STATE OF WEST BENGAL & ORS. versus CALCUTTA CLUB LIMITED
[2019] 15 S.C.R. 865, Supreme Court of India, 2019
Outcome: Disposed off
Segment: Issues
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             STATE OF WEST BENGAL & ORS.
   v.
  CALCUTTA CLUB LIMITED
  (Civil Appeal No.4184 of 2009)
   OCTOBER 03, 2019
[R. F. NARIMAN, SURYA KANT AND
V. RAMASUBRAMANIAN, JJ.]
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
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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
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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 sub-
clause(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
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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
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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 (Forty-
sixth 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.
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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.
Dismissing the Civil Appeal No.4184 of 2009 and the
appeals of the Revenue, while allowing the Writ Petition (Civil)
No.321 of 2017 in terms of prayer (i) therein, the Court
HELD: 1.1 Young Men’s Indian Association 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.
The present appeal deals with a company that is registered under
Section 25 of the Companies Act. 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 did not deal with a Section 25 company - it dealt with
two tea companies which were Public Limited Companies,
registered under the Companies Act. Given the differences
pointed out in Cricket Club of India 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 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. If persons carry on a certain activity
in such a way that there is a commonality between contributors
of funds and participators in the activity, a complete identity
between the two is then established. This identity is not snapped
because the surplus that arises from the common fund is not
distributed among the members – it is enough that there is 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 club or association with similar activities. Most importantly,
the surplus that is made does not come back to the members of
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the club as shareholders of a company in the form of dividends
upon their shares. Since the members perform the activities of
the club for themselves, the fact that they incorporate a legal
entity to do it for them makes no difference. What is of essence,
therefore, in applying this doctrine is that there is no sale
transaction between two persons, as one person cannot sell goods
to itself. [Paras 26, 30] [908-B-D, H; 909-A; 911-C-D; 914-B-D]
C.T.O. v. Young Men’s Indian Association (1970) 1 SCC
462 : [1970] 3 SCR 680 – explained.
Bacha F. Guzdar v. Commissioner of Income Tax,
Bombay [1955] 1 SCR 876 – distinguished.
Cricket Club of India Ltd. v. Bombay Labour Union
[1969] 1 SCR 600 ; Bangalore Club v. Commissioner
of Income Tax and Anr. (2013) 5 SCC 509 : [2013] 1
SCR 267 – relied on.
1.2 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. The Statement of
Objects and Reasons has not read the case of Young Men’s Indian
Association in its correct perspective. Young Men’s Indian
Association 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
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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 sub-clause (e). Thus, it is clear
that even going by the argument as to the intention of the
legislature, as seen through the object that the legislature sought
to achieve, would lead to the aforesaid expression applying only
to clubs which were not in the corporate form.
[Paras 32-34] [914-F-H; 915-A-D]
1.3 
Even 
otherwise, 
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 Article
367) states that “person” shall include any company or association
or body of individuals, whether incorporated or not. Article
366(29-A) does not use this expression, as “person” would then
include corporate persons as well. On the other hand, “body of
persons” is used to make it clear beyond doubt that corporate
persons are not referred to.  The definition of “person” in other
Acts such as the Income Tax Act, 1961 is also very wide, and
includes an association of persons or
body of individuals, whether
incorporated or not– Section 2(31) of the Income Tax Act, 1961.
Quite clearly, this language was available and in common usage
by the legislature, as the definition of “person” under the Income
Tax Act has stood in the statute book since 1961. The contrast in
the language of the Income Tax Act, 1961 and Article 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”.
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. The definition
of “consideration” in Section 2(d) of the Indian Contract Act,
1872 necessarily posits consideration passing from one person
to another. This is further reinforced by the last part of Article
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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 Association case
and the doctrine of mutuality state, there is no sale transaction
between a club and its members. there cannot be a sale of goods
to oneself. the ratio of Young Men’s Indian Association (supra)
has not been done away with by the limited fiction introduced by
Article 366(29-A)(e). [Paras 35-38] [915-E-H; 916-A-C, H;
917-A-B]
Pollock and Mulla, The Indian Contract & Specific
Relief Acts (16th  Edn.) – referred to.
1.4 The reason for sub-clause (f), as has been stated in the
Statement of Objects and Reasons, is the doing away with of two
judgments of this Court, namely, State of Punjab v. Associated
Hotels of India Limited AIR 1972 SC 1131 and Northern India
Caterers (India) Ltd.. This is clear not only from the Statement
of Objects and Reasons, but 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 Section 6 of the 46th Amendment
Act, which is a validation and exemption provision. Section 6(1)(a)
specifically refers to transactions referable to the aforesaid two
Supreme Court judgments. The exemption
provision puts the
matter beyond doubt. Sub-clause (a) refers to 7th September, 1978,
which is the date on which Northern India Caterers was
pronounced and sub-clause (b) refers to 4th January, 1972, which
is the date on which Associated Hotels of India Ltd. 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). 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
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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 supply of food and drink being taxable in members’
clubs, and the supply of other goods in such clubs being outside
the tax net. For this reason also, it is clear that the subject matter
of sub-clause (f) is entirely different and distinct from that of sub-
clause (e), and cannot possibly apply to members’ clubs. In this
view of the matter, the 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. [Paras 39-42] [917-C-E; 918-B-F]
Northern India Caterers (India) Ltd. v. Lt. Governor of
Delhi (1978) 4 SCC 36 : [1979] 1 SCR  557 ; State of
Punjab v. Associated Hotels of India Limited AIR 1972
SC 1131 : [1972] 2 SCR 937 – referred to.
1.5 That the doctrine of mutuality has not been done away
with by sub-clause (e) is also clear when sub-clause (e) is
contrasted with certain provisions of the Income Tax Act, 1961.
Section 2(24)(vii) of the Income Tax Act, 1961 has to be read
with Section 44 of the Income Tax Act, 1961. 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 sub-clause (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. 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. It can be seen from this provision
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
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mutuality are conspicuous by their absence in the language of
Article 366(29-A)(e). [Paras 45, 46 and 48] [920-E, H; 921-C, F;
922-C]
Income Tax Officer, Mumbai v. Venkatesh Premises
Cooperative Society Limited (2018) 15 SCC 37:
[2018] 3 SCR 214 – referred to.
1.6 The three questions posed by the Division Bench in
State of West Bengal v. Calcutta Club Limited are answered as
follows:
(1) The doctrine of mutuality continues to be applicable to
incorporated and unincorporated members’ clubs after the
46th Amendment adding Article 366(29-A) to the Constitution of
India.
(2) Young Men’s Indian Association and other judgments
which applied this doctrine continue to hold the field even after
the 46th Amendment.
(3) Sub-clause (f) of Article 366(29-A) has no application to
members’ clubs.
No interference is called for in the findings of fact or
declaration of law in this case. C.A. No. 4184 of 2009 stands
dismissed. [Paras 49, 50] [922-E-H]
State of West Bengal v. Calcutta Club Limited
(2017) 5 SCC 356 : [2016] 6 SCR 748 – referred to.
C.A. No.7497 of 2012 and other connected matters
2.1 Service tax was introduced for the first time by the
Finance Act, 1994. Under Section 64(3), Chapter V of the Finance
Act applied to taxable services as defined, with effect from 16th
June, 2005. Under Section 65(25a), “club or association” was
defined. Under Section 65(105)(zze), “taxable service” was
defined. With effect from 1st May, 2011, “club or association”
was defined by
Section 65(25aa). Likewise, in Section
65(105)(zzze), the expression “or any other person” was added
after the expression “to its members”, thus making it clear that
the tax net had now been widened so as to include non-members
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of clubs or associations as well. Under Section 66, it was stated
that there shall be levied the tax (referred to as “the service
tax”) at the rate of 12% of the value of taxable services referred
to in sub-clauses…(zzze) of clause (105) of section 65, and
collected in such manner as may be prescribed. Under Section
67, where service tax is chargeable on any taxable service with
reference to its value. With effect from 1st July, 2012, Sections
65 and 65A were made inapplicable, and a new Section 65B
introduced, in which under Section 65B(37), the term “person”
was defined. Under Section 65B(44), “service” was defined. A
new Section 66B was then introduced. Service tax was thus
leviable on all services as defined, short of a negative list of
services which was then set out in Section 66D of the Act.
