S INDIAN ASSOCIATION REGD MADRAS Vs. YOUNG MENJOINT COMMERCIAL TAX OFFICER HARBOUR DIVISION II MADRAS

JUDGEMENT

(1.) IN the first of the petitions the propriety of levy of sales tax on the sales by the Cosmopolitan Club of tiffin to its members arises. IN Deputy Commercial Tax Officer, Triplicane Division v. Cosmopolitan Club 1955 ILR(Mad) 1042), a Division Bench of this Court expressed the view that inasmuch as such sales were not in the course of business they were not taxable. The other aspect as to whether the club being an incorporated body, the transactions could not be regarded as sales by the incorporated body to its members as contrasted with similar transactions between a non-incorporated proprietary or other types of clubs to their members was not specifically decided but left open. IN view of this decision an Explanation to the definition of dealer and another Explanation to the definition of sale have since been incorporated. Under the Explanation the sales falling within its purview need not be in the course of business. The Explanation to the definition of dealer deems certain persons who sell not in the course of business to be dealers for purposes of the Act. IN the course of arguments in these petitions reliance is placed upon a decision of Mack, J., in Cosmopolitan Club, Madras v. Deputy Commercial Tax Officer where the learned Judge held : "A sale therefore must in the first place be a transfer of property in goods. I hold that the supply of refreshments in a members' club such as this registered under section 26 of the Companies Act, purchased out of club funds, composed of members' subscriptions is not a transfer of property from the club as such to a member."

(2.) THIS point, as I said, was not specifically decided but left open by the Division Bench in the earlier case just referred to. But the learned Judges at the same time made certain observations which appear to support the view Mack, J., took. The point is one of great importance and on first impressions, I must say, I find myself unable to agree with that view of Mack, J. It is desirable, therefore, that the point is decided by a Division Bench. The papers in the three writ petitions will be placed before my Lord the Chief Justice, for the purpose.In pursuance of the abovesaid order of reference, the writ petitions came on for hearing before a Division Bench consisting of Ramachandra Iyer, C.J., and Anantanarayana Iyer, J., and the Court delivered the following Judgment :- JUDGMENT W.P. Nos. 129 and 130 of 1960.

(3.) THE definition of the term "sale" is not, however, very happy. For example, the Explanation refers to the transfer of property involved in the distribution of goods by a club to its members. But if it were to be held that there could be no transfer at all in such a case, the definition of the term "sale" cannot take in the transaction referred to in the Explanation. It is however apparent from the terms of the Explanation that the second of the three requirements of a sale mentioned in the judgment of this Court in Deputy Commercial Tax Officer v. Cosmopolitan Club 1955 ILR(Mad) 1042), namely, its commercial aspect has been done away with in respect of clubs, associations etc. According to the Explanation, it will be sufficient to attract the tax, if there were a transfer of property for a price, there being no other qualification for such a transfer being effected in the course of business. This is in sharp contrast with the main part of the definition which requires the sale to be one in the course of business. THEre is also a similar difference in the definition of the term "dealer". In other words, while in the case of an ordinary person, which will include a company, there will be no liability to sales tax unless the sales effected by him are in the court of trade, no such qualification apart from what we shall refer to later is imposed in regard to sales by clubs and other agencies coming within the terms of the Explanation. THEre is however one apparent difficulty in the definitions, namely, whether an incorporated club having a legal existence of its own would come under the main part of section or would only come within the Explanation thereof. Again it is obvious that the Legislature could not have intended that every casual sale by a club to its member of its property should come within the Explanation.Mr. V. Thyagarajan, who appears for the Club, has contended that the purchase of the articles of food, the subsequent preparation and supply of refreshments by the Club to its members albeit against payment is essentially one of service to its members and can in no sense be regarded as a sale. For one thing, there is such an identity between the Club and the member who is supplied with refreshments, that there can be no transfer of property. Secondly, that even if one were to assume the Cosmopolitan Club as a distinct entity from its members, it must be held to have acted as either the agent or mandatory of its members in providing them with refreshments and obtaining therefor their value. Following this submission it is contended that the fiction created by the Explanations to section 2(g) and 2(n) of the Act would be ultra vires of the powers of the State Legislature as it brings into the category of sales, transactions which in law are not sales. It was also argued that even if the Explanations to sections 2(g) and 2(n) are held to be intra vires, the Cosmopolitan Club being an incorporated one, would have a persona of its own and will come under the main part of the definition of the term "dealer" and of the term "sale", and that therefore unless the transactions wear done in the course of trade, which they were not, there would be no liability to tax. THEre was also a contention that the terms of the Explanation discriminate clubs, firms and other associations from other persons and that they are therefore void under Article 14 of the Constitution.