Custom, Excise & Service Tax Tribunal
M/S The Cricket Club Of India Ltd vs Commissioner Of Service Tax, Mumbai I on 6 June, 2012
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
COURT NO. II
APPEAL NO. ST/20/09 Mum
(Arising out of Order-in-Appeal No. YG (19)19/STC/2008 dated 29.10.2008 passed by the Commissioner of Central Excise (Appeals), Mumbai I.)
For approval and signature:
Honble Shri Ashok Jindal, Member (Judicial)
Honble Shri P.R. Chandrasekharan, Member (Technical)
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
M/s The Cricket Club of India Ltd.
:
Appellant
Versus
Commissioner of Service Tax, Mumbai I
Respondent
Appearance Shri Vipin Kumar Jain, Advocate for appellant Shri V.K. Singh, Addl. Commissioner (A.R.) For Respondent CORAM:
Shri Ashok Jindal, Member (Judicial) Shri P.R. Chandrasekharan, Member (Technical) Date of Hearing : 06.06.2012 Date of Decision : ORDER NO.
Per Ashok Jindal The appellant namely Cricket Club of India Ltd. (CCI in short) has filed this appeal against the order of rejection of their refund claim of Rs.1,00,93,292/-, paid under protest, towards service tax along with interest for the period 16.6.2005 to 31.01.2006 on the membership entrance fee of the club at the time of admission stage.
2. Before the hearing took place, the Member (Judicial) declared that he has applied for service membership of the appellant club and if either of the parties have any objection then the Member (Judicial) may bar with the hearing of the appeal but both the sides expressed their faith in Member (Judicial) and had no objection for hearing the appeal as there is no conflict of interest. Therefore, the appeal is taken up for hearing.
3. Brief facts of the case are that the appellant filed a refund claim of the amount which was paid under protest on entrance fees collected by the appellant from their members during the period 16.06.2005 to 30.01.2006 for membership of the club at admission stage. As the Revenue was of the view that the said activity is covered under the category of Club & Association Service as per Section 65 (105) (zzze) of Chapter V of the Finance Act, 1994 therefore, the refund claim was rejected. Aggrieved from the said order the appellant is in appeal before us.
4. Shri V.P. Jain, learned Counsel for the appellant appeared and submitted that the appellant is a Company incorporated under the provisions of Indian Companies Act, 1913 as a company limited by guarantee having no share capital. These types of companies are governed by the provisions of Section 25 of the Companies Act, 1956, which applies to entities incorporated for charitable and other social purposes, having no profit motive. Its main objects as set out in the Memorandum of Association are to encourage and promote the game of cricket in India as also to provide other ancillary facilities including refreshments, rooms for stay and other health catering facilities. Its membership consists of Life Members, Ordernery Members, Service Members and certain other categories of Members. The facilities available in the Club are available only to Members or Members guests.
4.1 He further submitted that this Club is a Members Club which is distinct from a proprietary club. This is evident from Clause 6 of its Memorandum of Association which reads as under:-
If upon the winding-up or dissolution of the Club, there remains after the satisfaction of all debts and liabilities any property whatsoever, the same shall be paid to or distributed among the Members of the Club in equal shares. As per the above provision, there is a complete mutuality of interest between the Members of the Club and the Club. The appellant, before granting membership, calls upon prospective members to deposit membership fee based on the category of membership applied for. If the candidature of the said member person is accepted and membership is granted, the said money is appropriated towards membership fee otherwise the same is refunded back.
4.2 In the year 2005, the activity of Club and Association was first time introduced under the taxable services under Heading Club or Association Services. On the basis of introduction of Club and Association Services into the service tax net with effect from 16.6.2005, enquiries were made by the Superintendent, Tax Group XIV, Mumbai. It was found that the appellant has not discharged service tax on the entrance fee which had collected from its prospective members who subsequently made members of the Club and the said amount has been appropriated towards the membership fee during 16.6.2005 to 31.01.2006. Therefore, the appellant was asked to pay the service tax on the said amount during the said period. The appellant on 27.02.2006, paid the service tax under protest along with interest on the amount of entrance fee collected from its members. As the appellant was of the view that the service tax is not leviable on the membership fee collected from the members therefore, a refund claim was filed. A show-cause notice was issued for adjudication of the refund claim and the same was rejected on the premise that the activity is squarely covered under the category of Club or Association Services. The main contention of the appellant is that the collection of membership fee from the members of the Club is not leviable to service tax under the category of Club or Association Services on the principle of mutuality of interest.
