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TMI Blog2020 (2) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... (8) TMI 819 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA. Brief Facts of the Case 1. "Rotary" is an International organization having clubs in 216 countries engaged in humanitarian and charitable services. These services are executed through various districts comprising of many Clubs. In order to facilitate the meetings and administration, reimbursements are collected from members. These amounts are then used for administration and meetings. In some cases, the amount so collected is likely to exceed Rs. 20 lacs, being the threshold for registration under GST Act, 2017. 2. Clarification as regard to "Nature of Reimbursements". 3 There are three administrative layers; i) Clubs in Rotary (like that of the appellants). ii) District of Rotary: Comprises of many clubs, normally 100 & above where district policies for the clubs are formulated. iii) Avenues of District: Comprises of various member from Rotary fraternity, who are head of various committees that conduct social activities. 4. Receipts of Rotary Club can be broadly divided into following categories: - i). Club receiving Reimbursements from its members: These are purely collected to defray its expenditure on meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-Laws, 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. 10. 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. 11. Office Bearers are all holding Honorary Posts and are holding such posts for a period of only 1 year, hence their address keeps changing each year. Our address, for correspondence is also office of another Honorary Office Bearer who has allowed us to use his address for communication. 12. Rotary International and all its member clubs are required to maintain two separate bank accounts, one for administrative expenses and other for donations/charity. The receipts in donations/charity account are used exclusively for the purpose of donation/charity and no amount IS utilized for administration purposes. 13. The receipts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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. 20. Appellants decided to seek advance ruling about taxability or otherwise under the Act, of contributions received from the members in the Administration Account for expending the same for the weekly and other meetings and other petty administrative expenses. 21 Accordingly, on 2903.2019 appellants filed application for advance ruling u/s.97 of the Central Goods and Services Tax Act, 2017, seeking an advance ruling in respect of 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 will be classified as supply of goods or services? 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether 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 - If answer to question no. 3 is affirmative, who shall be person responsible under GST, as office bearers keep on changing every year? Answer - The applicant is liable to pay GST and not the office bearers. Question 5 - Whether the said collection of funds under common pool and spending back the same on said contributors, would entail 'supply' as defined in the law? Answer - Answered in the affirmative. Question 6 - If answer to Question No. 5 is affirmati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt rendered in the case of Commissioner of Income Tax, Kanpur & Ors. Vs. Society for The Promn. Of Edn., Allahabad (Civil Appeal No.1478 of 2016 SLP(C) No.9705 of 2009]; Order dt 16.02.2016) = 2016 (2) TMI 672 - SC ORDER. A.6 The issue in this appeal was related to deemed registration of an application u/s.12AA of the Income Tax Act' 1961 since the same was not responded to within the statutorily prescribed period of 6 months from the date of application. The Hon'ble Allahabad High Court had held in this case that under said circumstances, it would be taken that the application is (deemed) registered under the said provisions. The Hon'ble Allahabad High Court had held that the registration of the said petitioner would be deemed to have been granted since the Income Tax Department failed to act within the prescribed time line to examine and grant or reject its application for the said registration. The Hon'ble Supreme Court has concurred with the decision of the Hon'ble Allahabad High Court and dismissed the appeal of the Income Tax Department. A.7 To lend support to the same, we are reproducing the provisions of section 12AA(2) of the Income Tax Act' 1961 which reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are being collected merely to spend back on the members themselves. 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 at cost are recovered from the Guest in the form of Guest Reimbursements, thus ensuring the collections on this account are spent entirely on the members only. B.2 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 and there is no business or other activity that the Appellant is engaged in. Hence, we are not recovering any taxes including GST on the contribution being recovered from them. B.3 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 interpretation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lves to a fund which could only be expended or returned to themselves. B.8 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 page 113 thus: The contributors to the common fund and the participators in the surplus must be an identical body. That does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus precisely what he was paid "The Madras, Andhra Pradesh and the Karnataka High Court hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub, 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. D.3 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. E. No GST applicable since there is no Consideration involved E.1 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 acting as such on behalf of such supplier in relation to the goods or services or both supplied Sec. 2(93) "recipient" of supply of goods or services or both, means. - (a) Where a consideration is payable for the supply of goods or services or both, the person to who is liable to pay that considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment or other valuable consideration shall be treated as supply of services. The above entry in schedule Il 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." E.4 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(1)(a). There must be two different persons to tax a transaction under said provision. Merely because an association of person has been included as person u/s.2(84) does not imply that members of such association are different persons. b. Circular has invoked the concept of deemed sale as provided under Article 366(29A) of the Constitution. It must be noted that clause (e) of said Article only enables to tax supply of goods by an association to its members as deemed sale. It does not enable to tax supply of service as a deemed service. Even para 7 of Sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove conditions. PRAYER In view of the foregoing, it is respectfully prayed that this Hon'ble Appellate Authority may be pleased to: (a) set aside the Order No. GST-ARA-142/2018-19/B-88 dated 13.08.2019 = 2019 (8) TMI 819 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA passed by the Hon'ble Advance Ruling Authority, Maharashtra State, Mumbai (to the extent it is against the appellants) and allow the present appeal in full with consequential relief to the appellants; (b) order that transaction between an association or club and its member will not be covered within the scope of supply u/s.7 of the CGST Act, 2017. Hence the same shall not be taxable; (c) grant a personal hearing/ grant an out of turn hearing; and (d) pass such other order or orders as may be deemed fit and proper in the facts and circumstances of the case. Personal Hearing 1. A personal Hearing in the matter was conducted on 09.12.2019, which was attended by Aditya B Nemani, on behalf of the Appellant, wherein he reiterated the written submissions, and relied upon various legal provisions and judicial pronouncement in support of their contentions. In the aforesaid hearing, the Department was represented by Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and other administrative expenses like printers, stationeries etc. They have categorically submitted that they do not provide any facility or benefit to any of its members against the said subscription or membership fee. Thus, on perusal of the above submissions, it is observed that the Appellant is not providing any specific facility or benefits to its members against the membership subscription charged by it, as the entire subscription amount is spent towards meetings and administrative expenditures only. Thus, we conclude that the Appellant is not doing any business as envisaged under section 2(17) of the CGST Act, 2017. 4. Now, once it has been established that the Appellant is not doing any business in terms of section 2(17) of the CGST Act, 2017, it can be deduced that activities carried out by the Appellant would not come under the scope of supply as envisaged under section 7(1) of the CGST Act, 2017. 5. On the contrary, if we hold the impugned activities of the Appellant to be supply, then the membership fee collected by the Appellant, which is purely in the nature of a reimbursement for the meetings and administrative expenditures incurred by the Appellant to sustain ..... 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