[Paras 58-63, 65-68] [925-F; 926-C-D, H]
2.2 The definition of “club or association” contained in
Section 65(25a) makes it plain that any person or body of persons
providing services for a subscription or any other amount to its
members would be within the tax net. However, what is of
importance is that anybody “established or constituted” by or
under any law for the time being in force, is not included.
Companies and cooperative societies which are registered under
the respective Acts, can certainly be said to be constituted under
those Acts. This being the case, the argument on behalf of the
Respondents that incorporated
clubs or associations or prior to
1st July, 2012 were not included in the service tax net is accepted.
[Paras 72, 73] [931-E-F; 932-G-H]
R.C. Mitter & Sons, Calcutta v. CIT, West Bengal,
Calcutta [1959] Suppl. 2 SCR 641 – relied on.
DALCO Engineering Private Limited v. Satish
Prabhakar Padhye and Ors. Etc. (2010) 4 SCC 378 :
[2010] 4 SCR 15 ; CIT, Kanpur and Anr. v. Canara
Bank (2018) 9 SCC 322 : [2018] 7 SCR 866 –
referred to.
2.3 The definition of “service” contained in Section 65B(44)
is very wide, as meaning any activity carried out by a person for
another for consideration. “Person” is defined in Section 65B(37)
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as including, inter alia, a company, a society and every artificial
juridical person not falling in any of the preceding sub-clauses,
as also any association of persons or body of individuals whether
incorporated or not. 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. It has been 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 the definition of “service” is construed under Section
65B(44) as well. 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. [Paras 75-77] [933-B-E]
2.4 The definition of “service” contained in Section 65B(44)
is very wide, as meaning any activity carried out by a person for
another for consideration. “Person” is defined in Section 65B(37)
as including, inter alia, a company, a society and every artificial
juridical person not falling in any of the preceding sub-clauses,
as also any association of persons or body of individuals whether
incorporated or not. 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. 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 the definition of “service” under Section 65B(44) as
well is to be construed. However, Explanation 3 has now been
incorporated, under sub-clause (a) of which unincorporated as-
sociations or body of persons and their members are statutorily
to be treated as distinct persons. The explanation to Section 65,
inserted by the Finance Act, 2006 is in substantially the same
terms as Article 366(29-A)(e) of the Constitution of India.
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Earlier in this judgment qua sales tax, it has already been held
that the expression “body of persons” will not include an
incorporated company, nor will it include any other form of
incorporation including an incorporated co-operative society.
“Club or association” was earlier defined under Section 65(25a)
and 65(25aa) to mean “any person” or “body of persons”
providing service. In these definitions, the expression “body of
persons” cannot possibly include persons who are incorporated
entities, as such entities have been expressly excluded under
Section 65(25a)(i) and 65(25aa)(i) as “anybody established or
constituted by or under any law for the time being in force”. “Body
of persons”, therefore, would not, within these definitions,
include a body constituted under any law for the time being in
force.  When the scheme of service tax changed so as to
introduce a negative list for the first-time post 2012, services
were now taxable if they were carried out by “one person” for
“another person” for consideration. “Person” is very widely
defined by Section 65B(37) as including individuals as well as all
associations of persons or bodies of individuals, whether
incorporated or not.   Explanation 3 to Section 65B(44), instead
of using the expression “person” or the expression “an
association of persons or bodies of individuals, whether
incorporated or not”, uses the expression “a body of persons”
when juxtaposed with “an
unincorporated association”. The
expression “body of persons” occurring in the explanation to
Section 65 and occurring in Section 65(25a) and (25aa) does not
refer to an incorporated company or an incorporated coopera-
tive society. As the same expression has been used in Explana-
tion 3 post-2012 (as opposed to the wide definition of “person”
contained in Section 65B(37)), it may be assumed that the
legislature has continued with the pre-2012 scheme of not taxing
members’ clubs when they are in the incorporated form. The
expression “body of persons” may subsume within it persons
who come together for a common purpose, but cannot possibly
include a company or a registered cooperative society. Thus,
Explanation 3(a) to Section 65B(44) does not apply to members’
clubs which are incorporated.  The expression “unincorporated
associations” would include persons who join together in some
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common purpose or common action. The expression “as the case
may be” would refer to different groups of individuals either
bunched together in the form of an association also, or otherwise
as a group of persons who come together with some common
object in mind. Whichever way it is looked at, what is important
is that the expression “body of persons” cannot possibly include
within it bodies corporate. The Jharkhand High Court and the
Gujarat High Court are correct in their view of the law in
following Young Men’s Indian Association. From 2005 onwards,
the Finance Act of 1994 does not purport to levy service tax on
members’ clubs in the incorporated form. The appeals of the
Revenue are, therefore dismissed. Writ Petition (Civil) No.321
of 2017 is allowed in terms of prayer (i) therein. Consequently,
show-cause notices, demand notices and other action taken to
levy and collect service tax from incorporated members’ clubs
are declared to be void and of no effect in law.[Paras 75-85]
[933-B-H; 934-A-H; 935-A-B]
Deputy Commercial Tax Officer, Saidapet & Anr. v.
Enfield India Ltd., Co-operative Canteen Ltd. [1968] 2
SCR 421 – explained.
Cosmopolitan Club v. State of T.N (2017) 5 SCC 635 ;
Fateh Maidan Club v. CTO (2017) 5 SCC 638 ; State
of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 1
SCR 618 ; BSNL v. Union of India (2006) 3 SCC 1 :
[2006] 2 SCR 823 ; State of Madras v. Gannon
Dunkerley AIR 1958 SC 560 : [1959] SCR 379; Union
of India and Ors. v.
Margadarshi Chit Funds Private
Limited and Ors. (2017) 13 SCC 806 : [2017] 7 SCR
375; All-India Federation of Tax Practitioners and Ors.
v. Union of India and Ors. (2007) 7 SCC 527 : [2007]
9 SCR 147; ICT, Bombay North, Kutch and Saurashtra,
Ahmedabad v. Indira Balkrishna [1960] 3 SCR 513
– referred to.
K. Damodarasamy Naidu & Bros. and Ors. v. State of
T.N. and Anr. (2000) 1 SCC 527 ; Federation of Hotel
and Restaurant Associations of India v. Union of India
and Ors. (2018) 2 SCC 97 : [2017] 12 SCR 503
– relied on.
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Inland Revenue Commissioners v. Westleigh Estates
Company, Limited 1924 K.B. 390; Walter Fletcher v.
Income Tax Commissioner (1972) Appeal Cases 414;
Graff v. Evans (1882) 8 Q.B. 373 ; Trebanog Working
Men’s Club and Institute Ltd. v. Macdonald (1940) 1
K.B. 576 ; Thomas (Inspector of Taxes) v. Richard Evans
& Co. Ltd. (1927) 1 K.B. 33 ; Currie v. Misa (1875)
LR 10 EX 153 – referred to.
