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2019 (10) TMI 160
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.... APPEAL NO. 7783 OF 2019 (ARISING OUT OF SLP (C) NO.2490 OF 2016) WITH CIVIL APPEAL NO. 7778 OF 2019 (ARISING OUT OF SLP (C) NO.4158 OF 2016) WITH CIVIL APPEAL NO. 7779 OF 2019 (ARISING OUT OF SLP (C) NO.4156 OF 2016) WITH CIVIL APPEAL NO. 7777 OF 2019 (ARISING OUT OF SLP (C) NO.4157 OF 2016) WITH CIVIL APPEAL NO.5946 OF 2016 WITH CIVIL APPEAL NO.5949 OF 2016 WITH CIVIL APPEAL NO.6593 OF 2016 WITH CIVIL APPEAL NOs.7366-7367 OF 2016 WITH CIVIL APPEAL NO.626 OF 2017 WITH CIVIL APPEAL NO. 7776 OF 2019 (ARISING OUT OF SLP (C) NO.33377 OF 2016) WITH CIVIL APPEAL NO.3584 OF 2017 WITH CIVIL APPEAL NO.5087 OF 2017 WITH CIVIL APPEAL NOs.3819-3821 OF 2017 WITH WRIT PETITION (CIVIL) NO. 321 OF 2017 WITH CIVIL APPEAL NO.10674 OF 2017 WITH CIVIL APPEAL NO.11224 OF 2017 WITH CIVIL APPEAL NOs.72-73 OF 2018 WITH CIVIL APPEAL NO.104 OF 2019 WITH CIVIL APPEAL NO. 7790 OF 2019 (D.NO.5100 OF 2019) WITH CIVIL APPEAL NO.5338 OF 2019 WITH CIVIL APPEAL NOs.5215-5217 OF 2019 WITH CIVIL APPEAL NO. 7789 OF 2019 (D.NO.20271 OF 2019) Justice R. F. Nariman, Justice Surya Kant And Justice V. Ramasubramanian JUDGMENT R.F. Nariman, J. C.A. No.4184 of 2009 1. This Appeal arises out of a reference ord....
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....d sales" within the meaning of Section 2(30) of the 1994 Act. We find that the payments made by the permanent members are not considerations and in the case of Members' Clubs the suppliers and the recipients (Permanent Members) are the same persons and there is no exchange of consideration." Being of this view, the Tribunal accepted the contention of the respondent Club and opined that it is not eligible to tax under the Act. 5. Being dissatisfied with the aforesaid order passed by the Tribunal, the Revenue preferred a writ petition and the High Court opined that the decision rendered in Automobile Assn. of Eastern India [Automobile Assn. of Eastern India v. State of W.B., (2017) 11 SCC 811 : (2002) 40 STA 154 (SC)], was not a precedent and came to hold that reading of the constitutional amendment, as well as the provisions of the definition under the Act, it was clear that supply of food, drinks and beverages had to be made upon payment of consideration, either in cash or otherwise, to make the same exigible to tax but in the case at hand, the drinks and beverages were purchased from the market by the Club as agent of the members. The High Court further ruled....
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....ved as the element of transfer would be completely absent. This position has been rightly accepted even in the previous decision of this Court." 3. After then referring to a number of decisions on the doctrine of mutuality, the Court observed: "23. In the light of the aforesaid position and the law of mutual concerns, we have to ascertain the impact and the effect of sub-clause (e) to clause (29-A) to Article 366 of the Constitution of India, as enacted vide 46th Amendment in 1982 and applicable and applied to sales or VAT tax. The said clause refers to tax on supply of goods by an unincorporated association or body of persons. The question would be whether the expression "body of persons" would include any incorporated company, society, association, etc. The second issue is what would be included and can be classified as transactions relating to supply of goods by an unincorporated association or body of persons to its members by way of cash, deferred payment or valuable consideration. Such transactions are treated and regarded as sales. The decisions of the Court in Fateh Maidan Club [Fateh Maidan Club v. CTO, (2017) 5 SCC 638 : (2008) 12 VST 598 (SC)] and Cosmopolita....
