court to lend concurrence to the opinion projected by the Tribunal. xxx xxx xxx 9. At the very outset, we may mention certain undisputed facts. It is beyond cavil that the respondent is an incorporated entity under the Companies Act, 1956. The respondent assessee charges and pays sales tax when it sells products to the non-members or guests who accompany the permanent members. But when the invoices are raised in respect of supply made in favour of the permanent members, no sales tax is collected. 2. After setting out the definition of sale in Section 2(30) of the West Bengal Sales Tax Act, 1994 (hereinafter referred to as the West Bengal Sales Tax Act ) and Article 366(29-A) of the Constitution of India, the Court then referred to the Constitution Bench decision in C.T.O. v. Young Men s Indian Association (1970) 1 SCC 462 as follows: 14. Earlier the Constitution Bench decision in CTO v. Young Men's Indian Assn. [CTO v. Young Men's Indian Assn., (1970) 1 SCC 462] dealing with the liability of a club to pay sales tax when there is supply of refreshment to its members, the Court had concluded thus: (SCC .....

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..... n the club is stated and could be held as acting as an agent of the members and, therefore, would not be construed as a party which had sold the goods. The agency precept necessarily and possibly refers to a third party from whom the goods i.e. the food and drinks had been sourced and provided to by the club acting as an agent of the members, to the said members. These are significant and relevant facets which must be elucidated and clarified so that there is no ambiguity in appreciating and understanding the aforesaid concepts acting as an agent of the members or when property is transferred in the goods sold to the members. 4. The Division Bench then set out 3 questions to be answered by a larger Bench as follows: 30.1. (i) Whether the doctrine of mutuality is still applicable to incorporated clubs or any club after the 46th Amendment to Article 366(29-A) of the Constitution of India? 30.2. (ii) Whether the judgment of this Court in Young Men's Indian Assn. [CTO v. Young Men's Indian Assn., (1970) 1 SCC 462] still holds the field even after the 46th Amendment of the Constitution of India; and whether the decisions in Cosmopolitan Club [Cosmopolitan Club v. State of T.N., .....

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..... or any other article for human consumption or drink, given that sub-clause (f) does not refer to incorporated or unincorporated bodies, and takes within its sweep a tax in the supply of goods in any other manner whatsoever , which are words of extremely wide import. He then took us through the West Bengal Sales Tax Act and referred to the definition of dealer in Section 2(10) and sale in Section 2(30), and then adverted to the charging Section 9 of the aforesaid Act. According to him, a reading of the definition of dealer and explanation (1) thereof in particular, would make it clear that the explanation is not really an explanation in the classical sense, but seeks to rope in members clubs which sell goods to their members. Thus, the explanation stands apart from the main part of the definition of dealer , which requires a person to carry on the business of selling and purchasing goods. He then relied heavily on Deputy Commercial Tax Officer, Saidapet & Anr. v. Enfield India Ltd., Co-operative Canteen Ltd. (1968) 2 SCR 421 for the proposition that the English cases which dealt with the doctrine of mutuality had no application in the context of a taxing statute, as these judgme .....

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..... n promoting its objects, and prohibits payment of dividend to its members. For this reason, the ratio of Bacha F. Guzdar (supra) cannot possibly apply to members clubs in the form of Section 25 companies. He then referred to the Statement of Objects and Reasons, which according to him, made it clear that only unincorporated clubs or associations of persons were referred to in Article 366(29-A)(e). He also argued that under no circumstances can a company be fitted within body of persons , as a result of which Article 366(29- A)(e) will not apply to sales of food or refreshments by a club to its members. According to him, the Constitution (Forty-sixth Amendment) Act, 1982 ( hereinafter referred to as the 46th Amendment ), which inserted Clause (29-A) into Article 366 of the Constitution, has not done away with the Young Men s Indian Association (supra), as there cannot possibly be a supply of goods by one person to itself; and that, therefore, the doctrine of agency/trust/mutuality continues as before. He referred to the definition of consideration in Section 2(d) of the Indian Contract Act, 1872, which according to him made it clear that consideration must flow from one person to an .....