Case Law Reference
[2016] 6 SCR 748
referred to
Para 1
[1970] 3 SCR 680
           explained
Para 2
[1968] 2 SCR 421
explained
Para 5
[1955] 1 SCR 876
distinguished            Para 5
[1967] 1 SCR 618
referred to
Para 6
[1979] 1 SCR 557
referred to
Para 6
[2006] 2 SCR 823
           referred to
            Para 13
[1959] SCR 379
referred to
Para 16
[1969] 1 SCR 600
relied on
Para 28
[2013] 1 SCR 267
relied on
Para 30
[2018] 3 SCR 214
referred to
Para 30
[1972] 2 SCR 937
referred to
Para 39
(2000) 1 SCC 527
relied on
Para 43
[2017] 12 SCR 503
relied on
Para 44
[2017] 7 SCR 375
referred to
Para 69
[2007] 9 SCR 147
referred to
Para 70
[2010] 4 SCR 15
referred to
Para 72
[2018] 7 SCR 866
referred to
Para 72
[1959] 2 Suppl. SCR 641
relied on
            Para 72
[1960] 3 SCR 513
referred to
Para 83
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CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil Appeal
No.4184 of 2009
From the Judgment and Order dated 01.02.2008 of the Division
Bench of the Calcutta High Court in W.P.T.T. No. 652 of 2006
With
Civil Appeal Nos.7497/2012, 7773/2019, 7771/2019, 7772/2019,
4377-4380/2015, 5157/2015, 7030/2015, 8543/2015, 7259/2015, 7924/2015,
7774/2019, 7775/2019, 7781/2019, 7780/2019, 7783/2019, 7778/2019,
7779/2019, 7777/2019, 5946/2016, 5949/2016, 6593/2016, 7366-7367/2016,
626/2017, 7776/2019, 3584/2017, 5087/2017, 3819-3821/2017, W.P. (C)
No. 321/2017, C.A. Nos. 10674/2017, 11224/2017, 72-73/2018, 104/2019,
7790/2019, 5338/2019, 5215-5217/2019 and 7789/2019.
K. M. Natraj, ASG, Dhruv Agarwal, Shyam Divan, S.K. Bagaria,
Arvind P. Datar, Devang Nanavati, Rana Mukherjee, Nakul Dewan,
Jaideep Gupta, Sr. Advs., Ms. Madhumita Bhattacharjee, Ms. Srija
Choudhury, Ms. Nisha Bagchi, Ms. Sunita Rani Singh, D.L. Chidananda,
Ms. Pooja Sharma, Sharath Nambiar, B. Krishna Prasad, B. V. Balaram
Das, Amit Thakkar, Mahesh Agarwal, Shamik Sajanwala, Abhinav
Agrawal, Udayaditya Banarjee, Yojit Mehra, E. C. Agrawala, Neerav
Mainkar, Ms. Dhwani Mainkar, Anil Kumar Gautam, Amar Dave, Ajitsinh
Jadeja, Pradhuman Gohil, Ms. Taruna Singh Gohil, Vikash Singh,
Ms. Ranu Purohit, Shiva P., Dhruraj Rana, Krishal H. Patel, Partha Sil,
Tavish B. Prasad, Lakshmi  N. Kaimal, Rajesh Kumar, Ms. Sunita Rawat,
Rahul Krishna, S.K. Kulkarni, M. Gireesh Kumar, Ankur S.  Kulkarni,
Ejaz Maqbool, Ms. Akriti
Chaubey, Kunwar Aditya Singh, Gautam
Prabhakar, V. Raghuraman, Anand Sukumar, S. Sukumaran, Bhupesh
Kumar Pathak, Mrs. Meera Mathur, Rajeev Singh, M/s. S. Narain &
Co., Prateek Chadha, Pratap Venugopal, Ms. Surekha Raman, Ms.
Viddusshi, Akhil Abraham Roy (for M/s. K J John and Co,) Ajay Kumar,
Vijay Goswami, Ranjith Kumar, Shivam Ojha, Ms. Charanya
Lakshmikumaran, V. Lakshmikumaran, Karan Sachdev, Aaditya
Bhattacharya, Ms. Apeksha Mehta, Ms. Ishita Mathur, Ms. Mounica
Kasturi,  Punit Dutt Tyagi, M. P. Devanath, P.K. Sahu, Prashant Shukla,
Kedar Nath Tripathy, J.K. Mittal, Ms. Vandana Mittal, Praveen Swarup,
Advs. for the appearing parties.
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The Judgment of the Court was delivered by
R. F. NARIMAN, J.
C.A. No.4184 of 2009
1. This Appeal arises out of a reference order by a Division Bench
of this Court, reported in State of West Bengal v. Calcutta Club
Limited (2017) 5 SCC 356. The facts of Civil Appeal No. 4184 of 2009
are set out in the said reference order as follows:
“2. The facts that are necessary to be stated are that the Assistant
Commissioner of Commercial 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 consideration
passed for supplies of food, drinks or beverages, etc. and there
was only reimbursement of the amount by the members and
therefore, no sales tax could be levied.
4. The Tribunal referred to Article 366(29-A) of the Constitution
of India, Section 2(30) of the Act, its earlier decision in Hindustan
Club Ltd. v. CCT [Hindustan Club Ltd. v. CCT, (1995) 98 STC
347 (Tri)] , distinguished the authority rendered in Automobile
Assn. of Eastern India v. State of W.B. [Automobile Assn. of
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Eastern India v. State of W.B., (2017) 11 SCC 811 : (2002) 40
STA 154 (SC)] and, eventually, opined as follows:
“Considering the relevant fact presented before us and the different
judgments of the Supreme Court and the High Court we find that
supplies of food, drinks and refreshments by the petitioner clubs
to their permanent members cannot be treated as “deemed 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 that the members
collectively was the real life and the Club was a superstructure
only and, therefore, mere fact of presentation of bills and non-
payment thereof consequently, striking off membership of the Club,
did not bring the Club within the net of sales tax. The High Court
further opined that in the obtaining factual matrix the element of
mutuality was 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
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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 pp. 467-68, para 11)
“11. 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 Schedule VII List II Entry 54 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.”
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
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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 Cosmopolitan
Club [Cosmopolitan Club v. State of T.N., (2017) 5 SCC 635 :
(2009) 19 VST 456 (SC)] in that context have drawn a distinction
when a club acts as an agent of its members and when the property
in the goods is sold i.e. the property in food and drinks is passed to
the members. The said distinction, it is apparent to us, has been
accepted by the two Benches. However, the decisions do not
elucidate and clearly expound, when 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
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Club [Cosmopolitan Club v. State of T.N., (2017) 5 SCC 635 :
(2009) 19 VST 456 (SC)] and Fateh Maidan Club [Fateh
Maidan Club v. CTO, (2017) 5 SCC 638 : (2008) 12 VST 598
(SC)] which remitted the matter applying the doctrine of mutuality
after the constitutional amendment can be treated to be stating
the correct principle of law?
30.3. (iii) Whether the 46th Amendment to the Constitution, by
deeming fiction provides that provision of food and beverages by
the incorporated clubs to its permanent members constitute sale
thereby holding the same to be liable to sales tax?”
5. Shri Rakesh Dwivedi, learned Senior Advocate appearing on
behalf of the Appellants, referred to the ‘Sixty-First Law Commission
Report on Certain Problems Connected With Powers of the States to
Levy a 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 incorporated persons such as companies, cooperative societies,
etc. According to him, it is important to construe a provision of the
Constitution broadly, and in consonance with the object sought to be
achieved, that being, to do away with the doctrine of mutuality in all its
forms. According to him, even assuming that “body of persons” under
366(29-A)(e) did not include incorporated persons, 366(29-A)(f) would
take within its wide sweep the supply of goods, being food or any other
article for human consumption or drink, given that sub-clause (f) does
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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 judgments dealt
with criminal liability. He also relied strongly on this judgment to show
that profit-motive is totally unnecessary where a supply of goods by a
club to its members, falls within the definition of “sale” under the Madras
General Sales Tax Act, 1959 in that case. He also distinguished Inland
Revenue Commissioners v. Westleigh Estates Company,
Limited
1924 K.B. 390 from the present case, by stating that all observations on
mutuality were made in the context of whether a business corporation’s
profits could be brought to tax. He instead relied upon the observations
made in Walter Fletcher v. Income Tax Commissioner (1972)
Appeal Cases 414, stating that the mutuality principle was not of universal
application, 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.
