# C. SHAH v. RAMASWAMI AND V. BHARGAVA, JJ.}

- **Citation:** [1968] 2 S.C.R. 421
- **Court:** Supreme Court of India
- **Decided:** 1968
- **Case number:** Civil Appeals Nos. 737 to 739 of 1966
- **Bench:** J. C. Shah, V. Ramaswam!, V. Bhargava
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/c-shah-v-ramaswami-and-v-bhargava-jj-4217
- **Pages:** 10

## Headnote

Madri1s Gener(l[ Sales Tax Act 1 of
1959-G'o-op_erait\·e
Society
,,11pp[ying goods to ;.!s nientbers wliethe1• 'dealer'-Sttpply
of govds Iv
111e111bers whether 'sale'-Explanation to s. 2(g) c.·nd Explanation
( 1-)
to
.\. 2(n) whether ultra \·ires.
The respondent was a registered
Co-operative
Society
under
the
~ladras Co-operative Societies Act 6 of 1932.
Its object was to provide
a· canteen for fhe employees of a company. The Society \\'as asses~ed hy
the Deputy Commercial Tax Officer to pay sales tax for the years 1959'-60
and 1960-61 On
it~ turnover of refreshments supl?lied to it~ membe'rs.
It
challenged the assessments in a writ petition
under Art.
226 of
the
Constitution contending that supply of goods to its members diJ not
amount to sale and therefore the EJ}planation to s. 2(g) treating _it as
n 'deale.r' and Explanation ( l) to s.- .2(n)
treating its
transactions as
·saJe,s' were ultra vires.
The High Court held in favoqr
1 of the Society.
The Revenue appealed.
HELD : (i) A cooperative society registered under the Madras Cooperative Soci·~ties Act. 1932 is by virtue of s. 20 of that Act a body
corporate with perpetual succession and con1mon seal. and with pov.rcr
to hold property, to enter into con:racts. to institute and defend suits an<l
other le,gal proceedings and to do all things necessary for the purposes
fo.r which it was constituted.
Such a cooperative Society which carries
on the business of supplying goods to its members for cash or deferred
payment falls within the definition of 'dealer' in s. 2(g). The Explanation to s. 2(g) was not-intended to overstep the limits of legislative power.
By the Explanation the State Legislature has merely clarified that a taxable entity will be regarded as a dealer within the meaning of the Act
even though it buys, sells, supplies or distributes goods from or 10 its
n1en1bers. whether in the course of business or not ·:
it is not intended
hy the Explanation to declare all transactions of the taxable cntily \vith
its members to be transactions of sale or purchase.
The explanation is
.a part of the definition of 'dealer' and not of 'sale'. For the purpose of
levying sales tax it was open to the legislature to devise a definition of
the word 'dealer' and further to provide that certain bodies
shall
be
deemed to be dealers within the meaning of the Act.
The High Court
therefore wrongly held the Explanation to s. 2(g) to be ultra vircs the
State Legislature. [445 H-426 DJ
(ii) It cannot be·urged as a proposition of law that when a coopera·
tive society supplies' to its members refreshments for a price under a
scheme ·for distribution and •supply of refreshnients. the transaction can
in no event be
regarded as a sale of the refreshments ' supplied at a
pric-.. [429 H!
.
The question was' one of libility under a taxing statu•e and the cour_t
in. ~etermining tQe liability of the respondent society Could not ignore
the form and· look at what is called the 'substance of the· transaction'.
Th-:! Society being incorporated was a person.
It would not be .assumed
422
SUPREME COURT REPORTS
[1968] 2 S.C.R.
ihat the property which it held was property of which its members were
the owners.
It was not an agent of the members or a trustee of the
property on their behalf.
The property in the
refreshments which it
supplied to the members Yested in the Society and when refreshments
v.'erc supplied for a price paid or promised transfer of property in the
:refreshments resulted. Ex. facie, the transaction was one in which the
legal o\vner of property transferred it to another pursuant to a contract
for a price.
The transaction must be regarded as a 'sale' within the
·substantive ·part of the definition of. that expression and no
assistance
from the Explanation (!) to s. 2(n) was necessary.
The question re-
~arding the validoity of the said Explanation did not therefore fall to be
det·zrmined in the present case. [429 F-430 Bl
Young Mens' Indian Association (Regd.) Madras &
Anr.
v.
Joint
Commercial-

