Shah, J. - (1.) The Enfield India Ltd. Cooperative Canteen Ltd. respondent herein was registered as a Co-operative Society under the Madras Co-operative Societies Act 6 of 1932. The object of the Society was to provide a canteen for the employees of Enfield India Ltd. The Society was assessed by the Deputy Commercial Tax Officer to pay sales tax for the years 1959-60 and 1960-61 on its turnover from refreshment supplied to its members. The respondent Society then moved in the High Court of Judicature at Madras three petitions under Art. 226 of the Constitution for orders, quashing the proceedings of the Deputy Commercial Tax Officer, Saidapet assessing the Society to sales-tax in respect of its transactions. Srinivasan J., following a decision of the Madras High Court:Young Men's Indian Association (Read.) Madras vs. Joint Commercial Tax Officer, Harbour Division II, Madras, (1963) 14 STC 1030 quashed the orders of assessment. In appeal to the High Court, the orders passed by Srinivasan J., were confirmed. With special leave, the Deputy Commercial Tax Officer has appealed to this Court.
(2.) Section 3 of the Madras General Sales Tax Act 1 of 1959 makes every dealer whose total turnover for a year is not less than ten thousand rupees, and every casual trader or agent of a non-resident dealer, whatever be his turnover for the year, liable to pay a tax for each year at the rate of two per cent. of his taxable turnover. 'Dealer' is defined in S. 2 (g) as meaning - "any person who carries 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 - * * * * * * Explanation-A society (including a cooperative society) , club or firm or an association which whether or not in the course of business, buys, sells, supplies 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 purposes of this Act ;"
(3.) Clause (n) of S. 2 defines 'sale': ""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, and includes a transfer of property in goods involved in the execution of a works contract, but does not include a mortgage, hypothecation, charge or pledge; Explanation (1) .- The transfer of property involved in the supply or distribution of goods by a society (including a co-operative society) , club, fine, 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 purposes of this Act. Explanation (2)- ********** Explanation (3)- ********** Explanation (4)- **********" "Turnover" is defined in S. 2 (r) and insofar as it is material it provides "turnover" means 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 other valuable consideration, provided. * * *" The High Court of Madras in the case of young Men's Indian Association, (1963) 14 STC 1030 held that the Explanation to S. 2 (g) and Explanation (1) to S. 2 (n) of the Act were ultra vires the State Legislature, because they "created a fiction by which the concept of the word 'sale' was extended to include a transaction which properly speaking would not amount to sale". The Court held that within the meaning of the Act an incorporated members' club distributing refreshments to its members was not a dealer', and supply of food by it to its members for a price was not a 'sale', since the members of a club registered as a Company or as a Society merely utilise the services of the club for their needs and the members divide amongst themselves the total expenses. Essentially, in the view of the Court, the matter is not different from the case of a number of persons in a family purchasing jointly an article and later sharing the same among themselves. In such a case, it was said, there is no element of transfer of property from one to another, and the fact that the club helps its members in arranging to run a common mess will not make it the owner of the articles supplied to the members, for it is at best an agent or mandatory whose services are utilised by the members for obtaining their needs, and there is no transfer of property involved in the arrangement. The Court proceeded further to observe that the distinction between members' clubs unincorporated and incorporated is that in the former the distribution made by the club to one of its members is a release by all the members in favour of a joint owner who takes the goods, in the latter the supply of articles to a member is tantamount to delivery by an agent or trustee to the principal or beneficiary, and there is in either case no transfer of ownership by a person absolutely entitled to the property to another who acquires title thereto on such transfer.;