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TMI Blog1979 (9) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... ered as a co-operative society under the Bombay Co-operative Societies Act, 1925, as extended to the Union Territory of Delhi. This society came into existence in view of a Central Government policy to open canteens in various Government offices wherein refreshments could be made available to the staff of the offices which were both of standard quality and at reasonable rates. In this welfare activity conceived by the Government the refreshments were to be supplied at subsidised rates. The co-operative societies to be formed under this scheme were to conduct the activity of supplying healthy and cheap refreshments and other commodities obviously to counteract the high prices that Government servants have to pay for such things if they were to go outside. The heads of departments were required to sponsor such co-operative societies. After enrolment of members the society was to act through a duly elected committee, elected by the general body of the members. The committee of management was generally to be presided over by the head of the department or his nominee. A society like that came into existence, known as the Income Tax Co-operative Supply Society Ltd. and it composed of off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (S.C.). and distinguished the decisions in joint Commercial Tax Officer v. Young Men's Indian Association(2) and the Chelmsford Club Ltd. v. Sales Tax OfficerCivil Writ No. 177-D of 1961 decided on 22nd January, 1971 (Delhi High Court). He also made reference to Commissioner, Sales Tax v. Roshanara Club Ltd. I.L.R. [1971] Delhi 164. The revisions were, accordingly, dismissed. The assessee thereupon moved for having a reference made to this Court and that is how References Nos. 6 to 11 of 1976 are before us. A similar case of a canteen run by the Deputy Commissioner's Office Cooperative Store (Canteen), New Delhi, another co-operative society formed under similar circumstances as mentioned above, comes up for consideration in Sales Tax References Nos. 5 to 11 of 1974. In these cases the revision petitions of the assessee were accepted by the Financial Commissioner to the extent that sales effected to members did not attract the incidence of sales tax but sales to persons other than members would attract the incidence of sales tax and for those sales the assessee would be a dealer. The Financial Commissioner referred to a large number of decisions cited before him and also to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of daily necessity to members and non-members at cheap rates on more or less a no-profit-no-loss basis and that the Government was subsidising the running of the canteens; and (iii) that to partake of the refreshments supplied at subsidised rates not only members but non-members also visited the canteens. The major portion of sales were, however, to members and the sales to non-members were in the neighbourhood of 10 per cent of the total sales. The contention on behalf of the revenue is that inasmuch as the incidence of sales tax is attracted on a gross turnover exceeding a minimum of all sales effected during a year or a period by the assessee, which is a distinct legal entity capable of entering into a contract, unless the doctrine of mutuality applies or the principle of agency is attracted the assessee would be liable to pay sales tax. On behalf of the assessee, on the other hand, it has been urged that, in the facts and circumstances of the present cases, liability to pay sales tax would be attracted on the gross turnover from the so-called sales only if the transactions are in the nature of conduct of business by the assessee; in other words, if the assessee is carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to pay tax under section 4 of this Act, carry on business as a dealer unless he has been registered and possesses a registration certificate. 8.. (3) Every dealer who has been registered upon application made under this section shall, for so long as his registration remains in force, be liable to pay tax under this Act. (4) The registration of a dealer upon application made under this section shall be in force for a period of not less than three complete years and shall remain in force thereafter unless cancelled under the provisions of this Act." From a mere reading of the provisions set out above it is apparent that liability to pay sales tax on a gross turnover of sales is only on a registered dealer. Therefore, what needs to be clearly understood is not merely as. to whether a transaction is a "sale" within the meaning of the Act but also whether the assessees in the present cases can be regarded as "dealers". There can be no doubt and, indeed, there has hardly been any debate on the question of whether the transactions entered into by the assessees in the present cases were sales. For the purposes of the law of contract and for the purposes of suing and being sued, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transaction must have constituent elements, viz., (1) parties competent to contract; (2) mutual assent; (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. When a co-operative society supplies to the members for a price refreshment in the canteen maintained by it. the four constituent elements of sale are normally present: the parties are competent to contract; there is mutual assent; refreshments which belonged absolutely to the society stand transferred to the buyer and price is either paid or promised." The Supreme Court noticed that there was nothing on the record of the case to show that the society was acting merely as an agent of its members in providing facilities for making food available to the members or the fact that the society supplied refreshments to its members. Thus, this decision only goes so far as to establish that turnover from sales in some cases and in certain circumstances may attract the incidence of sales tax. In Joint Commercial Tax Officer v. Young Men's Indian Association[1970] 26 S.T.C. 241 (S.C.)