4.3 The learned Counsel mainly relied on the decision of the Honble High Court of Jharkhand in the case of Ranchi Club Ltd. vs. CCE & Service Tax, Ranchi Zone 2012 (26) STR 401 (Jhar.). He also relied on the decisions of the Honble High Court of Calcutta in the case of Saturday Club Ltd. vs. Commissioner of Service Tax Cell, Calcutta 2005 (180) ELT 437 (Cal.) and Dalhousie Institute vs. Commissioner of Service Tax Cell 2006 (3) STR 311 (Cal.). In these matters it was held that members club are no different from their members and that members and club are same entity and that for levy of service tax, there should be in existence of two sides / two entities. Since they are same entity, therefore, no service tax is leviable. He also relied on the decision of this Tribunal in the case of Breach Candy Swimming Bath Trust vs. CCE 2007 (5) STR 146 (Tri-Mumbai), India International Centre vs. Commissioner of Service Tax 2007 (7) STR 235 (Tri. Del.), Dehradun Club Ltd. - 2007 (7) STR 519 (Tri Del) and Phase 1 Events and Entertainments Pvt. Ltd. - 2008 (12) STR 174. He strongly relied on the decision of the Honble Apex Court in the case of Young Mens Indian Association - AIR 1970 SC 1212. In the case of Young Mans India Association the Honble Apex Court has discussed and recorded that the appellants club is a members club and is functioning on the principle of mutuality in CA No. 10194/95 CA No. 3382/97 wherein it was held that income received by the club from letting out its property to its members was exempt by applying the principle of mutuality. The said decision was discussed by the Honble Apex Court in the case of Royal Western India Turf Club 1953 (21) ITR 31. Therefore, he submitted that the appellants are entitled for the refund claim filed by them as the doctrine of mutuality of interest applies to this case. With regard to doctrine of unjust enrichment, he submitted that the said issue has been dealt with by the lower appellate authority and after considering the issue has given tax-cum benefit which implies that the applicant has passed the burden of unjust enrichment. Therefore, the impugned order has to be set aside and the appeal be allowed with consequential relief.
5. On the other hand, the contention of the learned Counsel was strongly opposed by Shri V.K. Singh, learned A.R. appearing on behalf of the Revenue and he submitted that if the principle of mutuality is applied, the entry relating to Club or Association Services would become redundant. He further submitted that the provision for imposing service tax under Club or Association Services are clearly defined in the Finance Act which clearly says that Club or Association means any person or body of persons providing services, facilities or advantages, for a subscription or any other amount, to its members and the appellants are not covered under the excluding part of the definition therefore when the provisions are cleared for levy of service tax on the services provided by the Club to this Members the service tax has rightly been paid by the appellant. He further submitted that when the provisions are clearly spelt in the statute book therefore, there is no need to go in the reference of the case laws cited by the learned Counsel. Hence the appeal be dismissed.
6. In a rejoinder the learned Counsel submitted that the entry relating to the Club or Association Service would not be rendered redundant as all clubs or associations do not function on the principle of mutuality of interest as there are members Club as well as proprietary clubs. Principle of mutuality applies to members club only and in respect of such members only who have rights over the clubs assets. In the case of proprietary clubs, the members of the club do not have rights over the assets of the club. In the appellants own case, the service provided to the members other than the life member, ordinary members or corporate members are liable to service tax as the services rendered to those members by the Club are two different entities.