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
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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 on the facts of these cases. He
relied strongly upon State of Gujarat v. Raipur Manufacturing Co.
Ltd. (1967) 1 SCR 618, for the proposition that the expression “profit-
motive” does not refer to surplus being made, but only refers to a motive
of making money from sale transactions. He then referred to Section 25
of the Companies Act and, in particular, Section 25(1)(b), which states
that a company is registered under Section 25 only if it intends to apply
its profits and other income in 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 another and in the absence of two players, as in the case of
Young Men’s Indian Association (supra), Article 366(29-A) would
have no application. When it came to the application of 366(29-A)(f),
Shri Gupta stated that it is clear that (f) was enacted for a very different
purpose, namely, to get over the judgment of Northern India Caterers
(India) Ltd. v. Lt. Governor of Delhi (1978) 4 SCC 36, which dealt
with the service element contained in a bill for food or drinks being
consumed in restaurants. The expression “in any other manner
whatsoever” only seeks to re-emphasise that where goods are supplied
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in such restaurants, then the service element will not interdict the State
Legislature from taxing 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 by any unincorporated association
or body of persons to a member thereof for cash, deferred payment
or other valuable consideration;
(f) a tax on the 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 consideration,
and such transfer, delivery or supply of any goods shall be deemed
to be a sale of those goods by the person making the transfer,
delivery or supply and a purchase of those goods by the person to
whom such transfer, delivery or supply is made;”
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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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 a Court in respect of a person, being a dealer as
defined in this clause, who, whether or not in the course of
business, sells, supplies or distributes directly or otherwise
goods for cash or for deferred payment or for commission,
remuneration or other valuable consideration.
Explanation I: A co-operative society or a club or any
association
which sells goods to its members is a dealer.
Explanation II: A factor, a broker, a commission agent, a del
credere agent, an auctioneer, an agent for handling or transporting
of goods or handling of document of title to goods or any other
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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 consideration;
(e) any supply of goods by any unincorporated association or body
of persons to a member thereof for cash, deferred payment
or other valuable consideration,
and such transfer, delivery, or supply of any goods shall be deemed
to be a sale of those goods by the person or unincorporated
association or body of persons making the transfer, delivery, or
supply and a purchase of those goods by
the person to whom
such transfer, delivery, or supply is made, but does not include a
mortgage, hypothecation, charge or pledge.
Explanation: A sale shall be deemed to take place in West Bengal
if the goods are within West Bengal –
(a) In the case of specific or ascertained goods, at the time of
the contract of sale is made; and
   STATE OF WEST BENGAL  v. CALCUTTA CLUB LIMITED
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(b) In the case 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 of 1954), who is in
possession of a registration certificate under that Act on
the day immediately before the appointed day, and to whom
clause (a) does not apply, and
(c)   Every dealer registered under the West Bengal
Motor
Spirits Sales Tax Act, 1974, (West Bengal Act XI of 1974),
who is in possession of a registration certificate 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.
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(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 in Schedule IV.
 (4)  Every dealer who has become liable to pay tax under
sub-section (1) or sub-section (2) shall continue to be so
liable until the expiry of three consecutive years, during each
of which his gross turnover of sales has failed to exceed the
taxable quantum, and such further period after the date of
such expiry as may be prescribed, and on the expiry of this
later period his   liability to pay tax under sub-section (1) or
sub-section (2) shall cease.
Explanation: For the purposes of sub-section (4), in computing
the period of three consecutive years in respect of a
dealer who
has become liable to pay tax under sub-section (1), the year or
years which expired before the appointed day during which or
each of which the gross turnover failed to exceed the taxable
quantum referred to in the Bengal Finance (Sales Tax) Act, 1941,
shall be included.
(5) Every dealer whose liability to pay tax under sub-section (1)
or sub-section (2) has ceased under sub-section (4), shall, if his
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
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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 immedi-
ately 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 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 belongs to its members, may
not result in sale 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
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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 Act and that there was no ‘sale’ within the meaning of
section 2(h), read with Explanation I, of the Act. On appeal to the
Supreme Court it was held that a member’s club cannot be made
subject to the provisions of the Sale Tax Act concerning sales,
because the members are joint owners of all the club property.
The supply of articles to a member at a fixed price by the Club
cannot be regarded as a “sale”;
1D.5.No ‘sale’ in such circumstances in England.- It is
necessary to mention here that, in England, it was held in Graff v.
Evans, that a transaction whereby a member of a club acquired
liquor which was the property of the club was not sale but merely
transfer of special property. This case was decided eleven years
before the English Act relating to the sale of goods was passed in
1893.
  The basis of the decision was that the transaction was a release
of the rights of the other members to the “purchaser”. It might
have been thought, therefore, that when section 1(1) of the Sale
of Goods act specifically 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.
   STATE OF WEST BENGAL  v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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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 ordinary
unincorporated members’ club does not “sell”, in the true sense,
liquor which a member obtains from the common store on payment
of money to the common 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 co- operative 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 association.
1D.9. No evasion.- It should be also noted that there can be no
serious question of evasion in such cases. A member really takes
his own goods.
1D.10. We, therefore, do not recommend any change.”
10. It will be seen from the above that the Law Commission was
of the view that the Constitution ought not to be amended so as to bring
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within the tax net members’ clubs. It gave three reasons for so doing.
First, it stated that the number of such clubs and associations would not
be very large; second, taxation of such transactions might discourage
the cooperative movement; and third, no serious question of evasion of
tax arises as a member of such clubs really takes his own goods.
11. However, despite the aforesaid, Article 366(29-A) included
within it sub-clause (e).
12. At this point, it is important to refer to the Statement of Objects
and Reasons which led upto the 46th Amendment. The relevant portions
of the Statement of Objects and Reasons read as follows:
“Sales tax laws enacted in pursuance of the Government of India
Act, 1935 as also the laws relating to sales tax passed 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 avoidance of tax in various
ways. An example of this is the practice of inter-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
   STATE OF WEST BENGAL  v. CALCUTTA CLUB LIMITED
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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 hire-purchase, 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 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. In
the Associated Hotels of India case (A.I.R. 1972 S.C. 1131), the
Supreme Court held that there is no sale involved in the supply of
food or drink by a hotelier to a person lodged in the hotel.
xxx xxx xxx
The proposed amendments would help in the augmentation of the
State revenues to a considerable extent. Clause 6 of
the Bill seeks
to validate laws levying tax on the supply of food or drink for
consideration and also the collection or recoveries made by way
of tax under any such law. However, no sales tax will be payable
on food or drink supplied by a hotelier to a person lodged in the
hotel during the period from the date of the judgment in the
Associated Hotels of India case and the commencement of the
present Amendment Act if the conditions mentioned in sub-clause
(2) of clause 6 of the Bill are satisfied. In the case of food or drink
supplied 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)
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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 goods involved
in the execution 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 hire-
purchase 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. Sub-clause (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. Sub-clause (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 concurring judgment of Lakshmanan, J., the
learned Judge observed thus:
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“105. The amendment introduced fiction by which six instances
of transactions were treated as deemed sale of goods and that
the said definition as to deemed sales will have to be read in every
provision of the Constitution wherever the phrase “tax on sale or
purchase of goods” occurs. This definition changed the law
declared in the ruling in Gannon Dunkerley & Co. [State of
Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9
STC 353 : AIR 1958 SC 560 : 1959 SCR 379] only with regard to
those transactions of deemed sales. In other respects, law declared
by this Court is not neutralised. Each one of the sub-clauses of
Article 366(29-A) introduced by the Forty-sixth Amendment was
a result of ruling of this Court which was sought to be neutralised
or modified. Sub-clause (a) is the outcome of New India Sugar
Mills Ltd. v. CST [(1963) 14 STC 316 : 1963 Supp (2) SCR 459]
and Vishnu Agencies (P) Ltd. v. CTO [(1978) 1 SCC 520 : 1978
SCC (Tax) 31 : AIR 1978 SC 449] . Sub-clause (b) is the result of
Gannon Dunkerley & Co. [State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd., (1958) 9 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 not goods
but immovable property as contended by some of the petitioners.”