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....Tax on the Sale of Goods and with the Central Sales Tax Act, 1956 (May, 1974)' (hereinafter referred to as the "61st Law Commission Report"), which preceded the enactment of Article 366(29-A) of the Constitution of India; the 'Statement of Objects and Reasons' appended to the Constitution (Forty-sixth Amendment) Bill, 1981 [enacted as the Constitution (Forty-sixth Amendment) Act, 1982] (hereinafter referred to as the "Statement of Objects and Reasons"), which led to the insertion of Article 366(29-A); and then referred, in particular, to Article 366(29-A)(e) and (f). According to the learned Senior Advocate, 366(29-A)(e) was inserted in order to do away with the doctrine of agency/trust or mutuality, insofar as it applied to members' clubs and, therefore, sought to do away with the basis of the judgment in Young Men's Indian Association (supra). He argued that the language of 366(29-A)(e) did away with transfer of property in goods and was specifically differently worded from 366(29-A)(a) and (b), which referred to such transfer. According to him, the expression "unincorporated association or body of persons" in sub-clause (e) must be read disjunctively, and so read would include i....
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....on, even when it applied to members' clubs, and it is important to find out in the facts of a case when relationship of mutuality ends and when trading begins. In any case, according to the learned Senior Advocate, the doctrine of mutuality has no application when a members' club is in the corporate form, as it is clear from Bacha F. Guzdar v. Commissioner of Income Tax, Bombay (1955) 1 SCR 876, where it was held that a shareholder is not the owner of the assets of a company and, therefore, the aforesaid principle cannot possibly apply to members' clubs in corporate form. According to him, it makes no difference that the company is one registered under Section 25 of the Companies Act, 1956 ("hereinafter referred to as the "Companies Act"), as is the case in the appeal in the present case. 6. Shri Jaideep Gupta, learned Senior Advocate appearing on behalf of the Respondent, has on the other hand referred to Section 2(5) of the West Bengal Sales Tax Act, and stated that the very first pre-requisite for falling within the provisions of that Act is that there should be a profit motive, as defined, and since there is none in members' clubs, the charging section will not be attracted ....
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....food etc. under Article 366(29-A)(f). In any case, going back to sub-clause (e), the learned Senior Advocate said that it is clear that the expression "unincorporated associations" must be read as ejusdem generis with "body of persons" and so read would not include members' clubs in corporate form. 7. Having heard the learned Senior Advocates on behalf of both sides, it is important to first set out the relevant Constitutional and statutory provisions. Article 366(29-A) reads as follows: "366. (29-A) "tax on the sale or purchase of goods" includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods ....
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....sporting of goods or handling of document of title to goods or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of selling goods and who has, in the customary course of business, authority to sell goods belonging to principals, is a dealer; xxx xxx xxx (30) "sale" means any transfer of property in goods for cash, deferred payment or other valuable consideration, and includes- (a)any transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b)any delivery of goods on hire-purchase or any system of payment by instalments; (c)any transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (d)any supply, by way of, or as part of, any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink(whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable con....
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....ate under that Act on the day immediately before the appointed day, and to whom clause (a) or clause (b) does not apply, shall be liable to pay tax under this Act on all sales, other than those referred to in section 15, effected on or after the appointed day. (2)Every dealer to whom sub-section (1) does not apply shall, if his gross turnover of sales calculated from the commencement of any year exceeds the taxable quantum at any time within such year, be liable to pay tax under this Act 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 first exceeds the taxable quantum. (3)In this Act the expression "taxable quantum" means- (a)In relation to any dealer who imports for sale any goods, other than those specified in Schedule IV, into West Bengal, 30,000 Rupees; or (b)[***] (c) In relation to any dealer who manufactures or produces any goods, other than those specified in Schedule IV [***] for sale, 1,00,000 rupees; or (d)[***] (e)In relation to any other dealer, 5,00,000 rupees, excluding turnover of sales of goods specified i....
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.... of the goods which are jointly held for the benefit of the members of 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 regard as a 'sale' within the meaning of the Act." But the Court made it very clear (towards the end of the judgment) that it was not called upon in this case to decide whether an unincorporated club which supplies goods for a price to its members, may be regarded as selling goods to its members. 1D.4. Supply by club to members not 'sale'.- Then, there are clubs. In a case decided by the Supreme Court on appeal from Madras, the Cosmopolitan club, Madras, the Youngmen's Indian Association, Madras and the Lawley Institute, Ootacamund, filed writ petitions under Article 226 of the Constitution, challenging the levy of sales tax under Madras General Sales Tax Act, 1959, on snacks, beverages and other articles supplied to their members or guests. The High Court held that the club was not a 'dealer' within the meaning of section 2(g), read with Explanation I, of the Madras Ac....
