TaxTMI 
TaxTMI 
1998 (12) TMI 579
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....of section 2(n)(v) of TNGST Act, 1959 along with G.O.P. No. 198/CT & RE dated March 25, 1989 which prescribed rates of taxes to be levied on supply of food and drinks by hotels and restaurants with effect from March 25, 1989 pursuant to Act 28 of 1984 as being unconstitutional and void. 4.. In O.P. Nos. 382 of 1998, 518 of 1998, 704 of 1998 and 2033 of 1998 (M/s. Ootacamund Club, Ootacamund Gymkhana Club, Lawley Institute and Wellington Gymkhana Club respectively) the prayer is to declare that the petitioners are not required to take out registration in view of non-applicability of section 2(g) of the TNGST Act, 1959 in the light of the decisions of the Madras High Court in [1998] 108 STC 66 (Board of Trustees of the Port of Madras v. State of Tamil Nadu) and [1998] 108 STC 114 (Arulmigu Dhandayuthapani Swami Thirukkoil v. Commercial Tax Officer). 5.. In O.P. No. 703 of 1998 (M/s. Madras Gymkhana Club) the prayer is to declare that the petitioner, an incorporated association, is not liable to sales tax even after the amendment made by Act 28 of 1984 in the light of the decisions reported in [1998] 108 STC 66 (Mad.) (Board of Trustees of the Port of Madras v. State of Tamil Na....
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.... no levy of tax under the provisions of the Act on the supply of refreshments and preparations of edibles by the club to its members. Following the Forty-sixth Amendment to the Constitution, the definition of "sale" in section 2(n) of the TNGST Act, 1959, was amended, along with other provisions. No amendment was, however, made in the Act taking recourse to article 254(2) of the Constitution overriding the law of agency contained in the Indian Contract Act, 1872, so that clubs may be precluded from taking the aid of the law of agency which is included in entry 7 of List III (Concurrent List) of the Seventh Schedule to the Constitution. Hence, the position of law laid down by the Supreme Court in [1970] 26 STC 241 (Joint Commercial Tax Officer v. Young Men's Indian Association) still holds good. [1995] 98 STC 347 (WBTT) (Hindusthan Club Limited v. Additional Commissioner of Commercial Taxes). In the case of Enfield India Ltd. Co-operative Canteen Ltd. reported in [1968] 21 STC 317, the Supreme Court, consisting of three Judges, held that supply of refreshments, etc., to its members by a society amounts to sale, in respect of which sales tax may legitimately be levied. The cour....
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....ndian Association (Regd.) v. Joint Commercial Tax Officer held that the transaction between the club and its members cannot be treated as a sale. This judgment of the High Court was affirmed by the Supreme Court in [1970] 26 STC 241 (Joint Commercial Tax Officer v. Young Men's Indian Association). In this case the Supreme Court considered the transactions of Cosmopolitan Club, an incorporated society under the Companies Act, 1913 as a non-profit earning organization, Young Men's Indian Association, a registered society under the Societies Registration Act and Lawley Institute, a trust managed by a Board of trustees and observed as follows: "The essential question, in the present case, is whether the supply of the various preparations by each club to its members involved a transaction of sale within the meaning of the Sale of Goods Act, 1930. The State Legislature being competent 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 f....
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....y group of persons, without a charter, formed by mutual consent for purpose of promoting common enterprise or prosecuting common objective. 11.. Though Mr. R.L. Ramani, stated that the issue pertaining to "clubs" was considered prior to the 46th amendment in- (i) [1952] 3 STC 77 (Mad.) (Cosmopolitan Club v. Deputy Commercial Tax Officer); (ii) [1955] 6 STC 1 (Mad.) (Deputy Commercial Tax Officer v. Cosmopolitan Club); (iii) [1956] 7 STC 257 (Bom) (Trib) (Friends Union Joshi Club v. State of Bombay); (iv) [1957] 8 STC 850 (AP) (Secunderabad Club v. Commissioner of Sales Tax); (v) [1958] 9 STC 450 (Bom) (Gondwana Club v. Sales Tax Officer); (vi) [1965] 16 STC 38 (Mys) (Century Club v. State of Mysore); (vii) [1965] 16 STC 862 (Ker) (Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Secretary, Quilon Club); (viii) [1968] 22 STC 123 (Bom) (Mahabaleshwar Club v. State of Maharashtra); (ix) [1971] 27 STC 542 (MP) (Wainganga Club v. Commissioner of Sales Tax); (x) [1975] 36 STC 511 (Guj) (Sports Club of Gujarat Ltd. v. Commissioner of Sales Tax); (xi) [1979] 44 STC 268 (MP) (Wainganga Club v. State of Madhya Pradesh); and (xii) [....