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In any case, paragraph 41 of the judgment, when it refers to sub-
clause (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 defined according to known legal
connotations. This does not mean that the content of the concepts
remain static. The courts must move with the times. [See Attorney
General v. Edison Telephone Co. of London Ltd., (1880) 6
QBD 244 : 43 LT 697] But the Forty-sixth Amendment does not
give a licence, for example, to assume that a transaction is a sale
and then to
look around for what could be the goods. The word
“goods” has not been altered by the Forty-sixth Amendment. That
ingredient of a sale continues to have the same definition. The
second respect in which Gannon Dunkerley [State of Madras
v. Gannon Dunkerley & Co. (Madras) Ltd., (1958) 9 STC 353
: AIR 1958 SC 560 : 1959 SCR 379] has survived is with reference
to the dominant nature test to be applied to a composite transaction
not covered by Article 366(29-A). Transactions which are mutant
sales are limited to the clauses of Article 366(29-A). All other
transactions would have to qualify as sales within the meaning of
the Sales of Goods Act, 1930 for the purpose of levy of sales
tax.”
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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17. We have thus to discover for ourselves whether the doctrine
of mutuality has been done away with by Article 366(29-A)(e), and
whether the ratio of Young Men’s 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 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
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element of a bargain. There was no bargain here, nor any contract
with Graff with respect to the goods. Foster was acting upon his
rights as a member of the club, not by reason of any new contract,
but under his old contract of association by which he subscribed a
sum to the funds of the club, and became entitled to have ale and
whisky supplied to him as a member at a certain price. I cannot
conceive it possible that Graff could have sued him for the price
as the price of goods sold and delivered. There was no contract
between two persons, because Foster was vendor as well as buyer.
Taking the transaction to be a purchase by Foster of all the other
members’ shares in the goods, Foster was as much a co-owner
as the vendor.”
19. Likewise, in Trebanog Working Men’s Club and Institute
Ltd. v. Macdonald (1940) 1 K.B. 576, a similar question arose before
the Kings Bench Division. Graff (supra) was applied and followed thus:
“In our opinion, the decision in Graff v. Evans applies to and
governs the present case. 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 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
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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earning institution. Young Men’s Indian Association was also considered,
being a Society registered 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 incorporated clubs a distinction
has been drawn. Where such a club has all the characteristics of
a members’ club consistent with its incorporation, that is
to say,
where every member is a shareholder and every shareholder is a
member, no licence need be taken out if liquor is supplied only to
the members. If some of the shareholders are not members or
some of the members are not shareholders that would be the
case of a proprietary club and would involve sale. Proprietary
clubs stand on a different footing. The members are not owners
of or interested in the property of the club. The supply to them of
food or liquor though at a fixed tariff is a sale. (See Halsbury’s
Laws of England, 3rd Edn., Vol. 5, pp. 280-281). The principle
laid down in Graff v. Evans [(1882) 8 QBD 373] had throughout
been followed. In that case Field, J., put it thus:
“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.”
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The difficulty felt in the legal property ordinarily vesting in the
trustees of the members’ club or in the incorporated body was
surmounted by invoking the theory of agency 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 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.”
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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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. [(1968) 2 SCR 421] In that case the
Explanation to Section 2(g) was found to be intra vires and within
the competence of the State Legislature. The judgment proceeded
on the footing that when a cooperative society supplied
refreshments to its members for a price the following four
constituent elements of sale were present: (1) parties competent
to contract; (2) mutual consent; (3) thing, the absolute or general
property in which is transferred from the seller to the buyer and
(4) price in money paid or promised. The mere fact that the society
supplied the refreshments to its members alone and did not make
any profit was not considered sufficient to establish that the society
was acting only as an agent of its members. As a registered society
was a body corporate it could not be assumed that the property
which it held was the property of which its members were owners.
The English decisions were distinguished on the ground that the
courts in those cases were dealing with matters of quasi-criminal
nature.”
22. Finally, the Court concluded:
“11. 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 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.
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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
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 refused to apply them on the ground
that they were cases which dealt with criminal proceedings. The judgment
then ended by stating that the Court was not called upon to decide whether
an unincorporated club, supplying goods for a price to its members, may
be regarded as selling goods to its members.
25. It can be seen from the above, that the ratio of the Three
Judge Bench in Enfield India Ltd. (supra) does not square with the
ratio of the Six Judge Bench in Young Men’s Indian Association
(supra). Young Men’s Indian Association (supra) 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 in Graff (supra). Likewise, in Trebanog
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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(supra), the form in which the club was clothed was of no moment, it
being stated that there is no magic in the expressions “trustee or agent”.
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.
26. It is thus clear that Enfield India Ltd. (supra) does not take
the matter any further. 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.
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 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
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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 investing money in the purchase of shares,
becomes entitled to the assets of the company and has any share
in the property of the company. A shareholder has got no interest
in the property of the company though he has undoubtedly a right
to participate in the profits if and when the company decides to
divide them…The company is a juristic person and is distinct from
the shareholders. It is the company which owns the property and
not the shareholders. The dividend is a share of the profits declared
by the company as liable to be distributed among the shareholders.
Reliance is placed on behalf of the appellant on a passage in
Buckley’s Companies Act (12th Edn.), p. 894 where the
etymological meaning of dividend is given as dividendum, the total
divisible sum but in its ordinary sense it means the sum paid and
received as the quotient forming the share of the divisible sum
payable to the recipient. This statement does not justify the
contention that shareholders are owners of a divisible sum or that
they are owners of the property of the company. The proper
approach to the solution of the Question 1s to concentrate on the
plain words of the definition of agricultural income which connects
in no uncertain language revenue with the land from which it
directly springs and a stray observation in a case which has no
bearing upon the present question does not advance the solution
of the question. 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
   STATE OF WEST BENGAL  v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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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 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 separate legal entity; but, in deciding
whether the Club is an industry or not, we cannot base our decision
on such legal technicalities. What we have to see is the nature of
the activity in fact and in substance. Though the Club is
incorporated as a Company, it is not like an ordinary Company
constituted for the purpose of carrying on business. There are no
shareholders. No dividends are ever declared and no distribution
of profits takes place. Admission to the Club is by payment of
admission fee and not by purchase of shares. Even this admission
is subject to balloting. The membership is not transferable like the
right of shareholders. There is the provision for expulsion of a
Member under certain circumstances which feature never exists
in the case of a shareholder holding shares in a Limited Company.
