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TMI Blog2009 (12) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... r-assessee, i.e., M/s. Mahomed Bagh Club Ltd., Lucknow (hereinafter referred to as, the club ) which was incorporated under the Indian Companies Act as limited company. It never filed the trade tax returns. First time, the notice was issued on March 30, 1998 and also on other dates under section 13(1) of the U.P. Trade Tax Act 1948 (hereinafter referred to as, the Act ) requiring the petitioner to produce the books of account for the relevant assessment years. Being aggrieved, the petitioner filed the present writ petitions for the assessment years mentioned above. Sri Pradeep Agarwal, learned counsel for the petitioner, submits that the club was established as an Army Club in the year 1931. According to him, the Trade Tax Act is not applicable in the petitioner's case as the petitioner-assessee club is being run exclusively for the benefit of its members. The members enjoy the foods and amenities available in the club. There is no sale to self. The object of the club is based on the principle of mutuality and not involving in any trade activity. For this purpose he read out section 2(h)(v)(vi) of the U.P. Trade Tax Act, 1948 which follows as under: Section 2(h)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay for the same. He further relied on the ratio laid down in the case of Commissioner of Income-tax v. Cawnpore Club Ltd. [1984] 146 ITR 181 (All) where it was observed that on the principle of mutuality in the case of a club, which is run for the benefit of its members, the income accruing to the club from letting out of accommodation in the club or providing of facilities to them for payment is not liable to tax, for no one could trade with himself. He also submits that in the said case, it was observed that the assessee-club offered facilities to its members alone and not outsider. The income received from these members was applied for the benefit of the members of the club alone. There was no trading activity in the sense in which it was understood commonly or in law. The club might be a juristic entity but the nature of the payment made by the members for the use of facilities like the rooms let out to them with various conveniences, was payment by them to themselves as members of the club. Therefore, on the principle of mutuality, the income was exempt form tax. He further submits that this court in the case of Cawnpore Club Ltd. [1984] 146 ITR 181 (All) observed as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the principle of mutuality even the deemed income from its property is governed by the said principle of mutuality. Therefore, these appeals have to succeed. Accordingly the appeals are allowed and the judgment impugned herein is set aside. The questions referred by the Tribunal are answered in the affirmative and in favour of the appellant. On the facts and circumstances of these cases, the parties will bear their own costs. Further, learned counsel for the petitioner submits that the services offered in the club were neither with any profit motive nor tainted with commerciality. The facilities were offered only as a matter of convenience for the use of the members (and their friends, if any). He also relied on the ratio laid down in the case of Commissioner of Income-tax v. Bankipur Club Ltd. [1998] 109 STC 427 (SC); [1997] 226 ITR 97 (SC) where it was observed that there was no sale by the club to any outsider and one cannot sell to himself on the basis of doctrine of mutuality. The learned counsel for the petitioner further submits that soon after receipt of the notice for the assessment years 1990-91 to 1996-97, the petitioner preferred an application under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with or is incidental to, or results from such trade, commerce, manufacture, adventure, or concern or works contract or lease. The definition of sale under section 2(h)(v) and (vi) after amendment reads as under: 2(h)(v): the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; and (vi) the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash or deferred payment or other valuable consideration. Lastly, he submitted that the doctrine of mutuality is applicable for the purpose of Income-tax but for the purpose of sales, the said principle is not applicable and the assessee is liable to pay the trade tax. We have heard both the parties at length and gone through the material available on record including written arguments submitted by the learned counsel for the petitioner. The assessee, originally was established as an Army Club in the year 1931. For the assessment years mentioned above, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re alike tainted with commerciality. In other words, the activity carried on by the assessee in such cases, claiming to be a mutual concern or members club is a trade or an adventure in the nature of trade and the transactions entered into with the members or non-members alike is a trade/business/transaction and the resultant surplus is certainly profit-income liable to tax. We should also state that at what point, does the relationship of mutuality end and that of trading being is a difficult and vexed question. A number of factors may have to be considered to arrive at a conclusion. Whether or not the persons dealing with each other, is a 'mutual club' or carrying on a trading activity or an adventure in the nature of trade is largely a question of fact. Further, in the instant case, the consumable items are brought or prepared for a price. There is a difference between the club and a restaurant. Restaurant is run for profit to the owner and in the case of club the profit earned is to be the income of the club. So, the doctrine of mutuality is applicable regarding income/profit only. It will not apply to trade tax specially after Constitutional (46th) Amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the very first general sales tax legislated in India, in the year 1939. The statutory provision was rendered ineffective by judicial pronouncements of the High Courts commencing from 1951, culminating in the decision of the apex court in 1970 in the case of Young Men's Indian Association case [1970] 26 STC 241 (SC). The original legislative intent was restored by the 46th Amendment to the Constitution in 1982 and State legislation subsequently enacted in conformity with article 366(29A). As observed in one of the judgments of this court in the case of Commissioner of Sales Tax v. Ram Singh Sons [1983] UPTC 563 that the clubs are an imported concept and from 1939 and during the period prior to independence, supply of refreshments to members for valuable consideration in all clubs in this State was regarded as sale and tax was levied thereon. Shortly after independence, courts followed the English law of the period, prior to independence for holding that such supplies do not constitute a sale. Parliament had therefore to step in, and it did so by amending the Constitution and expanding the width of the definition of sale or purchase of goods . After the enactment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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