., relied upon on behalf of the revenue, once again the question t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that followed it can have no application here. The principle that no one can make a profit out of himself is true enough but may in its application easily lead to confusion. There is nothing per se to prevent a company from making a profit out of its own members. Thus a railway company which earns profits by carrying passengers may also make a profit by carrying its shareholders or a trading company may make a profit out of its trading with its members besides the profit it makes from the general public which deals with it but that profit belongs to the members as shareholders and does not come back to them as persons who had contributed them. Where a company collects money from its members and applies it for their benefit not as shareholders but as persons who put up the fund the company makes no profit. In such cases where there is identity in the character of those who contribute and of those who participate in the surplus, the fact of incorporation may be immaterial and the incorporated company may well be regarded as a mere instrument, a convenient agent for carrying out what the members might more laboriously do for themselves. But it cannot be said that incorporation which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. 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." A Bench of this Court in Delhi Cloth General Mills Company Limited v. Union of India[1976] 38 S.T.C. 403. considered all the above cases, and many more, while deciding four writ petitions and three sales tax references where the common contention was that the turnover of sales effected by the assessees in their canteens was not liable to be included in the taxable turnover for the purposes of levy of sales tax under the Bengal Finance (Sales Tax) Act, 1941. The argument was that the assessees were not dealers and the transactions in question were not sales, similar to the question before us. Tatachari, C.J., speaking for the Bench, negatived the contention on behalf of the revenue that turnover from all sales was liable to be taxed and observed that the argument ignored "that though the word 'business' does not occur in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of the very article bought by a person a condition for treating him as a dealer: the buying of the commodity must be in the course of business, i.e., must be for sale or use with a view to make profit out of the integrated activity of buying and disposal." The crux of the problem therefore is the nature of activity carried on by the assessees in the present cases. It is conceded that the transactions are sale of goods for money or of providing meals/refreshment for money. It is also on record that the Government subsidises the supply of cheap meals and goods at reasonable rates. Although there is shareholding and there is provision of distribution of profits but the shareholders are all members and it is the members who get the benefit of any profit. On behalf of the assessees the contention is that the sales in the canteens are really in the nature of service or amenity provided to the members or guests of members and so, are not really activity postulated by the term "dealer". A large number of decisions have been cited of club activities in support of this contention. There can be no doubt that mere effecting of sales would not invite the incidence of tax under the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case relied upon, the question that arose for consideration was whether the hotel, in which lodging and meals were provided on "inclusive terms" to residents, meals which were served to nonresidents and to residents, for which a charge was levied in the case of nonresidents, but no charge was levied separately in the case of residents, would fall within the ambit of the tax contemplated by the Bengal Finance (Sales Tax) Act. The High Court had held that meals supplied on an inclusive basis to residents did not fall within the ambit of tax but meals supplied to non-residents for which a charge was made fell into the ambit of the Act. The Supreme Court in appeal held that service of meals to visitors in the restaurant of the hotel was not taxable under the Act and this would be so whether a charge was imposed for the meal as a whole or separately for each dish ordered. It was observed noting with approval the classical legal view that where a number of services are concomitantly provided by way of hospitality, supply of meals must be regarded as ministering to a bodily want or to the satisfaction of human need and, therefore, the meals supplied to non-residents could not be regar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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