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TMI Blog1974 (6) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... vant bye-laws, guests not exceeding four were allowed subject to various restrictions. In the catering department, the club serves not only members and their guests but the club allowed these facilities to be availed of by any member for a dinner party. The members were to book such parties for lunches or dinners for any number of invitees of such members and they were allowed a month's credit for the payment of the bills. For such dinner parties other conditions were applicable for advance payment, etc. The petitioner-club made an application under section 52 of the Act for the decision of the question whether it was a dealer under section 2(11) of the Act. The Deputy Commissioner held that in its catering activity the club must be held to be a dealer. The Tribunal, however, in appeal found that so far as the club was giving catering facilities to its members or to the restricted number of guests as per its bye-laws, it was not carrying on any business with any outsider. Therefore, considering the settled legal position, it held that considering the main object of this club which was of promoting sports, such catering facility of supplies to the members and their families and gues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by persons frequenting the club buildings or the sports grounds or other premises of the club. Under clause 3(v), the object was to do all such other things as are Incidental or conducive to the attainment of the above objects or any of them. Under clause 4, the income and property of the club shall be applied solely towards the promotion of the objects set forth herein and no portion thereof shall be paid by way of dividend, bonus or profit to any of the members. Under clause 5, the liability of the members was limited but there was no shareholding. Clause 6 provides that every member of the club undertakes or guarantees to contribute to the assets of the club, in the event of the same being wound up during the time he is a member or within one year afterwards, for payment of the debts and liabilities of the club contracted before the time at which he ceased to be a member. Under clause 7, if upon the winding up of or dissolution of the club, there remains after the satisfaction of all debts and liabilities any property whatsoever, the same shall be paid to or distributed among the members in equal shares. Under the articles of association the members were generally divided into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e normal catering clause in that behalf by a distinguishing special party clause. It would differ from the ordinary catering clause which was an incidental activity of the club. The Tribunal had in this connection considered that the income of the special parties in 1966 was Rs. 1,79,476. The income from internal catering supplies was Rs. 23,942 while the net income was Rs. 27,735 before providing depreciation. The Tribunal proceeded on this thoroughly irrelevant distinction and on an erroneous assumption that the club has changed its character when the catering facility, which was ordinarily restricted to the members, families and the four guests, was extended to the members in the form of special dinner parties. The Tribunal had in this connection misconstrued the settled legal position and had wrongly sought aid of Eccentric Club's case(1), whose ratio was approved by the Supreme Court in Commissioner of Incometax v. Royal Western India Turf Club Ltd.[1953] 24 I.T.R. 551 (S.C.). Section 2(11) defines a dealer as meaning any person who whether for commission or otherwise carries on the business of buying or selling goods in the State, and includes a State Government which carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and purchase of provision was held one to be merely incidental to non-commercial objects and not regarded as in themselves a trade in such self-serving members' clubs. These members' clubs would be non-profit making clubs because even after incorporation, the club would not lose its character as such, as the limited company in such cases would be looked upon as a mere convenient instrument or as an agent through which only such catering privileges of the members were arranged. Therefore, the privilege would be confined only to the members and even when guests were invited or special dinner parties were arranged, it would be only for and on behalf of the members as an agent. Such a privilege could not be purchased and would not be open to the outsiders. The Tribunal had recorded a categorical finding that even in case of special dinner parties the facility could be availed of only by the member. Therefore, even in the case of special dinner parties, the club retained its social, non-commercial character as a members' club. Therefore, the Tribunal had failed to take into consideration the settled legal position in this connection and it erred in holding that there was a change in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as. 658. on this irrelevant distinction, and in holding that although the club was not dealing with any outsider, but only the privilege was extended to a member by the club, it assumed a commercial business character when such special dinner parties for the individual purpose of the member were arranged at the instance of a member. The Tribunal ignored the salient feature that this also was like a guest privilege, a special privilege of the member which could not be purchased or sold by or to an outsider, but it was available only to the members and it was the member who incurred the liability for the charges thereof. Therefore, the members' club would continue dinner parties for its members and would not assume a commercial character of trading with the outsiders. The whole crucial test which was laid down was that such non-profit making clubs like sports clubs would not assume the character of a proprietary club merely by reason of incorporation, but only when it assumed a commercial or business character by trading or dealing with outsiders as in a commercial concern. When it seeks to cater the needs