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..... livery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made; 8. The relevant Sections in the West Bengal Sales Tax Act are also set out hereinbelow: 2. Definitions xxx xxx xxx (5) business includes- (a)any trade, commerce, manufacture, execution of works contract or any adventure or concern in the nature of trade, commerce, manufacture or execution of works contract, whether or not such trade, commerce, execution of works contract, adventure or concern is carried on with the motive to make profit and whether or not any profit accrues from such trade, commerce, manufacture, execution of works contract, adventure or concern; and (b)Any transaction in connection with, or ancillary or incidental to, such trade, commerce, manufacture, execution of works contract, adventure or concern; xxx xxx xxx (10) dealer means any person who carries on the business of selling or purchasing goods in West Bengal or any person making sales under section 15, and includes- (a)an occupier of a jute-mill or shipper of jute; (b)Government, a local authority, a statutory body, a trust or other body corporate which, or a liquidator or a receiver appointed by .....

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..... ase of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller, whether the assent of the buyer to such appropriation is prior or subsequent to the appropriation: PROVIDED that where there is a single contract of sale in respect of goods situated in West Bengal as well as in places outside West Bengal, provisions of this Explanation shall apply as if there were a separate contract of sale in respect of the goods situated in West Bengal. xxx xxx xxx 9. Incidence of tax on sale (1) Subject to the provisions of this Act, with effect from the appointed day - (a) Every dealer - (i) who has been liable immediately before the appointed day to pay tax under section 4 or section 8 of the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941), and who would have continued to be so liable on such appointed day under that Act had this Act not come into force, or (ii) whose gross turnover during a year first exceeds the taxable quantum as applicable to him under the Bengal Finance (Sales Tax) Act, 1941, on the day immediately preceding the appointed day, (b)Every dealer registered under the West Bengal Sales Tax Act, 1954 (West Bengal Act IV .....

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..... (1) or sub-section (2) has ceased under subsection (4), shall, if his gross turnover of sales calculated from the commencement of any year again exceeds the taxable quantum at any time within such year, be liable to pay such tax on all sales, other than those referred to in Section 15, effected on and from the date immediately following the day on which such gross turnover of sales against first exceeds the taxable quantum. (6)The Commissioner shall, after making such enquiry as he may think necessary and after giving the dealer an opportunity of being heard, fix the date on and from which such dealer shall become liable to pay tax under sub-section (2) or sub-section (5). 9. The 61st Law Commission Report, which deliberated on the subject matter of Article 366(29-A), dealt with sales by associations to members under Chapter 1-D. of the Report. It began by referring to Enfield India Ltd. (supra) and then referred to Young Men s Indian Association (supra) as follows: 1D.3. Unincorporated associations- Though the above case related to a co-operative society, the court (Shah, J.) did make certain observations as to the position in regard to unincorporated societies, as follows:- In th .....

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..... enacted (in 1893) that- …………There may be a contract of sale between one part owner and another, The basis of Graff v. Evans had ceased to be valid. It may be noted that the Indian Sale of Goods Act has a similar provision. But in Davies v. Burnett, a Divisional Court followed the earlier case, and the Sale of Goods Act was not even referred to. A well-known writer has stated, that this view of the law has now been accepted for so long that it is unlikely to be upset by a higher court. The English cases mostly relate to licensing. But the point to be noted is, that the provision in the Sale of Goods Act as to part owner has not come in their way. The position in this respect, as was observed in an Australian case, is simply that a part of the common property is appropriated to the separate use of the members, and he makes a corresponding contribution from his separate property to the common fund. The question must, of course, always be as to the meaning of the word sale or sell in the particular statute which comes under consideration. If no reason is seen for giving the word an extended meaning, one would think it perfectly correct to say that an ordinar .....