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.... The Law Commission in its 65th report recommended for inserting in article 366 of the Constitution of India a wide definition of sale. The 46th Amendment to the Constitution inserted clause (29A) in article 366 of the Constitution enabling States to amend their respective State Acts to levy tax on transactions which were held as not amounting to sale of goods within the meaning of the terms of the Sale of Goods Act. Accordingly, the Tamil Nadu General Sales Tax Act, 1959 was amended by Act 28 of 1984 suitably amending section 2(g), 2(j), 2(n) and 2(r) of the Act, which defines the terms "dealer", "goods", "sale" and "turnover" respectively. Article 366(29A)(e) relates to "a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration and the Constitutional validity of article 366(29A) which came into force on February 2, 1983 has been upheld by the Supreme Court in Builders' Association case reported in [1989] 73 STC 370. Hence, section 2(n)(v) which is the reproduction of the 46th Amendment of the Constitution in the definition clause cannot now be challenged. In [1970] 26 STC 241 (S....
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....embers in the 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 in this Court.' From the above, it is apparent that the expression 'sale of goods' in entry 54, List II of the Seventh Schedule to the Constitution having been assigned the same meaning as it has in the Sale of Goods Act, the Supreme Court held that the State Legislature was not competent to tax the supplies of food and beverages made by a club to its members because those supplies did not involve a transaction of sale within the meaning of the Sale of Goods Act. But clause (29A) has now given a much enlarged and inclusive definition of 'tax on the sale and purchase of goods' and after the 46th Constitutional Amendment the expression 'sale of goods' in entry 54, List II of the Seventh Schedule to the Constitution may not be deemed to bear the same meaning as in the Sale of Goods Act. I am, therefore, unable to find the decision of the West Bengal Taxation Tribunal in Hindusthan Club Limited v. Additional Commissioner of Commercial Taxes [1995] 98 STC 347 on this point ....
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....t. 19.. Mr. R.L. Ramani, learned counsel in his reply to the arguments of the learned Government Advocate has stated that the decision in [1997] 107 STC 162 (Pat) (Ranchi Gymkhana Club v. State of Bihar) relates to a case where no privilege in the management of club has been given to any member and therefore it is irrelevant. He also referred to the Supreme Court's decision in [1998] 109 STC 427 in an income-tax case-Commissioner of Income-tax v. Bankipur Club Ltd. wherein it was held that the activity of the clubs could not be said to be a "trading activity" and the amounts received from their members for affording usual privileges and conveniences attached to the membership of the clubs could not be said to be "income" for the purpose of the Incometax Act, 1961. 20.. We have heard the rival submissions. Apart from the prayer that the petitioners need not take registration in view of the decisions of the Madras High Court in [1998] 108 STC 66 (Board of Trustees of the Port of Madras v. State of Tamil Nadu) and [1998] 108 STC 114 (Arulmigu Dhandayuthapani Swami Thirukkoil v. Commercial Tax Officer), the main prayer in the petitions is to declare the provisions of section 2(n)....
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....hased out of club funds to which the members have contributed and in which they have a joint legal interest and that a sales tax levy on such turnover is illegal." 22.. In [1970] 26 STC 241 (SC) (Joint Commercial Tax Officer v. Young Men's Indian Association) Shah, J., in his separate judgment has categorically held that "If an incorporated members' club supplies its property to its members at a fixed tariff, the transaction would readily be deemed to be one for sale, even if the transaction is on a non-profit basis; such a transaction would be liable to sales tax .......... The test in each case is whether the club transfers property belonging to it for a price or the club acts as an agent for making available property belonging to its members." 23. In Bengal Rowing Club v. Commissioner of Commercial Taxes, West Bengal [1993] 88 STC 389, the West Bengal Taxation Tribunal considered the case of the applicant, an incorporated club, who had several classes of members. Considering the class of members known as rowing members, it was observed at page 404 of the judgment as follows: "It appears from the constitution of the applicant-club that there is a class o....