7. Heard both the sides and considered their submissions.
8. After hearing both the sides, we find that it is an admitted fact that the provisions of Club or Association Services is liable to service tax on the services provided by a club or Association to its members. The appellant has sought exemption for paying service tax on the services provided to its members on the principle of mutuality i.e. the only dispute before us.
8.1 We have examined the definition of Club or Association Service which has been defined as under:-
club or association means any person or body of persons providing services, facilities or advantages, for a subscription or any other amount, to its members, but does not include
(i) Any body established or constituted by or under any law for the time being in force; or
(ii) Any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or
(iii) Any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or
(iv) Any person or body of persons associated with press or media;
8.2 As per the said provision, any service provided by club or association to its members against subscription or any other amount is liable to service tax. Same has not been disputed by the appellant. The only contention of the appellant is that as the appellant Club is a Member Club and registered as a Company is governed by the provisions of Section 25 of the Companies Act, 1956, which applies to the entities incorporated for charitable and other social purposes, having no profit motive. The appellant is a company registered under Companies Act, 1956. As per Clause 6 of the Memorandum of Association, it is clarified that in case of winding up or dissolution of the Club, after satisfies the debts and liabilities if any property remains that shall be paid or distributed among the Members of the Club in equal shares. In the Articles of Association of the appellant Member has been defined in Clause 8 namely Life Members, Ordinary Members, Temporary Members, Short Term members, Sports Members, Service Members, Honorary Members, Corporate Members and class of Members provided for under Article 28 and for the purpose of Clause 5 & 6 of Memorandum of Association the Member means a Patron, Vice Patron, Founder Member, Life Member, Ordinary Member, Corporate Member, Short Term Member and Temporary Member. From the above said Articles and Memorandum of Association of Club, it is clear that Honorary Patron, Honorary Member, Sports Member, Service Member, Playing Member and Gymkhana Member are not the members for the Clause VI of Memorandum of Association who are having the rights over the properties of the Club in case of winding up or dissolution. From the above discussion it is clear that the life member, Ordinary Member, Corporate Member are having mutual interest in the properties of the Club/ or the owners of the Club. In case of Ranchi Club Ltd. (supra) the Honble High Court of Jharkhand has dealt with the issue and in that case also the club was registered under the Companies Act, 1956, and was functioning on the principle of mutuality therefore it was held that in view of principle of mutuality, if club provides any service to its members, it is not a service by one legal entity to another and in the absence of there being two separate legal entities, there can be no levy of service tax. The relevant findings of the said decisions are reproduced here-in- as under:-
15. The question which was considered by the Honble Supreme Court in the case of Joint Commercial Tax Officer, Harbour Division-II, Madras v. The Young Mens Indian Association reported in 1970 (1) SCC 462 was that whether the supply of various preparations by each club to its members involve a transaction of sale within the meaning of Sales of Goods Act, 1930. Honble Supreme Court held that Thus in spite of the definition contained in Section 2(n) read with Explanation I of the Act if there is no transfer of property from one to another there is no sale which would be eligible to tax. 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. This position has been rightly accepted even in the previous decision of this Court.
16. The Honble Supreme Court held so after considering the English Law also and observed that the law in England has always been that members clubs to which category the clubs in the present case belong cannot be made subject to the provisions of the Licensing Acts concerning sale because the members are joint owners of all the club property including the excisable liquor. The supply of liquor to a member at a fixed price by the club cannot be regarded to be a sale. If, however, liquor is supplied to and paid for by a person who is not a bona fide member of the club or h is duly authorized agent, there would be a sale. With regard to incorporated clubs a distinction has been drawn. Where such a club has all the characteristics of a members club consistent with its incorporation, that is to say, where every member is a shareholder and every shareholder is a member, no licence need to be taken out if liquor is supplied only to the members. If some of the shareholders are not members or some of the members are not shareholders, that would be the case of a proprietary club and would involve sale. Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club and then the Honble Supreme Court observed that above view was accepted by the various High Courts in India. The Honble Supreme Court, relying upon other judgments held that members club is only structurally a company and it did not carry on trade or business so as to attract the corporation profit tax. Therefore, in spite of specific inclusion of the club in the definition of the dealer in the Madras General Sales Tax Act, 1959 by providing an explanation to include the clubs which are selling or distributing the goods to its members for cash have been included in the definition of dealer and by Explanation I to Section 2(n) defining the sale the statutory provision was made to include any transfer of property by club to its members to be a sale for the purpose of the said Act, Honble Supreme Court categorically held that in absence of two, there cannot be transaction of transfer of property.