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..... after the coming into force of the Constitution proceeded on the footing that the expression "sale of goods", having regard to the rule as to broad interpretation of entries in the legislative lists, would be given a wider connotation. However, in Gannon Dunkerley's case (A.I.R. 1958 S.C. 560), the Supreme Court held that the expression "sale of goods" as used in the entries in the Seventh Schedule to the Constitution has the same meaning as in the Sale of Goods Act, 1930. This decision related to works contracts. By a series of subsequent decisions, the Supreme Court has, on the basis of the decision in Gannon Dunkerley's case, held various other transactions which resemble, in substance, transactions by way of sales, to be not liable to sales tax. As a result of these decisions, a transaction, in order to be subject to the levy of sales tax under entry 92A of the Union List or entry 54 of the State List, should have the following ingredients, namely, parties competent to contract, mutual assent and transfer of property in goods from one of the parties to the contract to the other party thereto for a price. This position has resulted in scope for avoida .....

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..... by Restaurants this relief will be available only in respect of the period after the date of judgment in the Northern India Caterers (India) Limited case and the commencement of the present Amendment Act. (emphasis supplied) 13. At this juncture, it is important to advert to the decision of this Court in BSNL v. Union of India (2006) 3 SCC 1. This judgment concerned itself with the nature of the transaction by which mobile phone connections are enjoyed. The question that arose before this Court was whether the transaction in question was a service transaction and not a transaction for sale or supply of goods. In answering this question, the Court, after referring to Article 366(29-A), observed as follows: 41. Sub-clause (a) covers a situation where the consensual element is lacking. This normally takes place in an involuntary sale. Sub-clause (b) covers cases relating to works contracts. This was the particular fact situation which the Court was faced with in Gannon Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] and which the Court had held was not a sale. The effect in law of a transfer of property in goo .....

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..... STC 353 : AIR 1958 SC 560 : 1959 SCR 379] Sub-clause (c) is the result of K.L. Johar and Co. v. CTO [(1965) 2 SCR 112 : AIR 1965 SC 1082] . Sub-clause (d) is consequent to A.V. Meiyappan v. CCT [(1967) 20 STC 115 (Mad)] . Sub-clause (e) is the result of CTO v. Young Men's Indian Assn. (Regd.) [(1970) 1 SCC 462] . Sub-clause (f) is the result of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [(1978) 4 SCC 36 : 1978 SCC (Tax) 198] and State of Punjab v. Associated Hotels of India Ltd. [(1972) 1 SCC 472 : (1972) 29 STC 474] 15. The observations made in the judgment on sub-clause (e) cannot possibly be said to form the ratio-decidendi of the judgment, as what came up for consideration in that case was whether electro-magnetic waves can be said to be goods , so as to be the subject matter of taxation within Article 366. This was answered in the negative as follows: 71. For the reasons stated by us earlier we hold that the electromagnetic waves are not goods within the meaning of the word either in Article 366(12) or in the State legislations. It is not in the circumstances necessary for us to determine whether the telephone system including the telephone exchange is n .....

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..... Indian Association (supra) would continue to operate even after the 46th Amendment. 18. At this juncture, it is important to set out the two pillars, so to speak, on which the Young Men s Indian Association (supra) is largely based. In Graff v. Evans (1882) 8 Q.B. 373, the Grosvenor Club was incorporated in the form of a trust, the Appellant Graff acting as Manager of the club, for and on behalf of a Managing Committee, which conducted the general business of the club. Food and refreshments such as wine, beer and spirits were served to members on payment for the same. The question was whether a license was required under the Licence Act, 1872, to sell liquor by retail. In this context, the Queen s Bench Division held: I think the true construction of the rules is that the members were the joint owners of the general property in all the goods of the club, and that the trustees were their agents with respect to the general property in the goods, although they had other agents with respect to special properties in some of the goods. I am unable to follow the reasoning of the learned magistrate in saying that the question depends upon whether or not a profit was made upon the sale of t .....