## Text

A
DEPUTY COMMERCIAL TAX OFFICER, SAIDAl'ET &
ANR.
B
c
D
E
F
G
H
v.
ENFIELD INDIA LTD., CO-OPERATIVE CANTEEN LTD.
November :t.J, 1967
(J. C. SHAH, V. RAMASWAM! AND V. BHARGAVA, JJ.}
Madri1s Gener(l[ Sales Tax Act 1 of
1959-G'o-op_erait\·e
Society
,,11pp[ying goods to ;.!s nientbers wliethe1• 'dealer'-Sttpply
of govds Iv
111e111bers whether 'sale'-Explanation to s. 2(g) c.·nd Explanation
( 1-)
to
.\. 2(n) whether ultra \·ires.
The respondent was a registered
Co-operative
Society
under
the
~ladras Co-operative Societies Act 6 of 1932.
Its object was to provide
a· canteen for fhe employees of a company. The Society \\'as asses~ed hy
the Deputy Commercial Tax Officer to pay sales tax for the years 1959'-60
and 1960-61 On
it~ turnover of refreshments supl?lied to it~ membe'rs.
It
challenged the assessments in a writ petition
under Art.
226 of
the
Constitution contending that supply of goods to its members diJ not
amount to sale and therefore the EJ}planation to s. 2(g) treating _it as
n 'deale.r' and Explanation ( l) to s.- .2(n)
treating its
transactions as
·saJe,s' were ultra vires.
The High Court held in favoqr
1 of the Society.
The Revenue appealed.
HELD : (i) A cooperative society registered under the Madras Cooperative Soci·~ties Act. 1932 is by virtue of s. 20 of that Act a body
corporate with perpetual succession and con1mon seal. and with pov.rcr
to hold property, to enter into con:racts. to institute and defend suits an<l
other le,gal proceedings and to do all things necessary for the purposes
fo.r which it was constituted.
Such a cooperative Society which carries
on the business of supplying goods to its members for cash or deferred
payment falls within the definition of 'dealer' in s. 2(g). The Explanation to s. 2(g) was not-intended to overstep the limits of legislative power.
By the Explanation the State Legislature has merely clarified that a taxable entity will be regarded as a dealer within the meaning of the Act
even though it buys, sells, supplies or distributes goods from or 10 its
n1en1bers. whether in the course of business or not ·:
it is not intended
hy the Explanation to declare all transactions of the taxable cntily \vith
its members to be transactions of sale or purchase.
The explanation is
.a part of the definition of 'dealer' and not of 'sale'. For the purpose of
levying sales tax it was open to the legislature to devise a definition of
the word 'dealer' and further to provide that certain bodies
shall
be
deemed to be dealers within the meaning of the Act.
The High Court
therefore wrongly held the Explanation to s. 2(g) to be ultra vircs the
State Legislature. [445 H-426 DJ
(ii) It cannot be·urged as a proposition of law that when a coopera·
tive society supplies' to its members refreshments for a price under a
scheme ·for distribution and •supply of refreshnients. the transaction can
in no event be
regarded as a sale of the refreshments ' supplied at a
pric-.. [429 H!
.
The question was' one of libility under a taxing statu•e and the cour_t
in. ~etermining tQe liability of the respondent society Could not ignore
the form and· look at what is called the 'substance of the· transaction'.
Th-:! Society being incorporated was a person.
It would not be .assumed
422
SUPREME COURT REPORTS
[1968] 2 S.C.R.
ihat the property which it held was property of which its members were
the owners.
It was not an agent of the members or a trustee of the
property on their behalf.
The property in the
refreshments which it
supplied to the members Yested in the Society and when refreshments
v.'erc supplied for a price paid or promised transfer of property in the
:refreshments resulted. Ex. facie, the transaction was one in which the