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....ommon fund. 1D.6. General observations.- The broad general principle which constitutes a common feature of these transactions, in the absence of the transfer of property. It would appear that these transactions are not "sale", because there is no transfer of property. 1D.6A. This, then, is the present position. The question now to be considered is, whether is desirable that the taxability of such transactions should be provided for by expanding the concept of "sale" for the purpose of the legislative power of the States,-a result which can be achieved only by amending the Constitution. 1D.7. Amendment of Constitution not needed.- We do not think that it would be appropriate to amend the Constitution of this purpose. The number of such clubs and associations would not be very large. Moreover, taxation of such transactions might discourage the cooperative movement. 1D.8. Unincorporated associations exist various arrangements.- Unincorporated associations exist in a "myriad of structural arrangements." As a general proposition, each is liable for the activities of its members when the activity has been authorised, supported, or ratified by the assoc....
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....ter-State consignment transfers, i.e., transfer of goods from head office or a principal in one State to a branch or agent in another State or vice versa or transfer of goods on consignment account, to avoid the payment of sales tax on inter-State sales under the Central Sales Tax Act. While in the case of a works contract, if the contract treats the sale of materials separately from the cost of the labour, the sale of materials would be taxable, but in the case of an indivisible works contract, it is not possible to levy sales tax on the transfer of property in the goods involved in the execution of such contract as it has been held that there is no sale of the materials as such and the property in them does not pass as moveables. Though practically the purchaser in a hire-purchase agreement gets the goods on the date of the hirepurchase, it has been held that there is sale only when the purchaser exercises the option to purchase at a much later date and therefore only the depreciated value of the goods involved in such transaction at the time the option to purchase is exercised becomes assessable to sales tax. Similarly, while sale by a registered club or other associati....
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....cution of the works contract was by this amendment deemed to be a sale. To that extent the decision in Gannon Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] was directly overcome. Sub-clause (c) deals with hirepurchase where the title to the goods is not transferred. Yet by fiction of law, it is treated as a sale. Similarly the title to the goods under sub-clause (d) remains with the transferor who only transfers the right to use the goods to the purchaser. In other words, contrary to A.V. Meiyappan decision [(1967) 20 STC 115 (Mad)] a lease of a negative print of a picture would be a sale. Subclause (e) covers cases which in law may not have amounted to sale because the member of an incorporated association would have in a sense begun as both the supplier and the recipient of the supply of goods. Now such transactions are deemed sales. Subclause (f) pertains to contracts which had been held not to amount to sale in State of Punjab v. Associated Hotels of India Ltd. [(1972) 1 SCC 472 : (1972) 29 STC 474] That decision has by this clause been effectively legislatively invalidated." 14. In the separate concurr....
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....but immovable property as contended by some of the petitioners." In any case, paragraph 41 of the judgment, when it refers to subclause (e), cannot possibly refer to "incorporated" associations contrary to the plain language of sub-clause (e), which refers to "unincorporated" associations. 16. In point of fact, this Court went on to state that the judgment in State of Madras v. Gannon Dunkerley AIR 1958 SC 560 was not done away with altogether and actually survived the 46th Amendment in at least two respects as follows: "43. Gannon Dunkerley [State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353 : AIR 1958 SC 560 : 1959 SCR 379] survived the Forty-sixth Constitutional Amendment in two respects. First with regard to the definition of "sale" for the purposes of the Constitution in general and for the purposes of Entry 54 of List II in particular except to the extent that the clauses in Article 366(29-A) operate. By introducing separate categories of "deemed sales", the meaning of the word "goods" was not altered. Thus the definitions of the composite elements of a sale such as intention of the parties, goods, delivery, etc. would continue to be defi....
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.... was made upon the sale of the liquors. It appears to me immaterial whether the sum a member pays for the liquor is equal to or more or less than the cost price. The transaction does not become the more or the less a sale on that account. It cannot be the true view that if the member pays a sum exactly equal to the cost price there is no sale within the section, but that if he pays more than the cost price there is. The section must be construed by looking at the language used, and taking a large view of the object of the legislation. The legislature have come to the conclusion that it is unadvisable that intoxicating liquors should be sold anywhere without a license. The enactment is limited to "sales" of intoxicating liquors, and only seems aimed at sales by retail traders, because the wholesale trader is not touched. The question here is, Did Graff, the manager, who supplied the liquors to Foster, effect a "sale" by retail? I think not. I think Foster was an owner of the property together with all the other members of the club. Any member was entitled to obtain the goods on payment of the price. A sale involves the element of a bargain. There was no bargain here, nor any contrac....