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....shall have no right in or claim upon the club or its property." M/s. Ootacamund Gymkhana Club (O.P. No. 519 of 1998) is incorporated under the Companies Act, 1956 as averred in the affidavit. During inspection on April 30, 1997 the Enforcement Wing Officers of the Commercial Taxes Department found that the club supplied food and drinks to affiliated members also. M/s. Madras Gymkhana Club (O.P. No. 703 of 1998) is a registered society under the Tamil Nadu Societies Registration Act, 1975. Visitors to Madras are enrolled as temporary members for a period of one month and extended by another month in special cases. There are garrison members with no right to elect members to the general committee. M/s. Wellington Gymkhana Club (O.P. No. 2033 of 1998 and T.P. No. 2463 of 1997) is stated to be a club registered under the Societies Registration Act in the affidavit. The club has temporary members and affiliated members also who have no right to vote. M/s. Lawley Institute (O.P. No. 704 of 1998) is a trust run by a board of trustees. This institute caters to the members and their friends. M/s. Cosmopolitan Club (T.P. No. 1672 of 1997), an incorporated club under the Companies....
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....far as it is material it provides: "Turnover" means the aggregate amount for which goods are bought or sold, or supplied or distributed, by a dealer, either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration, provided......... In this case the court at page 322 observed as follows: "A scheme for supplying goods to its members by a society for price may partake of the activity of the nature of adventure or concern in the nature of trade, even if the activity is not actuated by a profit-motive. The respondent-society which has according to its object of incorporation made arrangements for the supply and distribution of refreshments to its members without a profit-motive may be regarded as carrying on trade and would on that account fall within the definition of a 'dealer' within the meaning of section 2(g). A co-operative society registered under the Madras Co-operative Societies Act (6 of 1932) is by virtue of section 20 of that Act a body corporate with perpetual succession and a common seal, and with power to hold property to enter into contracts, to institute and defend suits and o....
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....treated as the property of the members. The society is a person: the property in the refreshments which it supplies to its members is vested in the society and when refreshments are supplied for a price paid or promised transfer of property in the refreshments results. In the case of an unincorporated society, club or a firm or an association ordinarily the supply and distribution by such a society, club, firm or an association of goods belonging to it to its members may not result in sale of the goods which are jointly held for the benefit of the members by the society, club, firm or the association, when by virtue of the relinquishment of the common rights of the members the property stands transferred to a member in payment of a price, and the transaction may not prima facie be regarded as a 'sale' within the meaning of the Act. By providing that a transfer of property in goods from a corporate body to its members for a price, the Legislature does not overstep the limits of its authority, and it cannot on that account be held that the first Explanation to section 2(n) is in its entirety ultra vires the State Legislature. It is however, unnecessary in this case to say more, fo....
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.... its members had already been taxable, while it was not so in view of the decision of the Supreme Court in the case of Joint Commercial Tax Officer v. Young Men's Indian Association [1970] 26 STC 241. In the case of Hindusthan Club Limited v. Additional Commissioner of Commercial Taxes [1995] 98 STC 347 the West Bengal Taxation Tribunal concurred with the above view and observed as follows: "In the Statement of Objects and Reasons (paragraph 3) an assumption was made that-'while sale by a registered club or other association of persons (the club or association of persons having corporate status) to its members is taxable, sales by an unincorporated club or association of persons to its members is not taxable, as such club or association, in law, has no separate existence from that of the members'. It is also true that in clause (29A) there is nothing to the effect that notwithstanding the law of agency or any other law, supply of food, drink, etc., by a club, or by an incorporated club, for cash, deferred payment or any other valuable consideration in any form, would be deemed to be a sale. That being so, the law as settled by the Supreme Court of India on this question will gov....