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The membership is fluid. A person retains rights as long as he
continues as a Member and gets nothing at all when he ceases to
be a Member, even though he may have paid a large amount as
admission fee. He even loses his rights on expulsion. In these
circumstances, it is clear that the Club cannot be treated as a
separate legal entity of the nature of a Limited Company carrying
on business. The Club, in fact, continues to be a Members’ Club
without any shareholders and, consequently, all services provided
in the Club for Members have to be treated as activities of a self-
serving institution.”
29. 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.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:
   STATE OF WEST BENGAL  v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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“… 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 some time and in
some form to the persons to whom the goods were sold or the
services rendered….
***
It has been held that a company conducting a members’ (and not
a proprietary) club, the members of the company and of the club
being identical, was not carrying on a trade or business or
undertaking of a similar character for purposes of the former
corporation profits tax.
***
A members’ club is assessable, however, in respect of profits
derived from affording its facilities to non-members. Thus, in
Carlisle and Silloth Golf Club v. Smith (Surveyor of Taxes)
[(1913) 3 KB 75 (CA)] , where a members’ golf club admitted
non-members to play on payment of green fees it was held that it
was carrying on a business which could be isolated and defined,
and the profit of which was assessable to income tax. But
there is
no liability in respect of profits made from members who avail
themselves of the facilities provided for members.”
18. In short, there has to be a complete identity between the class
of participators and class of contributors; the particular label or
form by which the mutual association is known is of no
consequence. Kanga and Palkhivala explain this concept in The
Law and Practice of Income Tax (8th Edn., Vol. I, 1990) at
p. 113 as follows:
“1.Complete identity between contributors and participators.—
‘… The contributors to the common fund and the participators
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in the surplus must be an identical body. That does not mean
that 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 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, the money being simply collected
from those people and handed back to them, not in the character
of shareholders, but in the character of those who have paid it.
That, as I understand [it], is the effect of the decision in Styles
   STATE OF WEST BENGAL  v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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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)] .”
Given these observations, it is clear that if persons carry on a
certain activity in such a way that there is a commonality between
contributors of funds and participators in the activity, a complete identity
between the two is then established. This identity is not snapped because
the surplus that arises from the common fund is not distributed among
the members – it is enough that there is 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 club or association with similar
activities. Most importantly, the surplus that is made does not come back
to the members of the club as shareholders of a company in the form of
dividends upon their shares. Since the members perform the activities of
the club for themselves, the fact that they incorporate a legal entity to do
it for them makes no difference. This judgment was also followed by
this Court in Income Tax Officer, Mumbai v. Venkatesh Premises
Cooperative Society Limited (2018) 15 SCC 37. What is of essence,
therefore, in applying this doctrine is that there is no sale transaction
between two persons, as one person cannot 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
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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 associations or bodies being brought within
sub-clause (e).
34. Thus, it is clear that even going by Shri Dwivedi’s eloquent
argument as to the intention of the legislature, as seen through the object
that the legislature sought to achieve, would lead to the aforesaid
expression applying only to clubs which were not in the corporate form.
35. Even otherwise, 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 Article 367) reads as follows:
“3. Definitions.-
xxx xxx xxx
(42) “person” shall include any company or association or body
of individuals, whether incorporated or not;
Article 366(29-A) does not use this expression, as “person” would
then include corporate persons as well. On the other hand, “body
of persons” is used to make it clear beyond doubt that corporate
persons are not referred to.
36. The definition of “person” in other Acts such as the Income
Tax Act, 1961 is also very wide, and includes an association of persons
or body of individuals, whether incorporated or not – see Section 2(31)
of the Income Tax Act, 1961. Quite clearly, this language was available
and in common usage by the legislature, as the definition of “person”
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under the Income Tax Act has stood in the statute book since 1961. The
contrast in the language of the Income Tax Act, 1961 and Article 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”.
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 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
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of those goods by the person to whom such supply is made. As the
Young Men’s Indian Association (supra) case and the doctrine of
mutuality state, there is no sale transaction between a club and its
members. As has been pointed out above, there cannot be a sale of
goods to oneself. Here again, it is clear that the ratio of Young Men’s
Indian Association (supra) has not been done away with by the limited
fiction introduced by Article 366(29-A)(e).
39. But, says Shri Dwivedi, even if sub-clause (e) does not apply,
sub-clause (f) would apply, given the width of its language. Here again,
it is clear that the reason for sub-clause (f), as has been stated in the
Statement of Objects and Reasons, is the doing away with of two
judgments of this Court, namely, State of Punjab v. Associated Hotels
of India Limited AIR 1972 SC 1131 and Northern India Caterers
(India) Ltd. (supra).
40. This is clear not only from the Statement of Objects and
Reasons, but 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 Section 6 of
the 46th Amendment Act, which is a validation and exemption provision.
Section 6(1)(a) specifically refers to transactions referable to the aforesaid
two Supreme Court judgments. The exemption provision puts the matter
beyond doubt. Section 6(2)
of the Amendment Act reads as follows:
“…(2) Notwithstanding anything contained in sub-section (1), any
supply of the nature referred to therein shall be exempt from the
aforesaid tax-
(a) where such supply has been made, by any restaurant or eating
house (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
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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 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 supply
of food and drink being taxable in members’ clubs, and the supply of
other
goods in such clubs being outside the tax net. For this reason also,
it is clear that the subject matter of sub-clause (f) is entirely different
and distinct from that of sub-clause (e), and cannot possibly apply to
members’ clubs. In this view of the matter, the 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.
43. Judgments of this Court have also held that the subject matter
of sub-clause (f) related to food and drink supplied in hotels and
restaurants, the deeming fiction of sub-clause (f) being introduced only
to get over certain judgments of this Court. In K. Damodarasamy Naidu
& Bros. and Ors. v. State of T.N. and Anr. (2000) 1 SCC 527, this
Court referred to Article 366(29-A)(f) as follows:
“9. The provisions of sub-clause (f) of clause (29-A) of Article
366 need to be analysed. Sub-clause (f) permits the States to
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impose a tax on the supply of food and drink. The supply can be
by way of a service or as part of a service or it can be in any
other manner whatsoever. The supply or service can be for cash
or deferred payment or other valuable consideration. The words
of sub-clause (f) have found place in the Sales Tax Acts of most
States and, as we have seen, they have been used in the said
Tamil Nadu Act. The tax, therefore, is on the supply of food or
drink and it is not of relevance that the supply is by way of a
service or as part of a service. In our view, therefore, the price
that the customer pays for the supply of food in a restaurant can-
not be split up as suggested by learned counsel. 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 sand-
wiches whose price is shown to be Rs 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 Rs 50 for its supply and it is on Rs 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 Ca-
terers (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.
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12. Bearing these judgments in mind, Parliament amended the
Constitution and introduced the Constitution (Forty-sixth
Amendment) Act, by which it introduced Article 366(29-A).
Sub-clause (f), with which we are directly concerned, reads as
follows:
      “366. (29-A)(f) a tax on the 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 consideration, and such
transfer, delivery or supply of any goods shall be deemed to be a
sale of those goods by the person making the transfer, delivery or
supply and a purchase of those goods by the person to whom
such transfer, delivery or supply is made.”
A reading of the constitutional amendment would show that
supply by way of or as part of any service of food or other article
for human consumption is now deemed to be a sale of goods by
the person making the transfer, delivery or supply.”