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....d under the Societies Registration Act, 1860. The third case involved the Lawley Institute which came into existence by a deed of trust. In all these cases, food preparations were supplied to members at prices fixed by the club. In the Cosmopolitan Club case, a member is allowed to bring guests with him, but if any article of food is consumed by the guest, it is the member who has to pay for the same, which was similar to the position in the Young Men's Indian Association. The Madras Sales Tax Act, 1959 came up for consideration in the aforesaid judgment. This Court referring to the two English cases cited hereinabove held: "7. The law in England has always been that members' clubs to which category the clubs in the present case belong cannot be made subject to the provisions of the Licensing Acts concerning sale because the members are joint owners of all the club property including the excisable liquor. The supply of liquor to a member at a fixed price by the club cannot be regarded to be a sale. If, however, liquor is supplied to and paid for by a person who is not a bona fide member of the club or his duly authorised agent there would be a sale. With regard to inco....
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....re High Court in Century Club v. State of Mysore [16 STC 38] . In the former it was held that the supply to the member of a members' club registered under Section 26 of the Indian Companies Act, 1913 of refreshments purchased out of club funds which consisted of members' subscription was not a transfer of property from the club as such to a member and the club was not liable to Sales Tax under the C.P. and Berar Sales Tax Act, 1947, in respect of such supplies of refreshments. The principle adverted to in Trebanog Working Men's Club was adopted and it was said that if the agent or a trustee supplied goods to the members such supplies would not amount to a transaction of sale. The Mysore court expressed the same view that a purely members' club which makes purchases through a Secretary or Manager and supplies the requirements to members at a fixed rate did not in law sell those goods to the members." 21. The judgment heavily relied upon by Shri Dwivedi, namely, Enfield India Ltd. (supra) was then distinguished thus: "9. On behalf of the appellants reliance has been placed on a decision of this Court in Deputy Commercial Tax Officer v. Enfiend India Ltd. [....
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.... 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 of sale was involved there could be no levy of tax under the provisions of the Act on the supply of refreshments and preparation by each one of the clubs to its members." (emphasis supplied) 23. Shah, J., who was the author in Enfield India Ltd. (supra), arrived at the same conclusion - but without applying the English cases - stating that the English cases dealt with criminal proceedings, whereas the present case was the case of a taxing statute. 24. It can be seen that Young Men's Indian Association (supra) expressly distinguished Enfield India Ltd. (supra), in paragraph 9 therein. The judgment in Enfield India Ltd. (supra), held on the facts of that case that there was nothing to show that the society in that case was acting as an agent of its members in providing facilities for making food available to them. A distinction was then made between a society which is a body corporate and its members, stating that the body corporate is a separate person in law. It then referred to various English judgments including Trebanog (supra), and refu....
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.... 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 of any dividend to its members, the Central Government may by licence, direct that the association may be registered as a company with limited liability, without the addition to its name of the word "Limited" or the words "Private Limited". 28. It will thus be seen that in these companies, payment of dividend to shareholders is prohibited, and the profits, if any, have to be applied to promote the objects of the company. Bacha F. Guzdar (supra) did not deal with a Section 25 company - it dealt with two tea companies which were Public Limited Companies, registered under the Companies Act. It is in this context that this Court held: "That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word 'assets' in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on in....
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....t, 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 treated as a separate legal entity apart from its members, and would therefore fall within the definition of "industry" under the Industrial Disputes Act, 1947. This was negatived by the Court, stating at page 614 of the said judgment: "Lastly, reference was made to the circumstance that, unlike the Madras Gymkhana Club, the Club has been incorporated as a Limited Company under the Indian Companies Act. It was urged that the effect of this incorporation in law was that the Club became an entity separate and distinct from its Members, so that, in providing catering facilities, the Club, as a separate legal entity, was entering into transactions with the Members who were distinct from the Club itself. In our opinion, the Tribunal was right in holding that the circumstance of incorporation of the Club as a Limited Company is not of importance. It is true that, for purposes of contract law and for purposes of suing or being sued, the fact of incorporation makes the Club a separa....
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....- ... 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.Clubs, etc.-Members' clubs are an example of a mutual undertaking; but, where a club extends facilities to non-members, to that extent the element of mutuality is wanting." 17.Simon's Taxes, Vol. B, 3rd Edn., Paras B1.218 and B1.222 (pp. 159 and 167) formulate the law on the point, thus: "... it is settled law that if the persons carrying on a trade do so in such a way that they and the customers are the same persons, no profits or gains are yielded by the trade for tax purposes and therefore no assessment in respect of the trade can be made. Any surplus resulting from this form of trading represents only the extent to which the contributions of the participators have proved to be in excess of requirements. Such a surplus is regarded as their own money and returnable to them. In order that this exempting element of mutuality should exist it is essential that the profits should be capable of coming back at s....