17. The Full Bench of Patna High Court in the case of writ petitioner itself i.e., in the case of Commissioner of Income Tax vs. Ranchi Club Ltd. (Supra), after finding that Ranchi Club is a limited company incorporated under the Indian Companies Act, considered the various clauses of the main objects of the club and relying upon various judgments, in paragraph 12 observed as under :-
18. Therefore, by applying the principle of mutuality Members Club always claim exemption in respect of surplus accruing to them out of the contributions received by the clubs from their members. But this principle cannot have any application in respect of surplus received from non-members. It is not difficult to conceive of cased where one and the same concern may indulge in activities which are partly mutual and partly non-mutual. True, keeping in view the principle of mutuality, the surplus accruing to a Members Club from the subscription charges received from its members cannot be said to be income within the meaning of the Act. But, if such receipts are from sources other than the members, then still can it be said that such receipts are not taxable in the hands of the club ? The answer is obvious. No exemption can be claimed in respect of such receipts on the plea of mutuality. To illustrate, a Members Club may have income by way of interest, security, house property, capital gains and income from other sources, But such income cannot be said to be arising out of the surplus of the receipts from the members of the club.
And answered the question in affirmative and questions referred were as under :-
(I) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the assessee club is a mutual concern?
(II) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that the income derived by the assessee club from its house property let to its members and their guests is not chargeable to tax ?
(III) Whether, on the facts and in the circumstances of the case, the Tribunal has rightly held that in the income derived by the assessee club from sale of liquor, etc., to its members and their guests is not taxable in its hands ?
19. However, learned counsel for the petitioner submits that sale and service are different. It is true that sale and service are two different and distinct transaction. The sale entails transfer of property whereas in service, there is no transfer of property. However, the basic feature common in both transaction requires existence of the two parties; in the matter of sale, the seller and buyer, and in the matter of service, service provider and service receiver. Since the issue whether there are two persons or two legal entity in the activities of the members club has been already considered and decided by the Honble Supreme Court as well as by the Full Bench of this Court in the cases referred above, therefore, this issue is no more res integra and issue is to be answered in favour of the writ petitioner and it can be held that in view of the mutuality and in view of the activities of the club, if club provides any service to its members may be in any form including as mandap keeper, then it is not a service by one to another in the light of the decisions referred above as foundational facts of existence of two legal entities in such transaction is missing. However, so far as services by the club to other than members, learned counsel for the petitioner submitted that they are paying the tax. 8.3 The Honble High Court has also considered the explanation to Section 65 which was introduced with effect from 1.5.2006 while arriving at the above decision, the same is read as under:-
For the purpose of this Section, taxable service includes any taxable service are to be provided by any unincorporated association or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration.
