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TMI Blog2019 (8) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... iness and profession, recognition of worthiness of all useful occupations, dignifying each Rotarian's occupation as an opportunity to serve society, application of the ideal of service in each Rotarian's personal, business and community life, exclusively for their members can clearly be considered as service being provided by the respondents to its members. From the inclusive definition of the term 'consideration' it can decisively be construed that the membership fee collected by the club from members is not only meant for meeting administrative expenses, but is also towards setting high ethical standards in business and profession, recognition of worthiness of all useful occupations, dignifying each Rotarian's occupation as an opportunity to serve society, application of the ideal of service in each Rotarian's personal, business and community life, exclusively for their members. Thus, any membership fee collected by the applicant from its members will definitely be understood as 'consideration' as the same has been paid for supply of services . Applicant has fulfilled both the conditions prescribed by Section 7 of the CGST Act; firstly that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression GST Act would mean CGST Act and MGST Act. 2. FACTS AND CONTENTION - AS PER THE APPLICANT Statement of relevant facts having a bearing on the question(s) raised 1) Rotary is an International organization having clubs in 216 countries engaged in humanitarian and charitable services. 2) These services are executed through various districts comprising of many Clubs. 3) In order to facilitate the meetings and administration, fees are collected from members. 4) These amounts are then used for administration and meetings. 5) In some cases the amount so collected is likely to exceed ₹ 20 lacs, being the threshold for registration under GST Act, 2017. Clarificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ojects already executed or underway are also discussed to keep a tab on the progress of a project or to ascertain the benefit that a particular project is yielding. These contributions collected are spent by the end of the year and generally there is a deficit which is then borne by the Office Bearers for the said year in question or Members from their pockets for the weekly meetings or a meagre surplus. The Admin Account is being managed as if it is purely an agent of the members and no actual service is being extended to the members. Furthermore, on perusal of the Constitution Bye-Laws (the same shall be produced at the time of the personal hearing), it clearly indicates that the administration and working of the Association and Implementation of policies are established and are implemented on the concept of mutually. Each member is equally represented with individual Identity and status thereby, establishing the fact of complete transparency i.e. the Identity between the contributors and the participators of the Association and Foundation. For the purposes of the accounting of the said affairs of the Administration Account, the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Administrative Account and generally each year is a deficit. The purpose of holding the said meetings as per the Club is as under: All the meetings conducted would be to promote the Five Avenues of Service being Club Service, Vocational Service, Community Service, International Service New Generations viz. to promote charity and overall well being of society. Further, the collection of the sums against the reimbursement of the expenses is being done as per following understanding: The budget for the forthcoming year shall be prepared by the incoming president in consultation with his team of board members and placed before the Members for approval. Based on the approval towards the budget for the following year, the annual reimbursement charges to be recovered from each member will be finalised which would then be formally communicated to each member to remit. The said reimbursement would include the reimbursement towards payment for RI per capita dues, a subscription to The Rotarian or a Rotary regional magazine, district per capita dues, towards the meetings, and any other Rotary or district per capita assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed are spent by the end of the year and generally there is a deficit which is then borne by the Office Bearers for the said year in question or Members from their pockets for the weekly meetings or a meagre surplus. The Admin Account is being managed as if it is purely an agent of the members and no actual service is being extended to the members. For the purposes of the accounting of the said affairs of the Administration Account, the year is followed from 1st July to 30th June of the following year. In the context of GST, definition of persons is provided u/s.2(84) of the CGST Act, 2017. As per said definition, there is no deeming fiction to treat association and member as different persons. Hence, in our humble opinion, the key condition to tax a transaction u/s.7(1)(a), that supplier and recipient must be different, is not satisfied. Hence the transaction of providing services by an association to its members should not be taxed u/s.7(1)(a). Earlier in service tax regime, courts, in several