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....ts 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 customers; it comes back to them as shareholders upon their shares. Where all that a company does is to collect money from a certain number of people-it [does not matter] whether they are called members of the company or participating policy-holders -and apply it for the benefit of those same people, not as shareholders in the company, but as the people who subscribed it, then, as I understand Styles case [New York Life Insurance Co. v. Styles (Surveyor of Taxes), (1889) LR 14 AC 381 : (1886-90) All ER Rep Ext 1362 : (1889) 2 TC 460 (HL)], there is no profit. If the people were to do the thing for themselves, there would be no profit, and the fact that they incorporate a legal entity to do it for them makes no difference; there is still no profit. This is not because the entity of the company is to be disregarded; it is because there is no profit,....
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.... 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 Amendment, a sale of goods by a club having a corporate status to members is taxable, is wholly incorrect. Proceeding on this incorrect basis, what the 46th Amendment sought to do was to then bring to tax sales by clubs which have no separate existence from that of their members. In so doing, the 46th Amendment used the expression "any unincorporated association or body of persons". This expression, when read with the Statement of Objects and Reasons, makes it clear that it was only clubs which are not in corporate form that were sought to be brought within the tax net, as it was wrongly assumed that sale of goods by members' clubs in the corporate form were taxable. "Any" is the equivalent of "all". This word, therefore, also lends itself to the aforesaid interpretation, as the emphasis of the legislature is on all unincorporated a....
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.... (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 case Currie v. Misa (1875) LR 10 EX 153, and explained as follows: "A valuable consideration in the sense of the law, may consist either in some right, interest, profit, or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered, or undertaken by the other. The above definition brings out the idea of reciprocity as the distinguishing mark; it is the gratuitous promise that is unenforceable in English law." 38. This is further reinforced by the last part of Article 366(29-A), as under this part, the supply of such goods shall be deemed to be sale of those goods by the person making the supply, and the purchase of those goods by the person to whom such supply is ....
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....resaid 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 Article 366(29-A)(f) refers only to an undoing of the aforesaid two judgments, the subject matter being the taxability of food or drink served in hotels and restaurants. This being the case, it is obvious that the taxability of food or drink served in members' clubs is not the subject matter of sub-clause (f). 42. Looked at from another point of view, a members' club may supply goods which are not food or drink - for example, soap, cosmetics and other household items. These items would be "goods", but would not be within sub-clause (f) - not being food or drink, and cannot, therefore, be taxed under sub-clause (f), leading to the absurd situation of the suppl....
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.... 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], [Northern India Caterers (India) Ltd. v. State (UT of Delhi), (1980) 2 SCC 167 : 1980 SCC (Tax) 222], it is clear that when "sale" of food and drinks takes place in hotels and restaurants, there is really one indivisible contract of service coupled incidentally with sale of food and drinks. Since it is not possible to divide the "service element", which is the dominant element, from the "sale element", it is clear that such composite contracts cannot be the subject-matter of sales tax legislation, as was held in those judgments. 12. Bearing these judgments in mind, Parliament amended the Constitution and introduced the Constitution ....
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....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 received from oneself, therefore, cannot be regarded as income and taxable. Section 2(24) of the Income Tax Act defines taxable income. The income of a cooperative society from business is taxable under Section 2(24)(vii) and will stand excluded from the principle of mutuality." 48. Also, Section 45(2) of the Income Tax Act, 1961 is an example of a provision by which a deemed transfer by a person to himself gets taxed. Section 45(2) reads as follows: "45. Capital gains.- xxx xxx xxx (2) Notwithstanding anything contained in sub-section (1), th....
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....nd 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 judgments have been impugned before us by the Revenue; one by the High Court of Jharkhand at Ranchi in W.P (T) No.2388 of 2007 dated 15th March, 2012; and the other by the High Court of Gujarat in S.C.A. Nos.13654-13656 of 2005 dated 25th March, 2013. The impugned judgment dated 15th March, 2012 by the High Court of Jharkhand set out the relevant provisions of the Finance Act, 1994 (hereinafter referred to as the "Finance Act"), by which service tax was levied on members' clu....
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.... 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 had been made, service tax continued to be levied on such clubs and was attracted even to members' clubs in incorporated form, i.e., as companies or as registered cooperative societies. According to Shri Agarwal, the principle of mutuality that is laid down in Young Men's Indian Association (supra) has been expressly done away with in the service tax context, as there is in these cases no transaction of sale, unlike the sale....
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....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 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. 61. Likewise, in Section 65(105)(zzz....
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....B(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 distin....
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....2006 brought 15 new services under 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 ....
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....Private Limited v. Satish Prabhakar Padhye and Ors. Etc. (2010) 4 SCC 378 (in particular 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....
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....6. What has been stated in the present judgment so far as sales tax is concerned applies on all fours to service tax; as, 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 tha....