2009 (12) TMI 861 - HC - VAT and Sales Tax

Whether the members of the club are jointly owner of the property and all the goods of the club belong to them as trustee? Held that - After the enactment of corresponding amendment to the State Sales Tax Act, it is no longer open to any club, whether incorporated or unincorporated, whether proprietary or non-proprietary, to contend that the delivery or supply of food articles, etc., to its members is not a sale and that tax is not leviable on such sales. In the light of the above discussion and by considering the totality of the facts and circumstances of the case, we are of the view that the petitioner during the assessment years under consideration was subject to Trade Tax Act and impugned notices were rightly issued to the petitioner by the Department. Appeal dismissed.

Summary

Issues Involved:
1. Applicability of the U.P. Trade Tax Act, 1948 to the petitioner-assessee club.
2. Doctrine of mutuality and its relevance in the context of trade tax.
3. Impact of the Constitution (46th Amendment) Act, 1982 on the definition of "sale" and "dealer".
4. Validity of the impugned notices issued by the Department.

Issue-wise Detailed Analysis:

1. Applicability of the U.P. Trade Tax Act, 1948 to the petitioner-assessee club:
The petitioner-assessee, M/s. Mahomed Bagh Club Ltd., argued that the Trade Tax Act is not applicable to the club as it is run exclusively for the benefit of its members, based on the principle of mutuality. The club claimed that there is no sale to self, and thus, no transfer of property in goods, as the members are trustees of the club. The petitioner relied on Section 2(h)(v)(vi) of the U.P. Trade Tax Act, 1948, which defines "sale" and argued that these provisions are not applicable to the club's transactions.

2. Doctrine of Mutuality and its relevance in the context of trade tax:
The petitioner asserted that the principle of mutuality exempts the club from trade tax as the club's income is derived from its members and used exclusively for their benefit. The petitioner cited several judgments, including Joint Commercial Tax Officer, Harbour Division II, Madras v. Young Men's Indian Association, Madras [1970] 26 STC 241 (SC) and Commissioner of Income-tax v. Cawnpore Club Ltd. [1984] 146 ITR 181 (All), to support the claim that there is no sale involved in transactions between the club and its members.

3. Impact of the Constitution (46th Amendment) Act, 1982 on the definition of "sale" and "dealer":
The Department countered that the Constitution (46th Amendment) Act, 1982, which came into effect on February 2, 1983, expanded the definition of "sale" to include the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment, or other valuable consideration. This amendment was intended to augment State Revenue and validate laws levying tax on the supply of food or drink for consideration. The Department argued that the amended definitions of "dealer" and "business" under Section 2(c) and Section 2(aa)(iii) of the U.P. Trade Tax Act, respectively, now include the activities of the petitioner-assessee club.

4. Validity of the impugned notices issued by the Department:
The court noted that the petitioner-assessee was established as an Army Club in 1931 and had not produced the books of account despite notices issued under Section 13(1) of the Act. The court observed that the petitioner had obtained a stay order on provisional assessments but had not complied with the notices. The court found that the petitioner, being a juristic person registered under the Companies Act, has its own identity separate from its members. Thus, the principle of mutuality does not strictly apply, as the club's activities involve a profit-earning motive and are tainted with commerciality.

Conclusion:
The court concluded that the doctrine of mutuality is not applicable to the petitioner-assessee club in the context of trade tax, especially after the Constitutional (46th) Amendment. The court held that the petitioner was subject to the Trade Tax Act during the assessment years under consideration, and the impugned notices were rightly issued by the Department. The court dismissed the writ petitions with costs of Rs. 2,000 for each petition.