Appellant, Cosmpolitan Club, is incorporated under Section 26 of the Companies
Act, 1913. The said Club is in appeal against the judgment and order dated 5th December,
2001, of a Division Bench of Madras High Court, whereby it was held that the appellantwas
liable to pay sales tax under the Tamil Nadu General Sales Tax Act, 1959, on the supplies of
food and drinks to its members.
The main contention on behalf of the appellant is that when a members' club
supplies food or drinks to its members, there is no sale because a members' club only acts as
the agent of the member. Reliance is placed in this behalf upon the judgments of this Court
in Secretary, the Madras Gymkhaba Club Employees Union Vs. Management of the
Gymkhana Club (1969) 1 SCR 742 and Joint Commercial Taxes Officer, Harbour Division-II,
Madras Vs. Young Men's Indian Association (1970) 1 SCC 462. In the former case it was held
that a club belongs to the members for the time being on its list of members. Thus, members
can deal with the club as they
like. A club is identified with its members at a given point of time, so that it cannot be said
that a club has an existence apart from its members. Even more relevant to the issue is the
decision in the case of Young Men's Indian Association (1970) 1 SCC 462 which dealt with
the very question, namely, “whether the supply of various preparations by each club to its
members involves a transaction of sale? It was held, based upon the definition of “sale” in
the Sale of Goods Act, 1930, that there was no sale exigible to tax “if there is no transfer of
property from one to another...If the club, even though a distinct legal entity, is only acting as
an agent for its members in matter of supply of various preparations to them, no sale would
be involved as the element of transfer would be completely absent”.
In this case the show cause notice was issued to the Club on 10th March, 1993 in
which it was, inter alia, alleged that after the amendment of Act 28 of 1984 by insertion of a
new clause (v) to Section 2(n) of the said 1959 Act, supply of goods by any unincorporated
association or body of a persons to a member thereof for cash, deferred payment or other
valuable consideration, shall also be deemed to be sales.
To complete the chronology of events, it may be further stated that the said show
cause notice was challenged in 1993 by the Club by filing a Writ Petition in the High Court
which came to be later transferred to the Tribunal. The Tribunal dismissed the matter on
merits. That decision of the Tribunal has been
confirmed by the impugned judgment. Suffice it to state that in this case there was no
determination by the fact finding authorities regarding the relationship between the Club and
its members in the matter of supply of food and drinks; that is to say, was the Club acting as
an agent of the members or did the property in food and drinks pass from the Club to the
members?
At this stage it may be mentioned that after the judgment of the High Court
dismissing the Writ Petition, the Assessment Order was passed against which the Club has
preferred an appeal before the First Appellate Authority which has also dismissed this appeal
and as of today the matter, being T.A.No. 17 of 2000, is pending before the Tribunal.
In the circumstances, we think it appropriate that the matter should go back to the
Tribunal, who will decide, on facts, as to the exact relationship between the parties in the
matter of supply by the Club of food and drinks to its members. In other words, the
principle of mutuality and agency among other circumstances shall be gone into by the
Tribunal before which the said appeal is pending.
At this stage it may be noted that the Department is also relying upon clause (vi)
inserted to Section 2(n) of the 1959 Act. All these amendments have been brought on the
statute book in view of the 46th Amendment of the Constitution. We grant liberty to both
sides to add by way of amendment any ground open to them in law in the pending appeal
before the Tribunal. All contentions
that are available to both the sides are expressly kept open and they may raise the same before
the Tribunal. The Tribunal shall decide the said appeal without reference to the impugned
judgment of the High Court which is under appeal.
We express no opinion on the merits of the matter. The judgment under appeal is
set aside and the matter is remitted to the Tribunal to decide the pending appeal in
accordance with law and in accordance with the directions given hereinabove. Subject to
above, the Civil Appeal is disposed of with no order as to costs.
September 25, 2008 [ B. SUDERSHAN REDDY ]
CIVIL APPEAL NO.6064 OF 2008
(Arising out of SLP(C) No. 6296 of 2004)
Leave granted.
This matter is a sequel to our Order delivered today in the case of Cosmopolitan
Club Vs. The State of Tamil Nadu & Ors. (Civil Appeal No. 3950 of 2002).
For the reasons given in our order delivered today, we grant liberty to the appellant
(assessee) to prefer an appeal against the Order passed by the Assessing Officer dated 28th
November, 2003 (Annexure P-2). Such appeal would be filed within a period of four weeks
from today. It is made clear that the appeal shall be decided on merits. It will not be
dismissed on the ground of limitation. All other directions given in our Order in
Cosmopolitan Club shall equally apply to the facts of the present case.
The Civil Appeal is allowed accordingly with no order as to costs.
September 25, 2008 [ B. SUDERSHAN REDDY ]