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TMI Blog2015 (9) TMI 1389X X X X Extracts X X X X X X X X Extracts X X X X ..... xing an attendant monetary transactions will not arise. Contributions for the discharge of liabilities or for meeting common expenses of a group of persons aggregating for identified common objectives will not meet the criteria of taxation under Finance Act, 1994 in the absence of identifiable service that benefits an identified individual or individuals who make the contribution in return for the benefit so derived. Tax was paid on the entrance fee without collecting the tax amount from the new members. Though the first appellate authority has granted the benefit of a cum-tax computation of the entrance fee, it must be borne in mind that the tax liability was discharged before the re-computation allowed in the impugned order. It, therefore, does not alter the origin of the funds utilized for discharge of tax liability - viz. from the common funds of the appellant without recourse to the members who paid nothing more than the entrance fee. Moreover, entrance fees are fixed in the bye-laws without reference to tax leviable, if any, thereon. For both these reasons, it can be concluded that tax burden has not been transferred to the members from whom entrance fees were collected. Clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e existence of the club. 3. The appellant had sought refund of the tax paid by them for the above period on the ground that they were not liable to tax on the amounts collected as entrance fee for admission of new members. The claim was based on the principle of mutuality which was well-settled in law relating to income tax and sales tax and, in accordance with which, club and members being indistinguishable, the scope of transactions between the former and the latter was held to be beyond the scope of taxation. The decision of the Tribunal in Breach Candy Swimming Bath Trust v Commissioner of Central Excise, Mumbai - I [2007(5) STR 146 (Tri-Mumbai)] which relied upon the principle of mutuality as applied to clubs by the Hon'ble Supreme Court in Chelmsford Club vs Commissioner of Income Tax [2000 (243) ITR 89 (SC)], Commissiner of Income Tax v Bankipur Club Ltd. [1997 (22G) HR 97 (SC)], that of Hon'ble High Court of Delhi in Commissioner of Income Tax v National Sports Club of India [1998 (230) ITR 373 (Del)], Commissioner of Income Tax v Merchant Navy Club [1974 (96) ITR 2GI (AP)] was cited by the appellant. It was further contended that entrance fees are not subscription ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that clubs and clubbing have been culturally ingrained in human life across space and time. Fulfilling as it does the basic human need for socializing, any curbs or restrictions cast on these by tax officials, in particular, have been resisted with fervour by recourse to judicial intervention. All these disputes have arisen because of presumption of legislative intent. Most often, this presumption emanates from ignorance, compulsion, ideology or philosophy; none of which should ever have crept into the discharge of statutory duties on the part of tax administrators. 5. Certain developments in relation to service tax liability of clubs, in the interregnum between the issue of the impugned order and the present hearing, are brought to our attention by learned Counsel for the appellant. The decision of the Hon'ble High Court of Jharkhand in Ranchi Club Ltd v Chief Commissioner of Central Excise & Service Tax [2012 (26) STR 401 (Jhar)] has drawn a distinction between members' clubs and proprietary clubs while holding that, in accordance with the principle of mutuality, the two entities required to complete a taxable transcation are not in existence in relation to the former. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant that entrance fee is not subscription with a reference to the use of the phrase "for a subscription or any other amount" in section 65 (25aa) of Finance Act, 1994. 8. The principal of mutuality applies squarely to the appellant as a members' club and the ruling of the Hon'ble High Court of Gujarat would settle the case in favour of the appellant. Nevertheless, the fundamental question raised by the appellant calls for a response from this Tribunal for two reasons; firstly, the pendency of the appeals before the Hon'ble Supreme Court is likely to be construed as sufficient cause for continuing to not only demand service tax on clubs and associations but also to adjudicate thereon without acknowledging the mutuality principle and secondly, the incorporation of Explanation 3 in section 65B (44) of Finance Act, 1994 is likely to be interpreted as extending latitude to overcome the impediment of mutuality. Accordingly, we turn our consideration to this primary contention put forth by the appellant that it was never the intent of the legislature to tax the entirety of payments received by a "club or association" from its members. 9. Our juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation scheme that specifies the particular targets of taxation, tax liability will arise when a provider conforming to the relevant description in the charging section performs an activity that conforms to the relevant description in the charging section on the request, and for the benefit, of a recipient conforming to the relevant description in the charging section. Service, its taxability and the provision of the taxable service to a recipient, in that order, are necessary pre-requisites to ascertaining the quantum of consideration on which ad valorem tax will be levied. This fundamental will not alter in the scheme of the negative list too; a service that is clearly identifiable has to be provided or agreed to be provided before it can be taxed. The factual matrix of the existence of a monetary flow combined with convergence of two entities for such flow cannot be moulded by tax authorities into a taxable event without identifying the specific activity that links the provider to the recipient. 12. For that very reason, mere capacity to deliver a service cannot be equated with providing or agreeing to provide a service; such service has to reach the recipient in exchange for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odingly, every fee or charge payable by members to a "club or association" does not, ipso facto, become taxable. 14. "Clubs or associations" generally charge entrance fees as well as periodical subscriptions. They may and, often do, provide facilities for recreational, social and victualling requirements of its members. Such facilities may or may not entail an identifiable charge but, most often, do - certainly they do so for the latter two facilities. To the extent that any of these collections are directly attributable to an identified activity, such fees or charges will conform to the charging section for taxability and, to the extent that they are not so attributable, provision of a taxable service cannot be imagined or presumed. Recovery of service tax should hang on that very nail. Each category of fee or charge, therefore, needs to be examined severally to determine whether payments are indeed recompense for a service before ascertaining whether that identified service is taxable. 15. The entrance fee is a one-time payment that is visited upon members of "clubs or association". It affords their inclusion into the restricted group that constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice, the subscription will be taxable. 17. In the instant case of the appellant, the principle of mutuality laid down in the cited decisions supra and the findings above on the entrance fee would render the rejection of their contention of non-taxability by the lower authorities to be contrary to law. The appellant is, therefore, eligible for refund of such tax collected without authority of law. 18. We observe that tax was paid on the entrance fee without collecting the tax amount from the new members. Though the first appellate authority has granted the benefit of a cum-tax computation of the entrance fee, it must be borne in mind that the tax liability was discharged before the re-computation allowed in the impugned order. It, therefore, does not alter the origin of the funds utilized for discharge of tax liability - viz. from the common funds of the appellant without recourse to the members who paid nothing more than the entrance fee. Moreover, entrance fees are fixed in the bye-laws without reference to tax leviable, if any, thereon. For both these reasons, it can be concluded that tax burden has not been transferred to the members from whom entrance fees were collected. Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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