| Headnote |
Doctrines/Principles – Doctrine of Mutuality – Applicability of, after the 46th Amendment to Art.366(29-A) – In C.A. No.4184 of 2009, the assessee-respondent Club, registered u/s.25, 1956 Act was issued notice informing that it had failed to make payment of sales tax on sale of food and drinks to the permanent members – Respondent contended that there could be no sale by it to its own permanent members, for doctrine of mutuality would come into play – West Bengal Taxation Tribunal held that the respondent is not eligible to tax under the 1994 Act – Affirmed by the High Court – Division Bench of the Supreme Court set out inter alia 3 questions to be answered by larger Bench, viz.(i) Whether the doctrine of mutuality is still applicable to incorporated clubs or any club after the 46th Amendment to Art.366(29-A) of the Constitution of India?; (ii) Whether the judgment of Supreme Court in Young Men’s Indian Association case still holds the field even after the 46th Amendment? and (iii) Whether the 46th Amendment, by deeming fiction provides that provision of food and beverages by the incorporated clubs to its permanent members constitute sale, thus liable to sales tax? – In C.A. No.7497 of 2012 and connected matters, issue involves levying of service tax by Finance Act, 1994 upon members’ clubs, majority of them being registered as Companies u/s.25 of the 1956 Act, or as co-operative societies under various State Acts – Held: Young Men’s Indian Assn. 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 – In members’ clubs there is a complete identity between contributors and participators – Thus, in members’ clubs there is no sale by one person to another for consideration, as one cannot sell something to oneself – What is of essence in applying the doctrine of mutuality is that there is no sale transaction between two persons, as one person cannot sell goods to itself – Ratio of Young Men’s Indian Assn. has not been done away with by the limited fiction introduced by Art.366(29-A)(e) – Questions answered (i) Doctrine of mutuality continues to be applicable to incorporated and unincorporated members’ clubs after the 46th Amendment adding Art.366(29-A); (ii) Young Men’s Indian Assn. and other judgments which applied this doctrine continue to hold the field even after the 46th Amendment; and (iii) Sub-clause (f) of Art.366(29-A) has no application to members’ clubs – No interference called for in the findings of fact or declaration of law in this case – Further, in C.A. No.7497/12 and connected matters- Argument on behalf of the respondents that incorporated clubs or associations prior to 1st July, 2012 were not included in the service tax net is accepted – What has been stated in the present judgment so far as sales tax is concerned applies on all fours to service tax– Explanation 3(a) to s.65B(44) of the Finance Act, 1994 does not apply to members’ clubs which are incorporated – From 2005 onwards, the Finance Act, 1994 does not purport to levy service tax on members’ clubs in the incorporated form – Jharkhand High Court and the Gujarat High Court correct in their view of the law in following Young Men’s Indian Assn. Case – Thus, show-cause notices, demand notices and other action taken to levy and collect service tax from incorporated members’ clubs are void and of no effect in law – West Bengal Sales Tax Act, 1994 – ss.2(5), (10), (30) & s.9 Constitution of India – Art.366(29-A)(e)(f) – Companies Act, 1956 – s.25 – Constitution (Forty-sixth Amendment) Act, 1982 – General Clauses Act – Income Tax Act, 1961 – s.2(24)(vii), 2(31), 44, 45(2) – Finance Act, 1994 – ss.64(3), 65(25a), (25aa), 65(105)(zze), 65(A), 65B(37), Explanation 3(a) to s.65B(44), 66B, 66D, 67, 68 – Finance Act, 2006 – Finance Act, 2012 – Interpretation of Statutes – Central Sales Tax Act, 1956.Constitution of India – 46th Amendment to Art.366(29-A) – 61st Law Commission Report – Plea on behalf of the appellants, referring to the said Report, which preceded the enactment of Art.366(29-A); the ‘Statement of Objects and Reasons’ appended to the 1981 Bill, which led to the insertion of Art.366(29-A); and in particular to Art.366(29-A)(e), (f) to contend that Art.366(29-A)(e) was inserted in order to do away with the doctrine of 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 Assn. case – Held: Statement of Objects and Reasons has not read the case of Young Men’s Indian Assn. in its correct perspective – Young Men’s Indian Assn. 