45. That the doctrine of mutuality has not been done away with
by sub-clause (e) is also clear when sub-clause (e) is contrasted with
certain provisions of the Income Tax Act, 1961. Section 2(24)(vii) of the
Income Tax Act, 1961, reads as under:
“2. Definitions.-
xxx xxx xxx
(24) “income” includes-
xxx xxx xxx
(vii) the profits and gains of any business of insurance carried on
by a mutual
insurance company or by a co-operative society,
computed in accordance with section 44 or any surplus taken to
be such profits and gains by virtue of the provisions contained in
the First Schedule”
This has to be read with Section 44 of the Income Tax Act, 1961
which reads as under:
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“44. Insurance business.-Notwithstanding anything to the
contrary contained in the provisions of this Act relating to the
computation of income chargeable under 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 sub-clause (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), the profits
and gains arising from the transfer by way of conversion by the
owner of a capital asset into, or its treatment by him as, stock-in-
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trade of a business carried on by him shall be chargeable to
income-tax as his income of the previous year in which such
stock-in-trade is sold or otherwise transferred by him and, for the
purposes of Section 48, the fair market value of the asset on the
date of such conversion or treatment shall be deemed to be the
full value of the consideration received or accruing as a result of
the transfer of the capital asset.”
It can be seen from this provision 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 their absence in the language of Article
366(29-A)(e).
49. In light of the view that we have taken, it is unnecessary to
advert to Shri Dwivedi’s arguments that the explanation (1) to Section
2(10) of the West Bengal Sales Tax Act is a stand-alone provision and
not an explanation in the classical sense. We, therefore, answer the
three questions posed by the Division Bench in State of West Bengal
v. Calcutta Club Limited (supra) as follows:
(1) The doctrine of mutuality continues to be applicable to
incorporated and unincorporated members’ clubs after the
46th Amendment adding Article 366(29-A) to the Constitution of India.
(2) Young Men’s Indian Association (supra) and other
judgments which applied this doctrine continue to hold the field even
after the 46th Amendment.
(3) Sub-clause (f) of Article 366(29-A) has no application to
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.
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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 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’ clubs, and arrived at the conclusion that such
clubs stand on a different footing from proprietary clubs, as has been
held in Young Men’s Indian Association (supra). The High Court
following Young Men’s Indian Association (supra) then held, stating:
“18. However, learned counsel for the petitioner
submits that sale
and service are different. It is true that sale and service are two
different and distinct transaction. The sale entails transfer of
property whereas in service, there is no transfer of property.
However, the basic feature common in both transactions requires
existence of the two parties; in the matter of sale, the seller and
buyer, and in the matter of service, service provider and service
receiver. Since the issue whether there are two persons or two
legal entity in the activities of the members’ club has been already
considered and decided by the Hon’ble Supreme Court as well as
by the Full Bench of this Court in the cases referred above,
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therefore, this issue is no more res integra and issue is to be
answered in favour of the writ petitioner and it can be held that in
view of the mutuality and in view of the activities of the club, if
club provides any service to its members may be in any form
including as mandap keeper, then it is not a service by one to
another in the light of the decisions referred above as
foundational facts of  existence of two legal entities in such
transaction is missing. However, so far as services by the club to
other than members, learned counsel for the petitioner submitted
that they are paying the tax.
19. Therefore, this writ petition deserves to be allowed and it is
held that rendering of service by the petitioner- club to its
members is not taxable service under the Finance Act, 1994 and
the writ petition of the petitioner is allowed accordingly.”
54. Likewise, the Gujarat High Court by the judgment dated
25th March, 2013, followed the judgment of 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 had been
made, service tax continued to be levied on such clubs and was attracted
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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 sales tax
cases that have just been heard. He cited a number of judgments to
buttress his proposition that the High Courts of Jharkhand and Gujarat
wrongly applied the judgment of Young Men’s Indian Association
(supra), which was in the context of Sales Tax acts, to Service Tax, and
hence did not lay down the law correctly.
57. On the other hand, learned counsel appearing on behalf of the
Respondents in these cases argued that when service tax was introduced
in 1994, the legislature indicated activities which amounted to service,
which were then selected for the purpose of imposition of tax. In 2005,
despite the fact that members’ clubs were so selected, members’ clubs
in incorporated form were expressly excluded from service tax. Post-
2012, there was a sea change, as a result of which service tax was
imposed on all taxable services, short of those which were in a negative
list contained in Section 66D of the Finance Act. According to the learned
counsel appearing on behalf of the Respondents, the same position that
obtained re: incorporated members’ clubs continued after 2012, despite
the introduction of Explanation 3
to Section 65B(44). All the learned
counsel argued that the doctrine of mutuality, insofar as incorporated
institutions are concerned, was not done away with in the service tax
regime, and the Jharkhand and Gujarat High Court were correct in
applying the judgment in Young Men’s Indian Association (supra) to
these cases.
58. As was stated hereinabove, service tax was introduced for
the first time by the Finance Act, 1994. Under Section 64(3), Chapter V
of the Finance Act applied to taxable services as defined, with effect
from 16th June, 2005. Under Section 65(25a), “club or association” was
defined as follows:
“club or association” means any person or body of persons
providing services, facilities or advantages, for a subscription or
any other amount, to its members, but does not include-
(i) anybody established or constituted by or under any  law for
the time being in force, or
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(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
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)(zzze), the expression “or any other
person” was added after the expression “to its members”, thus making
it clear that the tax net had now been widened so as to include non-
members of clubs or associations as well.
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62. Under Section 66, it was stated that there shall be levied the
tax (referred to as “the service tax”) at the rate of 12% of the value of
taxable services referred to in sub-clauses…(zzze) of clause (105) of
section 65, and collected in such manner as may be prescribed.
63. Under Section 67, where service tax is chargeable on any
taxable service with reference to its value, it was stated:
“67. Valuation of taxable services for charging service tax
(1) Subject to the provisions of this Chapter, where service tax is
chargeable on any taxable service with reference to its value,
then such value shall, -
(i)  in a case where the provision of service is for a consideration
in money, be the gross amount charged by the service
provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration
not wholly or partly consisting of money, be such amount in
money as, with the addition of service tax charged, is
equivalent to the consideration;
(iii) in a case where the provision of service is for consideration
which is not ascertainable. be the amount as may be
determined in the prescribed manner.”
64. Likewise, under Section 68, it was stated:
“68. Payment of service tax
(1)  Every person providing taxable service to any person shall
pay service tax at the rate specified in section 66 in such
manner and within such period as may be prescribed.”
65. With effect from 1st July, 2012, Sections 65 and 65A
were
made inapplicable, and a new Section 65B introduced, in which under
Section 65B(37), the term “person” was defined as follows:
“(37) “person” includes,-
(i) an individual,
(ii) a Hindu undivided family,
(iii)   a company,
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(iv)   a society,
(v)    a limited liability partnership
(vi)   a firm,
(vii)  an association of persons or body of individuals, whether
       incorporated or not,
(viii) Government,
(ix)  a local authority, or
(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;
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(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 distinct persons.”
67. A new Section 66B was then introduced, which states as
follows:
“66B.Charge of service tax on and after Finance Act, 2012
There shall be levied a tax (hereinafter referred to as the service
tax) at the rate of fourteen per cent on the value of all services,
other than those services specified  in the negative list, provided
or agreed to be provided in the taxable territory by one person to
another and collected in such manner as may be prescribed.”
68. As was stated hereinabove, service tax was thus leviable on
all services as defined, short of a negative list of services which was
then set out in Section 66D of the Act.
69. In an interesting judgment of this Court, Union of India and
Ors. v. Margadarshi Chit Funds Private Limited and Ors. (2017)
13 SCC 806, this Court outlined the history of service tax as follows:
“19. The amendment was carried w.e.f. 1-6-2007 whereby the
words “but does not include cash management” were deleted.
This provision remained on statute book up to 30-6-2012. By the
Finance Act, 2012, entire scheme of service tax was completely
changed and overhauled with the introduction of altogether new
system of service tax. There was a paradigm shift in the service
tax regime. Initially, service tax was levied only on three services
by the Finance Act, 1994.