8.4 In the case of Saturday Club Ltd. (supra) and Dalhousie Institute (supra) the Honble High Court of Kolkata held that members club are no different from their members and that members and club are same entity and that for levy of service tax, there should be in existence of two sides / two entities as members and club are of same entities therefore no service tax is leviable. In the case of Young Mens Indian Association (supra) the Constitutional Bench of the Honble Supreme Court has dealt with the issue of Sale under the Madras Sales Tax Act, 1939 by the club to its members and wherein the provisions of Madras Sales Tax Act are read as under:-
sale with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of business for cash for deferred payment or other valuable consideration.. Explanation I. The transfer of property involved in the supply or distribution of goods by a society (including a cooperative society) club, firm or any association to its members, for cash, or for deferred payment, or other valuable consideration, whether or not in the course of business shall be deemed to be a sale for the purpose of this Act. 8.5 Thereafter the Honble Apex Court has held as under:-
6. The Cosmopolitan Club, Madras, which had been paying tax since 1939 filed a petition under Article 226 of the Constitution which was disposed of by Mack J., in Cosmopolitan Club, Madras v. District Commercial Tax Officer, Triplicane, MANU/TN/0306/1952 : AIR1952Mad814 . According to the learned Judge the supply of refreshments in a members' club purchased out of the club funds and composed of members' subscription was not a transfer of property from the club as such to a member nor did the club do any trade or business in purchasing from outside the requirements of members and supplying the same to them at a fixed charge. The levy of sales tax on such supply of refreshments was held to be illegal. A division bench to whom an appeal was taken confirmed the above judgment (Deputy Commercial Tax Officer, Triplicane Division, Madras v. The Cosmopolitan Club, I.L.R. [1955] Mad. 1042. The definition of "dealer" in Section 2(g) of the Act is in the following terms:
dealer" means any person who carried on the business of buying, selling, supplying or distributing goods, directly or otherwise whether for cash or for deferred payment or for commission, remuneration or other valuable consideration and includes--
(i)...
(ii) ...
(iii) ...
(iv)...
Explanation-I. A society including a cooperative society, club or firm or an association which, whether or not in the course of business, buys, sells or distributes goods from or to its members for cash or for deferred payment or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purpose of this Act;
Explanation II...
The definition of sale as given in Section 2(n) reads :
sale" with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of business for cash or for deferred payment or other valuable consideration..."
Explanation I. "The transfer of property involved in the supply or distribution of goods by a society (including a cooperative society) club, firm or any association to its members, for cash, or for deferred payment, or other valuable consideration, whether or not in the course of business shall be deemed to be a sale for the purpose of this Act".
Turnover" is defined to mean :
the aggregate amount for which goods are bought or sold or supplied or distributed by a dealer either directly or through another on his own account or on account of others whether for cash or for deferred payment or for other valuable consideration..."
7. It is common ground that for the levy of sales tax there must be a sale of refreshments, beverages and other preparations by the club to its membeRs. If there is no transfer of property involved in the supply or distribution of goods by a club it would not fall within Explanation I contained in the definition of sale in Section 2(n) nor can the club be regarded as a dealer within Section 2(g) read with Explanation I.
8. The law in England has always been that members' clubs to which category the clubs in the present case belong cannot be made subject to the provisions of the Licensing Acts concerning sale because the members are joint owners of all the club property including the excisable liquor. The supply of liquor to a member at a fixed price by the club cannot be regarded to be a sale. If, however, liquor is supplied to and paid for by a person who is not a bona fide member of the club or his duly authorised agent there would be a sale. With regard to incorporated clubs a distinction has been drawn. Where such a club has all the characteristics of a members' club consistent with its incorporation, that is to say, where every member is a shareholder and every shareholder is a member, no licence need be taken out if liquor is supplied only to the membeRs. If some of the shareholders are not members or some of the members are not shareholders that would be the case of a proprietary club and would involve sale. Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club. The supply to them of food or liquor though at a fixed tariff is a sale. (See Halsbury's Laws of England, 3rd Ed., Vol. 5, pp. 280-281.) The principle laid down in Graff v. Evans, [1882] 8 Q.B.D. 373 had throughout been followed. In that case Field J., put it thus :
I think the true construction of the rules is that the members were the joint owners of the general property in all the goods of the club, and that the trustees were their agents with respect to the general property in the goods".
9. The difficulty felt in the legal property ordinarily vesting in the trustees of the members' club or in the incorporated body was surmounted by invoking the theory of agency i.e. the club or the trustees acting as agents of the members. According to Lord Hewart (L.C.J.) in Trebanog Working Men's Club and Institute Ltd. v. Macdonald, [1940] 1 A.E.L.R. 454 once it was conceded that a members' club did not necessarily require a license to serve its members with intoxicating liquor it was difficult to draw any distinction between the various legal entities which might be entrusted with the duty of holding the property on behalf of members, be it an individual or a body of trustees or a company formed for the purpose so long as the real interest in the liquor remained in the members of the club. What was essential was that the holding of the property by the agent or trustee must be a holding for and on behalf of and not a holding antagonistic to members of the club.