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..... egal entities that may be entrusted with the duty of holding the property on behalf of the members, be it an individual, or a body of trustees, or a company formed for the purpose, so long as the real interest in the liquors remains, as in this case it clearly does, in the members of the club. There is no magic in this connection in the expressions trustee or agent. What is essential is that the holding of the property by the agent or trustee must be a holding for and on behalf of, and not a holding antagonistic to, the members of the club. We are dealing here with a quasi-criminal case, where the Court seeks to deal with the substance of a transaction rather than the legal form in which it may be clothed. 20. The stage is now set for a consideration of the judgment in Young Men s Indian Association (supra). Three separate appeals were heard and decided by a Six Judge Bench of this Court in this case. The first considered the Cosmopolitan Club, Madras, which was registered under Section 26 of the Companies Act, 1913 as a non-profit earning institution. Young Men s Indian Association was also considered, being a Society registered under the Societies Registration Act, 1860. The thir .....

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..... i.e. the club or the trustees acting as agents of the members. According to Lord Hewart (L.C.J.)in Trebanog Working Men's Club and Institute Ltd. v. Macdonald [(1940) 1 AELR 454] once it was conceded that a members' club did not necessarily require a licence to serve its members with intoxicating liquor it was difficult to draw any distinction between the various legal entities which might be entrusted with the duty of holding the property on behalf of members, be it an individual or a body of trustees or a company formed for the purpose so long as the real interest in the liquor remained in the members of the club. What was essential was that the holding of the property by the agent or trustee must be a holding for and on behalf of and not a holding antagonistic to members of the club. 8. In the various cases which came to be decided by the High Courts in India the view which had prevailed in England was accepted and applied. We may notice the decisions of the Madhya Pradesh High Court in Bengal Nagpur Cotton Mills Club, Rajnandangaon v. Sales Tax Officer, Raipur [8 STC 781] and of the Mysore High Court in Century Club v. State of Mysore [16 STC 38] . In the former it was .....

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..... to legislate only under Entry 54, List II, of the Seventh Schedule to the Constitution the expression sale of goods bears the same meaning which it has in the aforesaid Act. Thus in spite of the definition contained in Section 2(n) read with Explanation I of the Act if there is no transfer of property from one to another there is no sale which would be eligible to tax. 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. This position has been rightly accepted even in the previous decision of this Court. 12. The final conclusion of the High Court in the judgment under appeal was that the case of each club was analogous to that 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. Once this conclusion on the facts relating to each club was reached it was unnecessary for the High Court to have expressed any view with regard to the vires of the Explanations to Sections 2(g) and 2(n) of the Act. As no transaction .....

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..... te form and a club by way of a registered society or incorporated by a deed of trust. What is the essence of the judgment is that the holding of property must be a holding for and on behalf of the members of the club, there being no transfer of property from one person to another. Proprietary clubs were distinguished, as there the owner of the club would not be the members themselves, but somebody else. 27. Shri Dwivedi sought to rely upon Bacha F. Gazdar (supra) for the proposition that a shareholder acquires no interest in the assets of the company, as a result of which the judgment in Young Men s Indian Association (supra) needs to be revisited. The present appeal deals with a company that is registered under Section 25 of the Companies Act. Section 25(1) reads as follows: 25. Power to dispense with Limited in name of charitable or other company. - (1) Where it is proved to the satisfaction of the Central Government that an association- (a) is about to be formed as a limited company for promoting commerce, art, science, religion, charity or any other useful object, and (b) intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment .....

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..... estion. There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it. In Cricket Club of India Ltd. v. Bombay Labour Union (1969) 1 SCR 600, this Court decided a preliminary objection taken in favour of the Cricket Club of India, that the said Club is not an industry , and consequently, the Industrial Disputes Act, 1947 would not apply to such members club. A contention was raised against this proposition - that the said Club had been incorporated as a limited company under the Companies Act, and would thus have to be tr .....

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..... Given the differences pointed out in Cricket Club of India (supra) between clubs registered as Companies under Section 25 of the Companies Act and other companies, it is clear that the ratio decidendi in the judgment in Bacha F. Guzdar (supra) would not apply to such clubs - there being no shareholders, no dividends declared, and no distribution of profits taking place. Such clubs, therefore, cannot be treated as separate in law from their members. 30. The doctrine of mutuality as applied to clubs is elaborately discussed in Bangalore Club v. Commissioner of Income Tax and Anr. (2013) 5 SCC 509. In discussing the fact that in members clubs there is a complete identity between contributors and participators, this Court held: 16. On this aspect of the doctrine, especially with regard to the non-members, Halsbury's Laws of England, 4th Edn., Reissue, Vol. 23, Paras 222 and 224 (pp. 152 and 154) states: 222.General features of mutual trading.- … Where the trade or activity is mutual, the fact that as regards certain activities, certain members only of the association take advantage of the facilities which it offers does not affect the mutuality of the enterprise. *** 224.Clu .....