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....ia's case [1968] 21 STC 317 observed at pages 324-325 as follows: "The question was again raised before the court of appeal in Trebanog Working Men's Club and Institute Ltd. v. Macdonald [1940] 1 KB 576. Hewart, C.J., delivering the judgment of the court observed that the principle of the decision in Graff v. Evans (1882) 8 QBD 373 applied even though the clubs before the court were incorporated either under the Industrial and Provident Societies Acts or the Companies Act. The learned Chief Justice observed at page 582: 'Once it is conceded that a members' club does not necessarily require a licence to serve its members with intoxicating liquor, because the legal property in the liquor is not in the members themselves, it is difficult to draw any legal distinction between the various 'legal 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 liquor 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 es....
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....comprising it. The club buys materials out of its own funds, prepares refreshments and supplies those properties belonging it to others for a price. It cannot be assumed that the property in refreshments which it holds is property of which the club members and others are owners.......Actually the ratio of the Supreme Court decision in the case of Deputy Commercial Tax Officer v. Enfield India Ltd. Co-operative Canteen Ltd. [1968] 21 STC 317 is squarely applicable." It was further held that "if any State law had included any transactions of the nature indicated in clause (29A) of article 366 in the definitions of 'sale' and 'dealer' then such a provision, though it lacked legislative competence at the time it was enacted, stood validated by the Constitution amendment." 35.. When the decision reported in [1991] 81 STC 185 (WBTT) (Automobile Association of Eastern India v. State of West Bengal) was agitated before the Supreme Court in a special leave petition [S.L.P. (Civil) No. 68 of 1991] their Lordship passed a speaking order on May 11, 1994 to the effect that the levy of tax for the period after October 1, 1983 was to be sustained in view of the Constitutional amendment as r....
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....ee to the principal or beneficiary. In such a case also there will be no transfer of ownership by a person absolutely entitled to the property to the one who acquires title to the property on such transfer." However, consequent on the insertion of clause (v) to section 2(n) of the Act, mere supply of goods to members by any unincorporated association or body of persons for cash or other valuable consideration is deemed to be a sale whether it is a release by all members in favour of a joint owner or delivery by an agent or trustee to the principal or beneficiary. Thus, we find that there is no wrong assumption in the Statement of Objects and Reasons to the 46th Amendment to the Constitution to the effect that sale by a club having corporate status to its members is taxable and sales by an unincorporated club or association of persons to its members is not taxable, as such club or association, in law has no separate existence from that of the members. Further, the amended sections of the Act by Act 28 of 1984 in pursuance of the Constitution 46th amendment are adequate to take care of incorporated and unincorporated clubs, firm, association, etc., and there is no need to consider....
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....equal shares; and if provisions are supplied to a member, at a given price, this does not constitute a sale, but is in effect a release by the other members of their interest in the goods supplied. The transaction is not of a commercial nature and, consequently, is not controlled by the provisions of the Trade Descriptions Act, 1968. The peculiar nature of the transaction is of particular significance in relation to the supply of intoxicating liquor. The entire management of the club and its property is in the hands of the members. The business of the club is either conducted by them jointly in general meeting, or, as is usually the case, delegated by them to committees in accordance with the rules. 206.. Incorporated members' clubs A members' club incorporated under the Companies Act, 1984, or earlier Companies Acts, enjoys the advantages incidental to, incorporation as a company, especially that of suing and being sued as a legal entity. The company may be limited by shares or by guarantee, and in either case the liability may be merely nominal in amount. The most convenient method, when a members' club is incorporated, is to register it as a company limited by guarantee, the mem....
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....and services by way of business. The provision by clubs of the facilities available to their members is a business activity within the scope of the tax and most clubs are required to register unless their total receipts are less than GBP5000. The tax is payable on the subscription income and on any trading activities of the club (such as the supply of meals) and the total turnover of any trading activities together with the amount of the subscriptions is the figure on which liability to register is based." 44.. Hence we hold as follows: (a) Section 2(n)(v) of the Tamil Nadu General Sales Tax Act, 1959 as amended by Act 28 of 1984 which authorizes levy of tax on the supply of goods by the club to its members is valid, consequent to this, G.O.P. No. 198/CT & RE dated March 25, 1989 which prescribed the rates of tax to be levied on food and drinks by hotels and restaurants with effect from March 25, 1989 pursuant to Act 28 of 1984 is also valid. (b) The members' clubs, whether incorporated and unincorporated are covered by the definition of dealers vide Explanation (1) to section 2(g) of the Act and therefore they are bound to register themselves as dealers and the decisions ....