10. In the various cases which came to be decided by the High Courts in India the view which had prevailed in England was accepted and applied. We may notice the decisions of the Madhya Pradesh High Court in Bengal Nagpur Cotton Mills Club, Rajnandangaon v. Sales Tax Officer Raipur and Anr., 8 S.T.C. 781 and of the Mysore High Court in Century Club and Anr. v. The State of Mysore and Anr., 16 S.T.C. 38. In the former it was held that the supply to the member of a members' club registered under Section 26 of the Indian Companies Act 1913 of refreshments purchased out of club funds which consisted of members' subscription was not a transfer of property from the club as such to a member and the club was not liable to sales tax under the C.P. & Barar Sales Tax Act 1947 in respect of such supplies of refreshment. The principle adverted to in Trebanog Working Men's Club(2) was adopted and it was said that if the agent or a trustee supplied goods to the members such supplies would not amount to a transaction of sale. The Mysore court expressed the same view that a purely member's club which makes purchases through a Secretary or manager and supplies the requirements to members at a fixed rate did not in law sell these goods to the members.
11. On behalf of the appellant reliance has been placed on a decision of this Court in Deputy Commercial Tax Officer and Anr. v. Enfiend India Ltd., MANU/SC/0304/1967 : [1968]2SCR421 . In that case the Explanation to Section 2(g) was found to be intra vires and within the competence of the State legislature. The judgment proceeded on the footing that when a cooperative society supplied refreshments to its members for a price the following four constituent elements of sale were present: (1) parties competent to contract; (2) mutual consent; (3) thing, the absolute or general property in which is transferred from the seller to the buyer and (4) price in money paid or promised. The mere fact that the society supplied the refreshments to its members alone and did not make any profit was not considered sufficient to establish that the society was acting only as an agent of its members. As a registered society was a body corporate it could not be assumed that the property which it held was the property of which its members were owners. The English decisions were distinguished on the ground that the courts in those cases were dealing with matters of quasi criminal nature.
12. It appears that in England even in taxation laws the position of a members' club though incorporated has been recognised to be quite different. In Inland Revenue Commissioners v. Westleigh Estate Co. Ltd., [1924] 1 K.B. 390; Same v. South Behar Railway Co. Ltd. and Same v. Eccentric Club Pollock M.R. dealing with the case of the Eccentric Club pointed out that the members' club was only structurally a company and it did not carry on trade or business so as to attract the Corporation Profits Tax.
13. The essential question, in the present case, is whether the supply of the various preparations by each club to its members involved a transaction of sale within the meaning of the Sale of Goods Act 1930. The State Legislature being competent to legislate only under Entry 54, List II of the 7th Schedule to the Constitution the expression "sale of goods" bears the same meaning which it has in the aforesaid Act. Thus in spite of the definition contained in Section 2(n) read with Explanation I of the Act if there is no transfer of property from one to another there is no sale which would be eligible to tax. If the club even though a distinct legal entity is only acting as an agent for its members in the matter of supply of various preparations to them no sale would be involved as the element of transfer would be completely absent. This position has been rightly accepted even in the previous decision of this Court.
14. The final conclusion of the High Court in the judgment under appeal was that the case of each club was analogous to that of an agent or mandatory investing his own monies for preparing things for consumption of the principal, and later recouping himself for the expenses incurred. Once this conclusion on the facts relating to each club was reached it was unnecessary for the High Court to have expressed any view with regard to the vires of the Explanations to Section 2(g) and 2(n) of the Act. As no transaction of sale was involved there could be no levy of tax under the provisions of the Act on the supply of refreshments and preparations by each one of the clubs to its members.
8.6 It is not in doubt that the appellant club is a member club as discussed by the Honble apex court in the case of appellant themselves arising out of CA No. 10194/95 CA No. 3382/97 wherein it was held that income received by the club from letting out its property to its members was exempt by applying the principle of mutuality.