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..... hat each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he has paid. The Madras, Andhra Pradesh and Kerala High Courts have held that the test of mutuality does not require that the contributors to the common fund should willy-nilly distribute the surplus amongst themselves: it is enough if they have a right of disposal over the surplus, and in exercise of that right they may agree that on winding up the surplus will be transferred to a similar association or used for some charitable objects. Rowlatt, J. s observations in Thomas (Inspector of Taxes) v. Richard Evans & Co. Ltd. (1927) 1 K.B. 33 were then referred to as follows: … But a company can make a profit out of its members as customers, although its range of customers is limited to its shareholders. If a railway company makes a profit by carrying its shareholders, or if a trading company, by trading with the shareholders even if it is limited to trading with them, makes a profit, that profit belongs to the shareholders in a sense, but it belongs to them qua shareholders. It does not come back to them as purchasers or cust .....

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..... nnot sell goods to itself. 31. What arises for deliberation now is whether the 46th Amendment has done away with the principles contained in Young Men s Indian Association (supra) and the other judgments on the doctrine of mutuality, as applied to members clubs. 32. It can be seen that the 61st Law Commission Report had observed that there cannot be said to be any evasion of tax as a member of members clubs really takes his own goods and, therefore, did not seek to tax such goods. The framers of the 46th Amendment thought otherwise, and made it plain that they sought to bring to tax sales made by unincorporated clubs or an association of persons to their members, as it was thought that such transactions were not taxable, as such club or associations in law has no separate existence from that of the members. 33. Quite obviously, the Statement of Objects and Reasons has not read the case of Young Men s Indian Association (supra) in its correct perspective. As has been noticed hereinabove, Young Men s Indian Association (supra) had three separate appeals before it, in one of which a company was involved. To state, therefore, that under the law as it stood on the date of the 46th Amend .....

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..... the corporate form unless person by itself is accompanied by the expression whether incorporated or not . 37. Even otherwise, the supply of goods by an unincorporated association or body of persons has to be to a member for cash, deferred payment or other valuable consideration. As has been correctly argued by Shri Jaideep Gupta, the definition of consideration in Section 2(d) of the Indian Contract Act, 1872 necessarily posits consideration passing from one person to another. The definition of consideration as stated in the Indian Contract Act, 1872 is as follows: 2. Interpretation-clause.- In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:- xxx xxx xxx (d)When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise; The expression valuable consideration has, as has been pointed out in Pollock and Mulla, The Indian Contract & Specific Relief Acts (16th ed.) , been taken from an old English c .....

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..... (by whatever name called), at any time on or after the 7th day of September, 1978 and before the commencement of this Act and the aforesaid tax has not been collected on such supply on the ground that no such tax could have been levied or collected at that time; or (b) where such supply, not being any such supply by any restaurant or eating house (by whatever name called), has been made at any time on or after the 4th day of January, 1972 and before the commencement of this Act and the aforesaid tax has not been collected on such supply on the ground that no such tax could have been levied or collected at that time: Provided that the burden of proving that the aforesaid tax was not collected on any supply of the nature referred to in clause (a) or, as the case may be, clause (b), shall be on the person claiming the exemption under this sub-section. 41. Sub-clause (a) refers to 7th September, 1978, which is the date on which Northern India Caterers (supra) was pronounced and sub-clause (b) refers to 4th January, 1972, which is the date on which Associated Hotels of India Ltd. (supra) was pronounced. The 46th Amendment Act, therefore, when read as a whole, would make it clear that Ar .....

