1968 (1) TMI 44 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the Mahabaleshwar Club qualifies as a "dealer" under section 2(11) of the Bombay Sales Tax Act, 1959.
2. Whether there was any evidence to justify the finding that the motive of the Club was earning profit.

Issue-Wise Detailed Analysis:

1. Whether the Mahabaleshwar Club qualifies as a "dealer" under section 2(11) of the Bombay Sales Tax Act, 1959.
The primary issue revolves around the interpretation of the term "dealer" as defined in section 2(11) of the Bombay Sales Tax Act, 1959. The definition includes any person who carries on the business of buying or selling goods in the State, and extends to any society, club, or other association of persons which buys goods from, or sells goods to, its members. The court analyzed whether the activities of the Mahabaleshwar Club, an unincorporated body, fall under this definition.

The court emphasized that the definition of "dealer" in section 2(11) is in three parts:
1. A person who carries on the business of buying or selling goods.
2. The inclusion of the Central or any State Government which carries on such business.
3. Any society, club, or other association of persons which buys goods from, or sells goods to, its members.

The court considered whether the activities of buying or selling must be carried out as a business for unincorporated bodies to be classified as dealers. The court concluded that the last part of the definition, which includes societies, clubs, and other associations, must be read as governed by the verb "includes." This implies that the activities must have a commercial character and be carried out by way of business to be considered as a dealer.

The court rejected the argument that unregistered clubs or associations could be considered dealers even if their transactions with members were not conducted by way of business. The court highlighted that the legislative intent was to tax transactions with a commercial character, as evidenced by the requirement for dealers to be registered under the Act and the reference to "business" in section 22.

2. Whether there was any evidence to justify the finding that the motive of the Club was earning profit.
The court examined whether the Mahabaleshwar Club's activities of supplying articles like food, refreshments, and cigarettes to its members were carried out with the object of earning profit. The court noted that the Club's primary objective was to provide recreation for its members, not to engage in the business of selling goods for profit. The Club had consistently incurred losses in its catering activities since 1944.

The court acknowledged that some clubs might keep a margin over the cost price to cover overhead charges and wastage, but this alone does not indicate a profit-making motive. The court concluded that the Mahabaleshwar Club did not supply goods to its members by way of business and, therefore, was not a dealer under section 2(11) of the Act.

Conclusion:
The court answered the referred questions as follows:
1. The Mahabaleshwar Club is not a dealer within the meaning of section 2(11) of the Bombay Sales Tax Act, 1959.
2. The object of the Club in effecting supplies to its members was not one of earning profits.

The respondent was ordered to pay the costs of the reference, fixed at Rs. 250, and the deposit of Rs. 100 made by the applicant-Club was directed to be refunded. The reference was answered accordingly.