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, the 46th Amendment then sought to 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 associations or bodies being brought within subclause(e) – Constitution (Forty-sixth Amendment) Bill, 1981 – Constitution (Forty-sixth Amendment) Act, 1982 – Interpretation of Statutes – Doctrine of Mutuality. Words & Expressions – “unincorporated association or body of persons” in sub-clause (e) to Art.366(29-A) – Plea on behalf of the appellants that the said expression must be read disjunctively and thus, would include incorporated persons such as companies, cooperative societies etc. – Held: On the assumption that “unincorporated association or body of persons” must be read disjunctively, “a body of persons” cannot be equated with “person” – “Person” as defined by the General Clauses Act (which applies to the interpretation of the Constitution vide Art.367) states that “person” shall include any company or association or body of individuals, whether incorporated or not – Art.366(29-A) does not use this expression, as “person” would then include corporate persons as well – “body of persons” is used to make it clear beyond doubt that corporate persons are not referred to – Further, contrast in the language of the 1961 Act and Art.366(29-A)(e) again leads to the conclusion that “body of persons” would not refer to the corporate form unless “person” by itself is accompanied by the expression “whether incorporated or not” – Constitution of India – Art.366(29-A)(e), 367 – General Clauses Act – Income Tax Act, 1961 – s.2(31) – Interpretation of Statutes.Contract Act, 1872 – s.2(d) – Plea on behalf of the respondent that s.2(d) makes it clear that consideration must flow from one person to another and in the absence of two players, as in the case of Young Men’s Indian Assn., Art.366(29-A) would have no application – Held: “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 – Correctly argued by the respondents, the definition of “consideration” in s.2(d) of the 1872 Act necessarily posits consideration passing from one person to another – This is further reinforced by the last part of Art.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 made – As the Young Men’s Indian Assn. case and the doctrine of mutuality state, there is no sale transaction between a club and its members – Ratio of Young Men’s Indian Assn. has not been done away with by the limited fiction introduced by Art.366(29-A)(e) – Constitution of India – Art.366(29-A) – West Bengal Sales Tax Act, 1994 – ss.2(5), (30) – Doctrine of Mutuality.Constitution of India– Art.366(29-A)(e), (f)– Applicability of sub-clause (f) to members’ club – Held: Reason for sub-clause (f), as stated in the Statement of Objects and Reasons, is the doing away with of two judgments of Supreme Court, viz., Associated Hotels of India Ltd. and Northern India Caterers – This is also clear from the subject matter of sub-clause (f) (which does not include “goods” in their entirety, but only food or any other article for human consumption, or any drink), which is the serving of such food or drink in hotels or restaurants – This is further made clear by s.6 of the 46th Amendment Act, which is a validation and exemption provision – s.6(1)(a) specifically refers to transactions referable to the aforesaid two Supreme Court judgments – Sub-clause (a) of s.6(2) refers to 07.09.1978, which is the date on which Northern India Caterers was pronounced and sub-clause (b) refers to 04.01.1972, when Associated Hotels of India Ltd. was pronounced – 46th Amendment Act, therefore, when read as a whole, would make it clear that Art.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 – Thus, the taxability of food or drink served in members’ clubs is not the subject matter of sub-clause (f) – Subject matter of sub-clause (f) is entirely different and distinct from that of sub-clause (e), and cannot possibly apply to members’ clubs – Thus, expression “in any manner whatsoever”, being part and parcel of sub-clause (f) cannot be held to extend to a supply of all goods so as to bring such goods to tax when applied to members’ clubs – Constitution (Forty-sixth Amendment) Act,1982 – s.6.Income Tax Act, 1961 – ss.2(24)(vii), 44, 45(2) – Held: Doctrine of Mutuality has not been done away with by sub-clause (e) to Art.366(29-A) is also clear when sub-clause (e) is contrasted with s.2(24)(vii) of the 1961 Act r/w s.44 – A reading of the said provisions make 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 – Absence of any such language in sub-clause (e) of Art.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 – Also, s.45(2) is an example of a provision by which a deemed transfer by a person to himself gets taxed – Modalities such as these to bring to tax amounts that would do away with any doctrine of mutuality are conspicuous by their absence in the language of Article 366(29- A)(e) – Constitution of India – Art.366(29-A)(e) – Constitution (Fortysixth Amendment) Act, 1982 – Doctrine of Mutuality.Words & Expressions – Expression “body of persons” occurring in the explanation to s.65 and s.65(25a) and (25aa) – Meaning of – Held: Said expression does not refer to an incorporated company or an incorporated cooperative society – Finance Act, 1994 – Explanation to s. 65, ss.65(25a), (25aa); s.65B(37) and Explanation 3(a) to s.65B(44) – Finance Act, 2006. Finance Act, 1994 – Explanation to s.65, ss.65(25a), (25aa); s.65B(37) and Explanation 3(a) to s.65B(44) – Applicability of explanation 3(a) to s.65B(44) to incorporated members’ clubs – Discussed – Finance Act, 2006 – Finance Act, 2012. |
