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TMI Blog2023 (3) TMI 1268X X X X Extracts X X X X X X X X Extracts X X X X ..... any cause for doubting the propositions laid down in Trivandrum Club and dismissed the appeal preferred by Lotus Club by following the decision in Trivandrum Club, we cannot read the observations of the Division Bench in Lotus Club as having laid down the proposition that the incidence of tax under the KTL Act is on the person enjoying the luxury and not on the proprietor who provides the luxury. Similarly, the observation of the division bench of this court in M/s Madhavaraja Club [ 2013 (2) TMI 614 - KERALA HIGH COURT ] that the doctrine of mutuality is relevant only for the purposes of the Income Tax Act and is not apposite in the context of the KTL Act cannot be seen as laying down the correct law in the light of the subsequent judgment of the Supreme Court in Calcutta Club Ltd [ 2019 (10) TMI 160 - SUPREME COURT ] where the doctrine of mutuality was held applicable in the context of legislations regulating the levy of indirect taxes such as VAT and Service Tax - the principle recognised in Calcutta Club Ltd, that the absence of two distinct persons to a transaction viz. a supplier/provider of goods/ services/ amenities/ luxuries and a recipient thereof, makes the transaction a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be fastened with any tax liability under the KTL Act on the amounts collected from its members for providing them rooms/auditoriums on rent or other amenities against specified charges. 2. The mutuality principle recognises that if persons carry on a certain activity in such a way that there is a commonality between contributors of funds and participators in the activity, a complete identity between the two is then established. This identity is not snapped because the surplus that arises from the common fund is not distributed among the members. It is enough that there is a right of disposal over the surplus and in exercise of that right they may agree that on winding up, the surplus will be transferred to a club or association with similar activities. The surplus that is made does not come back to the members of the club as shareholders of a company in the form of dividends upon their shares. Since the members perform the activities of the club for themselves, the fact that they incorporate a legal entity to do it for them makes no difference (See: State of West Bengal v. Calcutta Club Ltd ((2019) 19 SCC 107 @ p.144)). THE ARGUMENTS OF COUNSEL: 3. The argument of Sri. Har ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the KTL Act is not the act of providing the luxury but the enjoyment of luxury , the levy cannot be affected by the principle of mutuality as laid down by the Supreme Court in Calcutta Club Ltd. WHAT THE LAW SAYS: 5. When construing the provisions of any taxing statute, it is useful to keep in mind the test that is often applied by courts to determine whether the tax in question is one that is backed by the authority of law viz. that for a levy to exist in point of law four components must exist the nature of the tax which prescribes the taxable event, the person on whom the levy is to be imposed, the rate of the tax and the measure or value to which the rate will be applied (See: Govind Saran Ganga Saran v. CST [AIR 1985 SC 1041]). The test, when applied, provides the answers to four cardinal questions viz. (i) what is the taxable event or the event that attracts the tax? (ii) who has to pay the tax? (iii) how much tax has to be paid? and (iv) how does one pay the tax? The answers to the above questions must be found in the taxing statute concerned for, in the absence of a clear charge or machinery to levy and assess tax in the primary legislation, the imposition of tax cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he person who is made responsible under the Act to register himself, collect the tax from the person who enjoys the luxury, pay the applicable tax to the government exchequer along with the filing of his returns and subject himself to an assessment under the Act. It is against the backdrop of the said scheme of the KTL Act that we have to consider the issue as to whether, when a membership club provides a luxury to its member, the doctrine of mutuality will apply to insulate the club and its member from the levy of tax under the Act? 8. The issue of whether membership clubs, whether incorporated or not, would be liable to sales tax on the supply of goods to their members came up for consideration before the Supreme Court in State of West Bengal v. Calcutta Club Ltd [(2019) 19 SCC 107]. After an exhaustive survey of the Indian and English law on the doctrine of mutuality it was held as follows @ para 32 of the judgment: [I]t is clear that if persons carry on a certain activity in such a way that there is a commonality between contributors of funds and participators in the activity, a complete identity between the two is then established. This identity is not snapped because the surp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for another for consideration. We have seen how in the judgment relating to sales tax, the fact is that in members clubs there is no sale by one person to another for consideration, as one cannot sell something to oneself. This would apply on all fours when we are to construe the definition of service under S.65-B (44) as well. 11. The legal position that emerges for our purposes is that, in the case of members clubs, by virtue of the doctrine of mutuality that applies, the supply of goods/services/amenities/luxuries by the club to its members will not attract the levy of tax because there is no supply effected by one person to another for consideration. The absence of two distinct persons to a transaction viz. a supplier/provider of goods/services/amenities/luxuries and a recipient thereof, makes the transaction a supply to oneself, which cannot be taxed under the statute. It is also significant that under the KTL Act, there is no express provision, save Section 4 (2A) thereunder, that provides for a levy of tax on the providing of a luxury by a members club to its members. In the absence of such an express provision, the doctrine of mutuality that otherwise governs the transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of legislative competence of the respective legislatures while imposing the levy of luxury tax. It was in that context that the Supreme Court found that the levy of luxury tax was on the enjoyment of the luxury and hence, even if the incidence of tax was on the turnover of stock of luxuries or on the admission of cars/motor vehicles inside the drive in theatre , as the case may be, in pith and substance, the levy of tax was on a luxury and therefore within the competence of the respective legislatures to levy, as Entry 62 of List II under the Seventh Schedule to the Constitution authorised the levy of Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling. To the same effect is the judgment of the Division Bench of this court in Asianet Satellite Communications Ltd v. State of Kerala [2010 (3) KLT SN 22 (C.No.29)] as also the judgments of the Supreme Court in Express Hotels and Purvi Communication [supra]. The observations of the court in the said judgments cannot have the effect of altering the taxable event under the Kerala Tax on Luxuries Act, the charging provision of which is specific when it states that the levy of tax is on luxury provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : O.T Revision No.97 of 2017 is preferred by M/s Madhavaraja Club impugning the order of the Kerala Value Added Tax Appellate Tribunal that confirmed an assessment order passed against it by the assessing authority under the KVAT Act for the assessment year 2012-13. In O.T Revision.No.98 of 2017, the same assessee impugns the order of the Kerala Value Added Tax Appellate Tribunal that confirmed an assessment order passed against it by the assessing authority under the KVAT Act for the assessment year 2013- 14. Significantly, the assessee M/s Madhavaraja Club did not take a contention based on the mutuality principle at any stage before the lower authorities. There is no question of law based on the mutuality principle raised in the O.T. Revisions before us either. Despite that, however, we feel that since there has been a subsequent declaration of the law by the Supreme Court in State of West Bengal v. Calcutta Club Ltd. - [(2019) 19 SCC 107], that will have a bearing on the KVAT assessments completed against the petitioner club for the assessment years 2012-13 and 2013-14 that are covered in these O.T. Revisions, the matter requires to be re-adjudicated afresh by the assessing aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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