cases held that in absence of deeming fiction, treating club/association its member as distinct person, service tax shall not be payable. Thereafter to nullif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emselves. There is no other commercial consideration whatsoever. Going with principal of mutuality, two distinct persons are missing. Even in case of a visiting guest at the meetings, estimated amount of expense recovered from the Guest in the form of Guest Fees, thus ensuring the collections on this account are spent entirely on the members only. Since, there is no commercial consideration involved in the process, just that the funds are collected in a common pool for meeting the expenses for the weekly meetings and other petty expenses incurred in meeting the common objective of betterment of society. The amount being collected from the members is reimbursement of expenses or share of contribution. We do not function on commercial basis. Hence we are not recovering any taxes including GST on the contribution being recovered from them. The common pool is being spent back on the members only. In absence of two distinct persons and also in absence of consideration, as defined under the Act, in our opinion, contributions received from the members in the Administration Account would not qualify as a Supply within the meaning of the term, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves. In the case of CIT vs. Bankimpur Club Ltd. 226 ITR 97 = 1997 (5) TMI 392 - SUPREME COURT also the Hon ble Court discussed the principles of mutuality and at page 103 held as follows: It should be noticed that in the case of a mutual society or concern (including a member s club), there must be complete identity between the class of contributors and the class of participators. The particular label or form, by which the mutual association is known is of no consequence. The said principle which has been laid down in the leading decisions and emphasized in the leading English text books mentioned above, has been explained with reference to Indian decisions in The Law and Practice of Income tax (English edition Volume 1, 1990) by Kanga and Palkhiwala at page1113 thus: .The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each number should contribute to the common fund or that each memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all the facilities or benefits to its members From the above definition it is clear that for getting satisfied under the term business , there must be facilities or benefits to its members In case of Rotary Club, as we have discussed above, the members of the club come together only for social cause and there is neither furtherance of any business of benefits or facilities to the members. From the above it can be interpreted that, to satisfy the definition of Business , there must be some benefit/facility to its members. In our case there is no benefit facility to the members of the Rotary club, Further it can be seen whether the supply of services between club and its members is for a consideration. CONSIDERATION: It is worthwhile to refer to the definition of supplier as provided u/s.2(105) receipt as provided u/s.2(93). Both the definitions are reproduced below: Sec. 2(105) supplier in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities which are to be treated as supply of goods or as supply of services. It states in para 7 that supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of goods. A conjoint reading of the above provisions of the law implies that supply of services by an unincorporated association or body of persons (AOP) to a member thereof for cash, deferred payment or other valuable consideration shall be treated as supply of services. The above entry in schedule II is analogous to and draws strength from the provision in Article 366(29A)(e) of the Constitution according to which a tax on the sale or purchase of goods includes a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration. Following observations may be noted in reference to the above circular. a. Above circular has not considered the definition of supplier as well as recipient before taxing a transaction u/s.7(l)(a). There must be two different persons to tax a transaction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly or indirectly controls the other; vi) Both of them directly or indirectly controlled by a third person; vii) Together they directly or indirectly control a third person; or; viii) They are the member of the same family; b) The term person also includes legal persons; c) Persons who are associated in the business of one another that one is the sole agent or sole distributor or sole concessionaire, howsoever described, shall be deemed to be related.' On perusal of above list one can conclude that there must be two or more persons who can be considered as related owning to the above conditions. From the forgoing analysis we pray to submit that transaction between an association or club and its member will not be covered within the scope of supply Ws.7 of the CGST Act, 2017. Hence the same shall not be taxable. Comparative Analysis of the Purpose of Formation of the Lions Club vis-a-vis Rotary Club Lions Club Rotary Club of Mumbai Nariman Point Purpose: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Various activities taken for physically disabled students Distribution of school bags and school dress, school