P. Satyanarayana Raju
1. In these four applications, filed under Article 226 of the Constitution, the Secunderabad Club, represented by its Secretary, seeks to challenge the legality of the levy of sales tax on the supply of refreshments, etc., to the members of the Club.
2. On the total amount of the bills in respect of the refreshments, wines, spirits, etc., supplied by the Club to its members, the Government have been charging sales tax under the provisions of the Hyderabad General Sales Tax Act (hereinafter referred to as 'the Act'). Before the Commissioner of Sales Tax, objection was taken on behalf of the Club that the supply of refreshments, etc., by the Club to its members, did not constitute sale and that therefore the Government had no jurisdiction or power to levy such tax.
3. In two of the above applications, the Club seeks the issue of a writ of certiorari to quash the orders of the Commissioner of Sales Tax and in the other two applications, it seeks the issue of a writ of mandamus directing the Government to forbear from levying and collecting sales tax on the value of the refreshments, etc., supplied by the Club to its members.
4. The question for consideration is whether the supplies made by the Club to its members of refreshments, drinks, etc., can be regarded as a sale by a dealer, within the meaning of the Act.
5. In order to appreciate the correct legal position, it is necessary to refer to the scheme of taxation embodied in the Act. Section 2(e) defines 'dealer' as any person or any association or associations of persons engaged in the business of buying, selling or supplying goods in the Hyderabad State whether for a commission, remuneration or otherwise and includes any society, club or association which buys or sells or supplies goods to its members. Section 2(k) defines 'sale' as every transfer of property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and as including also a transfer of property in goods involved in the execution of a contract, but as not including a mortgage, hypothecation, charge or pledge. Section 2(m) defines 'turnover' as the aggregate amount for which goods are either bought by or sold by a dealer, whether for cash or for deferred payment or other valuable consideration. Having regard to the aforesaid definitions, it is manifest that it is not every sale that can be the subject-matter of the levy of tax under the Act. To constitute a sale, within the meaning of the Act, the necessary ingredients are :-
(1) There must be transfer of property in goods. (2) The transfer must be in the course of trade or business. (3) It must be for valuable consideration. The important requirement under the Act is that the sale must be in the course of trade or business; the expression 'in the course of trade or business' makes it clear that the transaction must be commercial in its nature; in other words, it must be a business carried on for some pecuniary gain. The expression 'dealer' which is defined as meaning persons or associations engaged in the business of buying, selling or supplying goods, also underlines the fact that the transaction must be of a commercial nature. A business is a trade or profession at which one works regularly and business is ordinarily for profit.
6. A perusal of the Constitution of the Secunderabad Club and its by-laws shows that it is an association of persons, each of whom contributes funds by means of entrance fees, periodical subscriptions and other charges, out of which the expenses of the club or met. The Club is a social and recreational association of members which is not conducted for profit or gain. Its membership is open to ladies and gentlemen without any distinction and consists of the following five categories :
(a) Honorary members.
(b) Permanent members.
(c) Candidate members.
(d) Lady members, and
(e) Temporary members.
7. The total subscribing membership of the Club is not to exceed 500 permanent members. The Club maintains a store for the benefit of its members, consisting of stocks of wine, spirits and other supplies and sundries. It purchases goods for the consumption of its members, and some of the goods so purchased are converted into edible food while other goods are supplied to its members. When a member is supplied with refreshments, drinks, etc., he is charged in his bill a fixed rate determined by the cost of the particular article plus a fixed percentage which is intended to cover overheads. All charges for supplies or amenities provided by the Club are calculated on the basis of the cost price plus a margin of at least 10 per cent., but not exceeding 25 per cent., to cover expenses and possible loss plus overheads of the previous year. The term 'overheads' includes taxes and duties, the salary of the establishment, cost of maintenance of buildings, ground, including depreciation, cost of electricity, water and telephone, etc. Each permanent member pays the Club, besides the entrance fee and the monthly subscription, such charges or price for amenities, services, and supplies and their use, as the committee of the Club may fix from time to time. There is no provision for payment of any divided or bonus to the members of the Club except in the event of the Club being liquidated. The learned Government Pleader has contended that the Club has been making profits on the supplies made by it to its members of the articles from its store. The fact that the Club made a profit in any particular year does not make any difference. The real criterion is whether it is doing business with a view to make a profit. Profit may be incidental but the Club is not doing business with a view to make a profit.
8. A Division Bench of the Madras High Court consisting of Balakrishna Ayyar and Rajagopala Ayyangar, JJ., affirming the decision of Mack, J., held in The Cosmopolitan Club case : AIR1954Mad1144 that there being no intention to make a profit by or out of the sale of refreshments by the Club to its members, and there being no taint of commerciality in respect of the sales in question, the Club could not be assessed to sales tax. The learned Judges reaches that conclusion on a careful and exhaustive review of all the authorities. It is, no doubt, true that that decision was rendered on a consideration of the relevant provisions of the Madras General Sales Tax Act but the provisions of that Act and the Hyderabad Act are in pari materia, and there is no material difference between the provisions in the two statutes.
9. The learned Government Pleader has, however, filed an affidavit of the Deputy Commercial Tax Officer that in the Cosmopolitan Club, Madras, only refreshments and no other articles are supplies to its members and there is no profit motive in the transactions conducted by the Cosmopolitan Club. On the basis of this affidavit, he has argued that those facts would distinguish the above decision from the instant case. In the first place, it is not correct to say that the Cosmopolitan Club supplies only refreshments to its members. As has been pointed out by Mack, J., the Cosmopolitan Club supplies drinks, cigarettes, tennis balls and so on, besides refreshments, and the petitioner Club does no more than this though the drinks supplied by it may be of the alcoholic and spirituous variety. On a consideration of the constitution of the petitioner Club, I am satisfied that there is no taint of commerciality in the supply of goods to its members and also that there is no profit motive. The Secunderabad Club is undoubtedly a members' Club and not a proprietary Club and the decision in The Cosmopolitan Club case : AIR1954Mad1144 clearly applies to the petitioner Club.
10. I, therefore, hold that the petitioner Club is entitled to the issue of writs as prayed against the 1st respondent in each petition, and it is ordered accordingly. In the circumstances of the case, there will be no order as to costs.