8.7 The argument advanced by the learned A.R. that when the provisions are very much clear that any service provided by club or association to this member is liable to service tax will be redundant if the principle of mutuality is applied. This issue was also dealt with by the Honble High Court of Patna in the case of Commissioner of Income Tax vs. Ranchi Club Ltd. 1992 (196) ITR 137 (Patna) wherein the Honble High Court has held as under:-
Therefore, by applying the principle of mutuality members' clubs always claim exemption in respect of surplus accruing to them out of the contributions received by the clubs from their members. But this principle cannot have any application in respect of the surplus received from non-members. It is not difficult to conceive of cases where one and the same concern may indulge in activities which are partly mutual and partly non-mutual. True, keeping in view the principle of mutuality, the surplus accruing to a members' club from the subscription charges received from its members cannot be said to be income within the meaning of the Act. But, if such receipts are from sources other than the members, then still can it be said that such receipts are not taxable in the hands of the club ? The answer is obvious. No exemption can be claimed in respect of such receipts on the plea of mutuality. To illustrate, a members' club may have income by way of interest, security, house property, capital gains and income from other sources. But such income cannot be said to be arising out of the surplus of the receipts from the members of the club.
17. Now, the next question is if a members' club is found to be indulging in both mutual activities as well as non-mutual activities then whether it can still claim exemption with respect to the receipts relating to the mutual activities or whether its claim of exemption from tax under the Act is completely destroyed. In the case of CIT v.Madras Race Club 1976]105ITR433(Mad) , it has been observed that "the application of the principle of mutuality is not destroyed by the presence of transactions which are non-mutual in character." The principle of mutuality can, in such cases, be confined to transactions with members. The two activities can, in appropriate cases, be separated and the profits derived from non-members can be brought to tax. In Carlisle and Silloth Golf Club v. Smith [1912] 6 TC 48, "the golf club in question which was admittedly a bona fide members' club was bound, under a clause in its lease, to admit non-members to play on its course on payment of green fees to be fixed by the lessors but not to be below a minimum fixed in the lease. It was held that the club, for the purpose of Income Tax, was carrying on a concern or business which was capable of being isolated and defined and in respect of which it received remuneration which was assessable." This view was affirmed by the Court of Appeal, vide Carlisle and Silloth Golf Club v. Smith [1913] 6STC 198 (CA). The Gujarat High Court, in the case of Sports Club of Gujarat Ltd. [1988]171ITR504(Guj) and the Calcutta High Court, in the case of Automobile Association of Bengal v. CIT [1968]69ITR878(Cal) , have taken the same view.
18. Now, coming to the facts of the present case, it is clear from the articles of association that "temporary members" were never accepted to be members of the company because they are neither obliged to contribute to the assets of the company nor do they give any guarantee for payment of the debts and the liabilities of the company as provided in Clause (4) of the memorandum. Similarly, the aforesaid class of persons are not entitled to any share in the surplus of the company upon its winding up or dissolution. Further, this class is neither entitled to vote nor can they participate in the management of the club. According to Section 12 of the Companies Act, 1956 (Section 5 of 1913 Act), a person having undertaken the liability as per Clause (4) of the memorandum can only be deemed to be a member of the company and Section 9 of the Companies Act provides that the provisions of the Act have an overriding effect over the provisions contained in the memorandum and articles of association. Keeping in view all these considerations it has to be held that "temporary members" are not members of the club and the principle of mutuality cannot have any application in respect of transactions held with them.
19. It may, therefore, be observed here that, as discussed above, members' club can seek exemption from the tax liability under the Income Tax Act only if it could satisfy the test of mutuality in respect of its receipts and not on any other ground, subject to the provisions of the Act. Whether the surplus in the hands of the club has resulted out of transactions entered into with a motive of profit earning which can be said to be tainted with commerciality, is wholly irrelevant for determining the taxability of the receipts because even non-commercial or casual receipts are liable to Income Tax under the Act.