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..... nsel. The supply of food by the restaurant-owner to the customer though it may be a part of the service that he renders by providing good furniture, furnishing and fixtures, linen, crockery and cutlery, music, a dance floor and a floor show, is what is the subject of the levy. The patron of a fancy restaurant who orders a plate of cheese sandwiches whose price is shown to be ₹ 50 on the bill of fare knows very well that the innate cost of the bread, butter, mustard and cheese in the plate is very much less, but he orders it all the same. He pays ₹ 50 for its supply and it is on ₹ 50 that the restaurant owner must be taxed. 44. In a recent judgment of this Court, Federation of Hotel and Restaurant Associations of India v. Union of India and Ors. (2018) 2 SCC 97, this Court referred to the reason for the enactment of sub-clause (f) as follows: 11. As has been stated in the trilogy of judgments in Associated Hotels of India Ltd. [State of Punjab v. Associated Hotels of India Ltd., (1972) 1 SCC 472] and the two Northern India Caterers (India) Ltd. [Northern India Caterers (India) Ltd. v. State (UT of Delhi), (1978) 4 SCC 36 : 1978 SCC (Tax) 198 : (1979) 1 SCR 557] , [ .....

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..... the head "Interest on securities", "Income from house property", "Capital gains" or "Income from other sources", or in section 199 or in sections 28 to 43B, the profits and gains of any business of insurance, including any such business carried on by a mutual insurance company or by a co-operative society, shall be computed in accordance with the rules contained in the First Schedule. 46. A reading of the aforesaid provisions makes it clear that when profits and gains of a mutual insurance company are sought to be brought to tax, they are so done by express reference to the fact that the business of insurance is carried on by a mutual insurance company. The absence of any such language in subclause (e) of Article 366(29-A) is also an important pointer to the fact that the doctrine of mutuality cannot be said to have been done away with by the said 46th Amendment. 47. In fact, Section 2(24)(vii) has been expressly noticed in Venkatesh Premises Cooperative Society Limited (supra) as follows: 14. The doctrine of mutuality, based on common law principles, is premised on the theory that a person cannot make a profit from himself. An amount receiv .....

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..... members clubs. 50. Having gone through the judgment and order of the West Bengal Taxation Tribunal dated 3rd July, 2006 and the impugned Calcutta High Court judgment dated 1st February, 2008, and in view of the answers to the three questions referred to the present Three Judge Bench (as listed hereinabove), we are of the view that no interference is called for in the findings of fact or declaration of law in this case. Accordingly, C.A. No. 4184 of 2009 stands dismissed. C.A. No.7497 of 2012 and other connected matters 51. Delay condoned. Leave is granted. 52. By an order dated 13th December, 2017 by a Division Bench of this Court in Civil Appeal No.7497 of 2012 and its connected matters, this Court listed these appeals involving the levy of service tax upon members clubs as follows: The issue involved in these cases has been referred to the larger Bench and the reference order is reported as 'State of West Bengal & Ors. v. Calcutta Club Ltd.' [2017(5) SCC 356][Civil Appeal No. 4184 of 2009]. Let these appeals be also listed before the larger Bench along with the aforesaid matter after taking orders from Hon'ble the Chief Justice of India. 53. Primarily two judgmen .....

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..... the High Court of Jharkhand and declared the following: 8. In the result, these petitions are allowed and it is hereby declared that Section 65(25a), Section 65(105) (zzze) and Section 66 of the Finance (No.2) Act, 1994 as incorporated/ amended by the Finance Act, 2005 to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires. Rule is made absolute with no order as to costs. 55. The appeals that are listed before us concern impugned judgments that have in essence followed these two judgments, insofar as service tax that is levied on members clubs is concerned. The vast majority of cases before us concerns members clubs that have been registered as Companies under Section 25 of the Companies Act, or registered co-operative societies under various State Acts, such societies being bodies corporate under the aforesaid Acts. 56. Shri Dhruv Agarwal, learned Senior Advocate appearing on behalf of the Revenue, after taking us through the relevant provisions, submitted that service tax was levied on members clubs with effect from 2005. With effect from 2012, after statutory changes .....