of the members alone, whether by way of serving family and guests of the membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere organised in the way business was organised and there was production of material services and in a limited way, production of material goods in such catering department. Their Lordships, however, pointed out that these circumstances were not truly representative in the case of the club because the services were to the members themselves for their own pleasure and amusement and the material goods were for their consumption. In other words, the club existed for its members. No doubt occasionally strangers also took benefit from its services but they could only do so on the invitation of the members. No one outside the list of members had the advantage of these services as of right. Nor could these privileges be bought. In fact, they were available only to members or through members. Their Lordships further pointed out that if the club were to stop entry of outsiders, no essential change in its character vis-a-vis the members would take place. In other words, the circumstance that guests were admitted was irrelevant to determine whether the club was an industry. Even when the admission of guests was open, the club remained the same, that was to say, a members' self-serving institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorporated as a company, it was not like an ordinary company constituted for the purpose of carrying on business. There were no shareholders. No dividends were ever declared and no distribution of profits took place. Admission to the club was by payment of admission fee and not by purchase of shares. Even that admission was subject to balloting. The membership was not transferable like the right of shareholders. There was the provision for expulsion of a member under certain circumstances which feature never existed in the case of a shareholder holding shares in a limited company. The membership was fluid. A person retained rights as long as he continued as a member and got nothing at all when he ceased to be a member, even though he might have paid a large amount as admission fee. He even lost his right on expulsion. In these circumstances, it was held that the club could not be treated as a separate legal entity of the nature of a limited company carrying on business. The club in fact continued to be a members' club and without any shareholders and, consequently, all services provided in the club for members had to be treated as activities of a selfserving institution. Both thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d clubs a distinction had been drawn. Where such a club had all the characterstics of a members' club consistent with its incorporation, that is to say, where every member was a shareholder and every shareholder was a member, no licence need be taken out If liquor was supplied only to the members. If some of the shareholders were not members or some of the members were not shareholders that would be the case of a proprietary club and would involve sale. Proprietary clubs stood on a different footing. The members were not owners or interested in the property of the club. The supply to them of food or liquor though at a fixed tariff was a sale. Thereafter their Lordships pointed out that 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. Therefore, if the club even though a distinct legal entity was only acting as an agent for its members in the matter of supply of various preparations to them, no sale would be involved, as the element of transfer would be completely absent. There being no transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shments, beverages and other articles should be made available. The test in each case was whether the club transferred property belonging to it for a price or a club acted as an agent for making available property belonging to its members. Therefore, even in this decision, their Lordships have approved Eccentric Club decision[1924] 1 K.B. 390. ratio and have pointed out that the difficulty felt in legal property ordinarily vesting in the trustees of a members' club or in the incorporated entity could be surmountable by invoking a theory of agency in such cases, when members were joint owners of the club property and were having a mutual dealing inter se only. Therefore, if the club even though a distinct legal entity was only acting as an agent for its members in the matter of catering supplies, there should be no sale involved as the element of transfer to another would be completely (sic) not be considered to be engaged in any trade or business, so as to attract any sales tax as a "dealer". Mr. Desai, however, sought to make a distinction from this settled legal position on the ground that the club on its applying for registration had become a registered dealer before it raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ventional Lord Campbell's definition of business or commerce or even the wider definition of an industrial undertaking. Such a sporting club would continue to retain its nonprofit making character for promotion of sports, even though incidentally It may supply such privileges to its members by catering to their needs and to the needs of their families and guests or for such larger dinner parties at the instance of the members and which would be paid for by the members. The Tribunal had so far as the members and the guests were concerned refused to hold that the dealer's definition was fulfilled in this case. It, however, made a wrong distinction in the case of such dinner parties by assuming that the character of the members' club changed in the transaction, even though it was a transaction between the members inter se and the privilege was not one which could be bought or purchased but was available by and through the members alone. The learned Government Pleader next relied upon the decision in Enfield India Ltd.[1968] 21 S.T.C. 317 (S.C.)., which was distinguished by the larger Constitution Bench in the Young Men's Indian Association (Cosmopolitan Club) decision(2) aforesaid. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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