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TMI Blog1964 (11) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion in these petitions is that the Century Club, the Bangalore Club, the Golf Club and the Bowring Institute, being members' clubs, the Legislature had no competence to deem the supplies made by them to their members as sales for the purpose of levying sales tax. The Bangalore Club and the Golf Club are neither registered nor incorporated. They are only associations of persons, whereas the Century Club and the Bowring Institute are either registered or deemed to be registered under the Mysore Societies Registration Act, 1960 (Act XXI of 1960). 3.. The facts are not in dispute in these cases. They may be briefly stated thus: These clubs to quote the language of Mack, J., in Cosmopolitan Club v. Deputy Commercial Tax Officer[1952] 3 S.T.C. 77; A.I.R. 1952 Mad. 814. , are "social or members' clubs, not conducted for gain or for profits, but with the objective of providing amenities to its members for meeting in the club premises, for recreative and social activities varying from strenuous games to pastimes of less vigorous character, for social intercourse, for interchange of ideas on variety of topics, serious and light, ranging from ethics and philosophy to the prattle of idle g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and includes a transfer of property in goods involved in the execution of works contract, and in the supply or distribution of goods by a co-operative society, club, firm or any association to its members for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge." (Explanations annexed to this section are not relevant for our present purpose). On the basis of these provisions, sales tax was levied on the Bangalore Club for the second half of the year 1957-58 and for the year 1958-59. The validity of the said levy was challenged before the Sales Tax Authorities. The Mysore Sales Tax Appellate Tribunal set aside the assessments made holding that the supplies made by the club to its members, having not been made in the course of trade or business did not amount to "sales" as defined. The decision of the Tribunal was brought up in revision before this Court in C.R.Ps. Nos. 862 and 863 of 1959. A Bench of this Court, of which one of us (Hegde, J.) was a member, upheld the decision of the Tribunal by its order dated 29th September, 1961. Therein this Court found itself in agreement with the decision of the Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no doubt that the clubs in question are liable to pay sales tax in accordance with law, on the price realised by them on the supplies made by them to their members. In these cases, the controversy is not as regards the interpretation to be placed on the impugned provisions but as to their constitutionality. What was urged on behalf of the petitioners is that the State Legislature had no legislative competence to levy sales tax on the turnover relating to supplies made by the clubs to their members, whether the clubs in question are registered clubs or mere associations of persons. Hence, the question for decision is whether the impugned provisions are ultra vires of the powers of the State Legislature or otherwise void? 7.. It is a common ground that the "Act" was enacted by the State Legislature on the basis of the powers conferred on it under Article 246(3) read with Entry 54 of List II of the Seventh Schedule to the Constitution. Entry 54 reads "taxes on the sales or purchases of goods other than newspapers". This entry is more or less similar to Entry 48 of List II of the Seventh Schedule in the Government of India Act, 1935. What is the scope of this entry? It is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1930, provides: "(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred." To constitute a sale under section 4 of the Sale of Goods Act, there must be: (1) a contract between the buyer and seller, seller agreeing to sell and the buyer agreeing to buy; (2) the transfer of the property in the goods; and (3) for price in money paid or promised. As observed by Benjamin in the 8th Edition of his work on "Sales". "To constitute a valid sale there must be a concurrence of the following elements, vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emed to be sales. 10.. There are several types of clubs. For our present purposes, we are concerned with the members' clubs. Two of the clubs before us are registered clubs and the remaining two are unregistered clubs. The latter are mere associations of persons. They are neither juridical persons nor legal entities. The members of an unregistered club are the joint-owners of all the properties of the club. That is admittedly the position so far as the Bangalore Club and the Golf Club are concerned. Hence it was urged on their behalf that when they supply goods to their members, there is no contract between two parties, as, in the eye of the law, an unregistered club and its members constitute a single entity and further while so supplying goods there is no transfer of absolute or general property, in the things supplied, by one persons to another. It was said that the true legal effect of supply of an article by the club to one of its members is the release of joint right of all the members in his favour. In support of that contention, a number of decisions English and Indian were cited. It is unnecessary to refer to them at this stage as the learned Advocate-General appearing f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plete legal entities but they have been merely conferred with certain attributes of legal entities. The provisions, in our opinion, instead of supporting the contention of the learned Advocate-General, are destructive of the proposition enunciated by him. The weight of judicial authority, English and Indian, is against the view contended for by the learned Advocate-General. 