The Finance Act, 1996 extended the
levy to three more services. Twelve more services were brought
under the service tax net by the Finance Act, 1997 and its scope
was further enlarged by the Finance Act, 1998 when twelve more
services were brought under the service tax net. Three services
were exempted from the service tax by the Finance Act, 1998
and one more service by the Finance Act, 2000. Its scope was
further widened by the Finance Act, 2001 when service tax was
extended to include fifteen more services. The Finance Act, 2002
further levied service tax on ten more services. The Finance Act,
2003 brought 8 new services within the ambit of service tax.
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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Further, the Finance (No. 2) Act, 2004 brought 13 new services
under service tax which included reintroduction of service tax on
3 services and also made applicable service tax on risk cover in
life insurance under the life insurance service, whereas this
service was introduced in the year 2002. The Finance Act, 2005
brought 9 new services under the service tax net. The Finance
Act, 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. There-
fore, earlier list of taxable services is no longer applicable.
Instead two things have happened. First, the term “service” is
defined whereas there was no definition of “service” in the
Finance Act, 1994 which position remained till 2012. Earlier, each
individual service on which tax was levied (known as taxable
service) was defined. Secondly, the definition of “service” given
now contains a negative list which is contained in Section 66-D of
the Act. In other words, it specifically excludes certain
transactions from the ambit of service. Thus, those transactions
which are specifically excluded are not liable for service tax. Any
other kind of service which qualifies the definition of “service”
contained in the Act would be exigible to service tax.”
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70. In All-India Federation of Tax Practitioners and Ors. v.
Union of India and Ors. (2007) 7 SCC 527, this Court upheld the
constitutional validity of the levy of service tax, also stating:
“8. As stated above, service tax is VAT. Just as excise duty is a
tax on value addition on goods, service tax is on value addition by
rendition of services. Therefore, for our understanding, broadly
“services” fall into two categories, namely, property based
services and performance based services. Property based
services cover service providers such as architects, interior
designers, real estate agents, construction services, mandapwalas,
etc. Performance based services are services provided by
service providers like stockbrokers, practising chartered accoun-
tants, practising cost accountants, security agencies, tour opera-
tors, event managers, travel agents, etc.”
After exhaustively reviewing a number of judgments, the Court
stated that Parliament has legislative competence to levy service tax
under Entry 97 List I of the Constitution of India.
71 With this background, it is important now to examine the
Finance Act as it obtained, firstly from 16th June, 2005 uptil 1st July,
2012.
72. The definition of “club or association” contained in Section
65(25a) makes it plain that any person or body of persons providing
services for a subscription or any other amount to its members would be
within the tax net. However, what is of importance is that anybody
“established or
constituted” by or under any law for the time being in
force, is not included. Shri Dhruv Agarwal laid great emphasis on the
judgments in DALCO Engineering 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,
   STATE OF WEST BENGAL  v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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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 its wider significance, would
include both, the idea of creating or establishing, and the idea of
giving a legal form to, a partnership. The Bench of the Calcutta
High Court in the case of R.C. Mitter and Sons v. CIT [(1955)
28 ITR 698, 704, 705] under examination now, was not, therefore,
right in restricting the word “constitute” to mean only “to create”,
when clearly it could also mean putting a thing in a legal shape.
The Bombay High Court, therefore, in the case of Dwarkadas
Khetan and Co. v. CIT [(1956) 29 ITR 903, 907] , was right in
holding that the section could not be restricted in its application
only to a firm which had been created by an instrument of part-
nership, and that it could reasonably and in conformity with com-
mercial practice, be held to apply to a firm which
may have come
into existence earlier by an oral agreement, but the terms and
conditions of the partnership have subsequently been reduced to
the form of a document. If we construe the word “constitute” in
the larger sense, as indicated above, the difficulty in which the
learned Chief Justice of the Calcutta High Court found himself,
would be obviated inasmuch as the section would take in cases
both of firms coming into existence by virtue of written docu-
ments as also those which may have initially come into existence
by oral agreements, but which had subsequently been constituted
under written deeds.”
73. It is, thus, clear that companies and cooperative societies which
are registered under the respective Acts, can certainly be said to be
constituted under those Acts. This being the case, we accept the argument
on behalf of the Respondents that incorporated clubs or associations or
prior to 1st July, 2012 were not included in the service tax net.
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74. The next question that arises is - was any difference made to
this position post 1st July, 2012?
75. It can be seen that the definition of “service” contained in
Section 65B(44) is very wide, as meaning any activity carried out by a
person for another for consideration. “Person” is defined in Section
65B(37) as including, inter alia, a company, a society and every artificial
juridical person not falling in any of the preceding sub-clauses, as also
any association of persons or body of individuals whether incorporated
or not.
76. 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 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 sales tax, we have already held that the
expression “body of persons” will not include an incorporated company,
nor will it include any other form of incorporation including an incorporated
co-operative society.
80. It will be noticed that “club or association” was earlier defined
under Section 65(25a) and 65(25aa) to mean “any person” or “body of
persons” providing service. In these definitions, the expression “body of
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]
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persons” cannot possibly include persons who are incorporated entities,
as such entities have been expressly excluded under Section 65(25a)(i)
and 65(25aa)(i) as “anybody established or constituted by or under any
law for the time being in force”. “Body of persons”, therefore, would
not, within these definitions, include a body constituted under any law
for the time being in force.
81. When the scheme of service tax changed so as to introduce a
negative list for the first-time post 2012, services were now taxable if
they were carried out by “one person” for “another person” for
consideration. “Person” is very widely defined by Section 65B(37) as
including individuals as well as all associations of persons or bodies of
individuals, whether incorporated or not.   Explanation 3 to Section
65B(44), instead of using the expression “person” or the expression “an
association of persons or bodies of individuals, whether incorporated or
not”, uses the expression “a body of persons” when juxtaposed with “an
unincorporated association”.
82. We have already seen how the expression “body of persons”
occurring in the explanation to Section 65 and occurring in Section 65(25a)
and (25aa) does not refer to an incorporated company or an incorporated
cooperative society. As the same expression has been used in Explanation
3 post-2012 (as opposed to the wide definition of “person” contained in
Section 65B(37)), it may be assumed that
the legislature has continued
with the pre-2012 scheme of not taxing members’ clubs when they are
in the incorporated form. The expression “body of persons” may subsume
within it persons who come together for a common purpose, but cannot
possibly include a company or a registered cooperative society. Thus,
Explanation 3(a) to Section 65B(44) does not apply to members’ clubs
which are incorporated.
83. The expression “unincorporated associations” would include
persons who join together in some common purpose or common action
– see ICT, Bombay North, Kutch and Saurashtra, Ahmedabad v.
Indira Balkrishna (1960) 3 SCR 513 at page 519-520. The expression
“as the case may be” would refer to different groups of individuals either
bunched together in the form of an association also, or otherwise as a
group of persons who come together with some common object in mind.
Whichever way it is looked at, what is important is that the expression
“body of persons” cannot possibly include within it bodies corporate.
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84. We are therefore of the view that the Jharkhand High Court
and the Gujarat High Court are correct in their view of the law in following
Young Men’s Indian Association (supra). We are also of the view
that from 2005 onwards, the Finance Act of 1994 does not purport to
levy service tax on members’ clubs in the incorporated form.
85.The appeals of the Revenue are, therefore dismissed. Writ
Petition (Civil) No.321 of 2017 is allowed in terms of prayer (i) therein.
Consequently, show-cause notices, demand notices and other action taken
to levy and collect service tax from incorporated members’ clubs are
declared to be void and of no effect in law.
Divya Pandey
                           Matters disposed of.
   STATE OF WEST BENGAL v. CALCUTTA CLUB LIMITED
[R.F. NARIMAN, J.]