2007 (3) TMI 77 - AT - Service Tax

Appellate Tribunal rules no service tax on club space rentals, High Court affirms mutuality principle

The Appellate Tribunal ruled in favor of the appellant club, stating that no service tax is attracted in letting out its space to members for functions. ... Principle of mutuality - Service tax on letting out premises - Mandap keeper/service provider distinction - Members' club versus proprietary clubPrinciple of mutuality - Service tax on letting out premises - Mandap keeper/service provider distinction - Members' club versus proprietary club - Whether service tax is leviable on charges for letting out rooms/halls/premises of a members' club to its members. - HELD THAT: - The Tribunal applied the principle that where the transaction is essentially between a club and its members-who are also its shareholders-the relationship lacks the two distinct contracting parties necessary for imposition of service tax. Relying on the reasoning in the cited Calcutta High Court decisions, the Tribunal held that allowing a member to occupy club premises for a function does not convert the club into a 'mandap keeper' liable for service tax, because the club and its members constitute the same economic entity and the element of a commercial service to a thirdparty client is absent. The possibility of double taxation was noted where an external 'mandap keeper' (a third party) supplies services and charges service tax; that does not make the club itself the taxable service provider in respect of its own members. The distinction between a members' club and a proprietary club was affirmed as relevant to the liability analysis. [Paras 3, 4, 5]No service tax is attracted on charges for letting out the club's premises to its members; appeal allowed and demand set aside.Final Conclusion: Following the Calcutta High Court precedents and applying the principle of mutuality, the appeal is allowed and the service tax demand relating to letting out the club's premises to its members is quashed with consequential relief. Issues:- Demand of service tax on charges for letting out club's rooms/halls and premises- Whether the appellant club is liable to pay service taxAnalysis:The appeal was against the demand of service tax on charges for letting out the club's rooms/halls and premises. The appellant argued that as a non-profit company registered under Section 25 of the Companies Act, 1956, the club is open only to its members or members of reciprocating clubs, and the recipients of services are not clients. The appellant cited judgments from the Hon'ble Calcutta High Court in the cases of Saturday Club Ltd. and Dalhousie Institute, where it was held that no service tax is attracted in services rendered by members' clubs. The Hon'ble High Court stated that in the absence of a transfer of property between the principal and agent, service tax cannot be imposed. It distinguished between a members' club and a proprietary club, emphasizing that a members' club allowing its own members to use the space for functions cannot be considered a mandap keeper. The judgments emphasized the principle of mutuality, stating that transactions within a members' club do not involve commercial elements or third parties. Therefore, the High Court quashed the proceedings against the club regarding service tax applicability. The Appellate Tribunal, following the judgments of the Hon'ble Calcutta High Court, allowed the appeal in favor of the appellant club, ruling that no service tax is attracted in letting out its space to members for functions.