A.N.GROVER - (1.) THESE appeals by certificate are directed against a common judgment of the Madras High Court in petitions filed under Article 226 of the Constitution by the Cosmopolitan Club, Madras, the Young Men's Indian Association, Madras and the Lawley Institute. Ootacamund challenging the proceedings relating to their assessment to sales tax under the Madras General Sales Tax Act, 1959, hereinafter called the "Act", for supplying food, snacks, beverages and other articles to their members or their guests. It was held by the High Court that each of these clubs could not be regarded as a "dealer" within the meaning of S. 2 (g) read with Explanation I of the Act nor was any 'sale' involved in the aforesaid activity of the club within the meaning of S. 2 (n) read with Explanation I of the Act.
(2.) THE Cosmopolitan Club, Madras, is a social recreation club which was started originally in the year 1873 as an unincorporated association. In 1934 it was registered under S. 26 of the Indian Companies Act 1913 as a non-profit earning institution. Its objects, as disclosed in the memorandum of association, are mainly to promote and facilitate social intercourse, discussion amongst its members etc. THE articles of association provide that the members for the time being only constitute the club. It maintains an establishment for preparing and supplying refreshments to its members. It has been found by the High Court and has not been disputed that the articles necessary for the aforesaid purpose are purchased by the club in the market and the preparations are made within its premises at the direction of a committee. THE preparations are supplied to the members at such prices as are fixed by the committee. A member is allowed to bring guests with him but if any article of food is consumed by the guest it is the member who has to pay for the same. The Young Men's Indian Association is a society registered under the Societies' Registration Act 1860. It has, for its objects, the improvement of the moral and physical standards etc. of the students. The association provides certain facilities in the shape of a library with a reading room apart from residential and recreational facilities. There is a mess together with a canteen serving the needs of the members. Any member can bring a guest but the duration of his stay in the hostel or of enjoying the benefit of the preparations or beverages is limited and restricted by the rules. It is the member who has to pay the charges for any articles consumed by his guest. The employees of the association purchase the various articles required for supplying the refreshments etc. and the cost and the expenses incurred therefor inclusive of the salaries of cooks, servers and others are totalled up and divided among the members participating in the mess. No profit is made by the association in providing these amenities to its members. These facts as found in the judgment of the High Court are not disputed. The Lawley Institute came into existence by a deed of trust dated 15/09/1911 entered into between the Maharaja of Bibbli and the Collector of Nilgiris and others. The management of the Institute vests absolutely in the board of trustees. It is intended to serve its members only and no person other than a member is entitled to participate in the amenities provided by the Institute. The supplying of refreshments and meals to members constitute one of such amenities. These facts are altogether uncontroverted.
(3.) IT appears that in the State of Madras levy of sales tax was first made in 1939. The statute as it stood then contained the definition of "dealer" in S. 2 (b). A dealer was defined as "any person who carried on any business of buying, or selling goods" with the following Explanation: "a co-operative society, a club, a firm or any association which sells goods to its members is a dealer within the meaning of this clause". The Cosmopolitan Club, Madras which had been paying tax since 1939 filed a petition under Art. 226 of the Constitution which was disposed of by Mack J., in Cosmopolitan Club, Madras v. District Commercial Tax Officer, Triplicane 1952-1 Mad LJ 401 = (AIR 1952 Mad 814) 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: Dy. Commercial Tax Officer, Triplicane Division, Madras v. Cosmopolitan Club, ILR (1955) Mad 1042 = (AIR 1954 Mad 1144). The definition of "dealer" in S. 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 1. A Society including a co-operative 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 S. 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 other valuable consideration ...." Explanation I. "The transfer of property involved in the supply or distribution of goods by a society (including a co-operative 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... ... ..." 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 S. 2 (n) nor can the club be regarded as a dealer within S. 2 (g) read with Explanation I. 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. The principle laid down in Graff v. Evens, (1882) 8 QBD 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". 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 All ER 454 once it was conceded that a members' club did not necessarily require a licence 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 holding for and on behalf of and not a holding antagonistic to members of the club. ;