kits to needy students Eye checkup camps and vision related activities for the public. Rehabilitation of street beggars and distribution of various items to generate income like weighing scales Medical Checkup camps, Blood donation camps. Motivating leos for activity for the public. Distribution of Jaipur Foots to the handicapped. Ref. Page 9 of the AAR Order passed in the case of Lions Club) Medical Relief Projects: Annam (free food for the needy children), Blood checking for dialysis, Blood donation camp Hearing aids for children, Medical aid reimbursement Medical Camps (Nirog), Organ Donation awareness drive Donating Medical Equipment at Government Hospital, Contribution towards Polio Eradication Educational Projects: Restoration of school, Computer donation, Education assistance for kids with hearing disability, Literacy program for children, Awarding scholarships, Talent contest for mentally cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nisations or bodies for promotion of any of the aforesaid objects and, Any other object of general public utility. These activities are carried out by Rotary Club of Mumbai Nariman Point in separate entity being Rotary Club of Mumbai Nariman Point Charitable Trust which is registered and recognized u/s. 12A / u/s.80G of the Income Tax Act 1961 Charitable Trust and also registered with Charity Commissioner and recognized as such. 04. CONTENTION - AS PER THE CONCERNED OFFICER No written submissions have been made by the jurisdictional office. 05. HEARING The Preliminary hearing in the matter was held on 23.04.2019. Sh. Sheetalprakash Khandelwal, C.A. Sh. Aditya Nemani, C.A., appeared, requested for admission of their application. Jurisdictional Officer was not present. The application was admitted and called for final hearing on 02.08.2019, Sh. Sheetalprakash Khandelwal, C.A. Sh. Sh. Aditya Nemani, C.A. appeared, made oral and written submissions. Jurisdictional Officer Sh. Rahul Dhingra, Asstt. Commr. of CGST, Division - IX, Mumbai South Commissionerate also appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed together to be expended for meeting expenses forwarding to international rotary office for administrative expenses and only surplus, if any, is used for charitable activities. It has been submitted that the applicant and their members are not two distinct persons; there is absence of consideration in their case, and therefore contributions received from the members in the Administration Account would not qualify as a Supply within the meaning of the term, as defined under the Act. The entire submissions made by them are in defense of their contention that the fees etc. collected by them from members are not liable to GST and the principle of mutuality exists between the applicant and its members. The applicant has raised the following questions: 1. Whether contributions from the members in the Administration Account, recovered for expending the same for the weekly and other meetings and other petty administrative expenses incurred including the expenses for the location and light refreshments, amounts to or results in a supply, within the meaning of supply? 2. If answer to question no. 1 is affirmative, whether it wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is also towards setting high ethical standards in business and profession, recognition of worthiness of all useful occupations, dignifying each Rotarian's occupation as an opportunity to serve society, application of the ideal of service in each Rotarian's personal, business and community life, exclusively for their members. Thus, any membership fee collected by the applicant from its members will definitely be understood as 'consideration' as the same has been paid for supply of services Applicant has fulfilled both the conditions prescribed by Section 7 of the CGST Act; firstly that such supply is made by them in lieu of consideration and secondly, such supply has been made in the course or furtherance of business since the term business includes provision by club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members. Thus, both the conditions stipulated for 'supply' under the GST Laws having been adequately fulfilled leads to the conclusion that transaction between the applicant its members are nothing but supply, and accordingly will attract G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER (Under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) NO.GST-ARA-142/2018-19/B-88 Mumbai, dt. 13/08/2019 For reasons as discussed in the body of the order, the questions are answered thus - Question 1:- Whether contributions from the members in the Administration Account, recovered for expending the same for the weekly and other meetings and other petty administrative expenses incurred including the expenses for the location and light refreshments, amounts to or results in a supply, within the meaning of supply? Answer:- Answered in the affirmative. Question 2:- If answer to question no. 1 is affirmative, whether it will be classified as supply of goods or services? Answer:- It will be classified as supply of services Question 3:- Whether the applicant would be a Taxable Person under the provisions of the Act? Answer:- Answered in the affirmative, subject to provisions of Section 22 of the GST Act. Question 4:- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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