20. For the aforesaid reasons, I am clearly of the view that merely because the assessee-company has entered into transactions with non-members and earned profits out of transactions held with them, its right to claim exemption on the principle of mutuality in respect of transactions held by it with its members is not lost. The principle of establishing complete identity between the contributors and the participators will apply only in respect of contributions made by the members. Accordingly, I hold that the law laid down in Ranchi Club's case[1987] 468 ITR 120 is not correct and is, therefore, overruled.
9. To conclude the above said discussion, we find that as per the provisions of Section 25 of the Companies Act, 1956, the appellants are a registered Company and as per the Clause 6 of the Memorandum of Association it is clear that upon the winding up or dissolution of the club, the appellant clubs members are having right to ownership of the properties of the Club. This right of the ownership has been restricted to certain category of members such as life member, ordinary member, Corporate member etc. but the services provided by the club to its members namely Honorary Patron, Honorary Member, Sports Members, Service Member, Playing Member and Gymkhana Member are liable for service tax. Therefore, the Life Member, Ordinary Member, Corporate Member are having the mutuality of interest in the clubs properties and, therefore, they are not different entity in the club. The said issue has been dealt with by the Honble High Court of Jharkhand in the case of Ranchi Club Ltd. (supra) directly on the issue and relates to the issue before us for levy of service tax under the category of Club or Association Services wherein it was held that in a members club there is mutuality of interest and, therefore, the members and the club are not different entity and in the absence of two entities the services provided by the club to its member does not fall under the category of Club or Association Services as there is no contrary decision to the said decision. Therefore, the same is binding on us. As held by the Honble High Court of Bombay in the case of Commissioner of Income Tax Vidarbha & Marathwada, Nagpur vs Smt Godavaridevi Saraf 1978 (2) ELT (J 624) (Bom.) wherein it was held that the judgments of the High Courts are binding on all other Tribunal in the country unless contrary decision is given by any other High Courts.
10. In this case, the appellant club has filed a refund claim paid towards service tax liability on membership fee collected from its life member, ordinary member, corporate member and Gymkhana member.
11. As discussed above the members falling under Gymkhana services are not eligible for principle of mutuality. Therefore, the membership fee collected from Gymkhana members is liable to service tax but the service tax collected on membership from life member, ordinary member, and corporate member during the period 16.6.2005 to 31.01.2006 is refundable. Therefore, the appellant is entitled for the refund claim paid towards service tax along with interest on membership from life members, ordinary members and corporate members during the impugned period. Although the issue of unjust enrichment has not been dealt with by the adjudicating authority but the same has been dealt with by the first appellate authority in para 6 of the impugned order, which is reproduced here as under:-
6. In view of the above, the entrance fee is collected from the members of the club, in advance, and is therefore construed to be an amount collected in advance before providing such taxable service and hence taxable under the Service Tax Act. Therefore, no need to interfere with the order passed by the lower authority in respect of the taxability of this entrance fee. However, appellants have claimed that they have not realized / collected the Service Tax now paid to the department and hence have requested for recalculation of the tax liability by taking the entrance fee collected by the appellant as cum duty and refund the excess amount of Service Tax paid with applicable interest. The appellant has submitted that the entrance fee of Rs.9,41,80,745/- collected by them was inclusive of Service Tax of Rs.85,46,347/- and E.Cess of Rs.1,70,927/-. Therefore, entitled to a refund of Rs.9,34,244/- together with applicable interest. I direct the respondent to accordingly treat the entrance fee collected by the appellant as cum duty and refund the excess Service Tax, if any, paid by the appellant along with applicable interest.
12. Therefore, we hold that bar of unjust enrichment is not applicable in this case. Accordingly, the appeal is partly allowed to the extent of refund of service tax along with interest collected on membership fee recovered from life members, ordinary members and corporate members during 16.6.2005 to 31.1.2006.
12. In view of these observations, the appeal is disposed of.
(Pronounced in Court on..) (P.R. Chandrasekharan) Member (Technical) (Ashok Jindal) Member (Judicial) nsk 20