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..... der any law for the time being in force, or (ii) any person or body of person engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry, or (iii) any person or body of person engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature, or (iv) any person or body of persons associated with press or media. 59. Under Section 65(105)(zze), taxable service was defined as follows: Taxable service means any service provided- (zze) to its members by any club or association in relation to provision of services, facilities or advantages for a subscription or any other amount. 60. With effect from 1st May, 2011, club or association was defined by Section 65(25aa) as follows: club or association means any person or body of persons providing services, facilities or advantages, primarily to its members for a subscription or any other amount but does not include- (i) anybody established or constituted by or under any law for the time being in force, or (ii) any person or body of person engaged in the activities of trade unions, promotion of agriculture, horticulture or animal .....

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..... x) every artificial juridical person, not falling within any of the preceding sub-clauses; 66. Under Section 65B(44), service was defined as follows: (44) service means any activity carried out by a person for another for consideration and includes a declared service but shall not include- (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods, which is deemed to be sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. xxx xxx xxx Explanation 3. For the purposes of this Chapter;- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of .....

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..... the service tax net. The Finance Act, 2007 brought 7 new services under the service tax net and six telecom related services were omitted and merged into one new category of taxable service. Further, the Finance Act, 2008 w.e.f. 16-5-2008, introduced 6 new services. Further, the Finance (No. 2) Act, 2009 w.e.f. 1-9-2009 introduced 3 new services. Likewise, the Finance Act, 2010 w.e.f. 1-7-2010 vide Notification No. 24/2010-ST, dated 22-6-2010 introduced 8 new services. By the Finance Act, 2011 w.e.f. 1-5-2011 vide Notification No. 29/2011-ST dated 25-4-2011, 2 new services were brought within its net and at the same time, health service was exempted w.e.f. 1-5- 2011 by Notification No. 30/2011-ST dated 25-4- 2011. Thus, the service tax was on a total of 115 services. 20. Thus, right from 1994 till 2011, the mode adopted was to specify those services on which it was intended to levy service tax. However, Parliament by the Finance Act, 2012 w.e.f. 1-7-2012 has introduced altogether new system of taxation of services by making a paradigm shift. Now, the scheme of taxation of services is based on negative list of services. Therefore, earlier list of taxable services is no longer applic .....

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..... icular paragraphs 10, 14 and 32 thereof) and CIT, Kanpur and Anr. v. Canara Bank (2018) 9 SCC 322 (in particular paragraphs 12 and 17 therein), to the effect that a company incorporated under the Companies Act cannot be said to be established by that Act. What is missed, however, is the fact that a Company incorporated under the Companies Act or a cooperative society registered as a cooperative society under a State Act can certainly be said to be constituted under any law for the time being in force. In R.C. Mitter & Sons, Calcutta v. CIT, West Bengal, Calcutta (1959) Supp. 2 SCR 641, this Court had occasion to construe what is meant by constituted under an instrument of partnership, which words occurred in Section 26A of the Income Tax Act, 1922. The Court held: The word constituted does not necessarily mean created or set up , though it may mean that also. It also includes the idea of clothing the agreement in a legal form. In the Oxford English Dictionary, Vol. II, at pp. 875 & 876, the word constitute is said to mean, inter alia, to set up, establish, found (an institution, etc.) and also to give legal or official form or shape to (an assembly, etc.) . Thus the word in .....

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..... if the doctrine of agency, trust and mutuality is to be applied qua members clubs, there has to be an activity carried out by one person for another for consideration. We have seen how in the judgment relating to sales tax, the fact is that in members clubs there is no sale by one person to another for consideration, as one cannot sell something to oneself. This would apply on all fours when we are to construe the definition of service under Section 65B(44) as well. 77. However, Explanation 3 has now been incorporated, under sub-clause (a) of which unincorporated associations or body of persons and their members are statutorily to be treated as distinct persons. 78. The explanation to Section 65, which was inserted by the Finance Act of 2006, reads as follows: Explanation: For the purposes of this section, taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration: 79. It will be noticed that the aforesaid explanation is in substantially the same terms as Article 366(29-A)(e) of the Constitution of India. Earlier in this judgment qua .....

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