12.. The leading case in support of the petitioner's contention is the decision of the Queen's Bench in Graff v. Evans [1882] 8 Q.B.D. 373. In that case, the manager of a bona fide club was prosecuted for selling by retail intoxicating liquors without a licence under the Licensing Act of 1872. The question that fell for decision was whether when a manager of a club supplies liquor to its members, the transaction in question amounts to "sale". Field, J., answered that question thus: "I think not. I think Foster (member who was supplied with liquor in retail) was an owner of the property together with all the other members of the club. Any member was entitled to obtain the goods on payment of the price. A sale involves the element of a bargain. There was no bargain here, nor any contract with Graff (the manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of liquor members therein, as in the case of a club which was not incorporated. On the part of the respondent, it was contended that the appellant society was a corporate body and a legal entity apart from its members, that in its capacity as a club proprietor it was the owner of the liquor in question and that the supply thereof to members and honorary members constituted a sale of the intoxicating liquor within the meaning of section 65 of the Act of 1910. Rejecting the contention of the respondent Lord Hewart, L.C.J., who delivered the judgment of the Court held that, in the circumstances, the transaction in question was not a sale in the statutory sense, but was rather to be deemed the transfer of a special property in the goods from all the other members of the club to the consumer, in consideration of the price paid. He further observed that 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. Dealing with the decision of Graff's case (1), this is what Lord Chief Justice observed: "The correctness of that decision has never, so far as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporation of which he is a member is not, either in form or in substance, a sale by a person to himself. To hold that it is, would be to ignore the principle which lies at the root of the legal idea of a corporate body, and that idea is that the corporate body is distinct from the persons composing it. A sale by a member of a corporation to the corporation itself is in every sense a sale valid in equity as well as at law." This decision is clearly distinguishable. Therein, the purchaser, as seen from the judgment, was an incorporated body and not merely a registered society. We do not think that the decision in Bonsor v. Musicians' Union [1955] 3 All E.R. 518. relied on by the learned Advocate-General is helpful to the State. Therein, Lord MacDermott, Lord Keith of Avonholm and Lord Somervell of Harrow held that a registered trade union is not a juristic person, distinguishable at any moment of time from the members of which it was composed. After referring to the various provisions of the Trade Union Act, 1871, and some of the earlier decisions bearing on the question, Lord MacDermott said: "I base this opinion primarily on the statutes. The more closely they are examined the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to succeeding trustees without assignment or transfer. In the same way, though the society, being unincorporated, is unable to sue and be sued in its own name, it is given the statutory privilege of suing and being sued in the name of its trustees." The decisions in Boppana Rukminamma and Another v. Maganti Venkata Ramadas A.I.R. 1940 Mad. 949. and Satyavart Sidhantalankar and Others v. Arya Samaj, Bombay A.I.R. 1946 Bom. 516., relied on behalf of the State cannot be considered as having laid down the law correctly. The correctness of these decisions was doubted by the Supreme Court in Board of trustees' case A.I.R. 1962 S.C. 458. Dealing with these decisions, this is what S.K. Das, J., who spoke for the majority stated in paragraph 15 of the judgment (at page 467): "On behalf of the petitioners reliance has been placed on the decision in Krishnan v. Sundaram [1941] 43 Bom. L.R. 562; A.I.R. 1941 Bom. 312., where Kania, J. (as he then was) said: "The position of a society registered under the Societies Registration Act, 1860, is like that of a club or a joints stock company." There was no discussion of the question of incorporation, and the decision cannot be accepted as authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of being incorporated as that term is legally understood, but if it does we are unable to accept it as correct." 14.. Both on principle and on authority, we are satisfied that when a registered club supplies any article to any of its members, in law there is no "sale". Hence, the State Legislature was not competent to enact any law imposing sales tax on such supplies. To the extent the impugned provisions have purported to bring to tax supplies made by clubs unregistered as well as registered to their members they are void and inoperative. 15.. We are unable to accept the contention that the impugned provisions are violative of Article 14 of the Constitution. It was contended on behalf of the petitioners that societies, clubs, firms or associations were picked out for hostile discrimination inasmuch as "sales", supplies, or distribution of goods by them whether made in the course of business or not, are subjected to tax, and they are deemed to be "dealers" for the purposes of the "Act", while in general only sales, supplies or distribution made in the course of business or trade are considered as "sales" and persons making them as "dealers". It is true that under the main provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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