legal o\vner of property transferred it to another pursuant to a contract
for a price.
The transaction must be regarded as a 'sale' within the
·substantive ·part of the definition of. that expression and no
assistance
from the Explanation (!) to s. 2(n) was necessary.
The question re-
~arding the validoity of the said Explanation did not therefore fall to be
det·zrmined in the present case. [429 F-430 Bl
Young Mens' Indian Association (Regd.) Madras &
Anr.
v.
Joint
Commercial-Tax Officer, Harbour Division II, Madras, 14 S.T.C. 1030.
State of Madrc.s v. Gannon Dunkerley & Co. Ltd., [1959] S.C.R.
379,
New Indian Sugar Mills v. Commissioner of Sales Tax, [1963]
Supp. 2
S.C.R. 459 and Bhopal Sugar Industries v. Sales Tax Officer,
(1964] 1
S.C.R: 481, referred to.
Trebanog }Vorking Men's Club and ]11s1itute Ltd. v. Macdonald and
Monkwearmouth Coiiservative Club Ltd. v. Smith, [1940] 1 K.B. 576.
Graff v. Evam, [1882] 8 Q.B.D. 373, Metford v.
Edwards,
[1915]
1
K.B. 171 and National Sporting C/u/, Ltd. v. Cope,
82 L.T. 353, distinguished.
[Quaere :
Whether an unincorporated club supplying goods for a
price to its nicmbcrs may be regarded as selling goods to its members?]
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 737 to
739 of 1966.
A
B
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Appeals by special leave from the judgment and order dated
E
October 21, 1964 of the Madras High Court in Writ Appeals
Nos. 289 to 291 of 1964.
A. K. Sen and A. V. Rangam, for the appellants (in all the
.appeals).
K. R. Chaudhuri, for the respondents (in all the appeals).
F
The Judgment of the Court was delivered by
Shah, J.
The Enfield India Ltd. Co-operative 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
G
Enfield India Ltd. The Society was assessed by the Deputy Commercial Tax Officer to pay sales tax for the years 1959-60 &
1960-61 on its turnover· from refreshments 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 ComH
rnerical 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 Mens Indian Association (Regd.)
. ,
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C.T.o. V. ENFIELD LTD. (Shah, J.)
4 23
Madras and Another v. Joint Commercial Tax Officer, Harbour
Divisi011 Ji, lvladras and Another(') quashed the orders of assessa1en~.
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.
Section 3 of the Madras General Sales Tax Act 1 of 1959
makes every dealer whose total turn-over 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 includesExp/anation.-A society (including a co-operative
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 considen11ion, shall be deemed to be a
dealer for the purposes of this Act;"
Clause (n) of s. 2 defines 'sale'·:
·· "sale"' ~
1 ith all its gram1natical var1auons and
cog~
natc 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
docs not include a mortgage, hypothecation, charge· or
pledge;
Explmwtion
(.1 ) .-The transfer oi property involved.in the supply or distribution of goods by a society
(including a co-operative society), club, firm, or any
association to ils 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) .-
----- ·
(I) 14 S.T.C. 1030.
SUPREME COURT REPORTS
Exp/a11a1ion ( 3) .-
Exp/analion ( 4) .-
(1968]2SCR
.. Turnover .. is defined in s. 2(r) and insofar as it 1s material it
pro\'idcs :
.. "turnover" means the aggregate amount for which
goods arc 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, pro·
videJ
"
Tile High Court of Madras in the case of Young Mcm·' Indian
A 1.1:>ciafio11( 1 I held that the E~planation to s. 2(g) and Explana·
tiM (I) to s. 2(n) of the Act were u//ra vires the State Legislature, because they "created a ficti.on by which the concept 'of the
"orJ 'sale' was extended to includ~ a transaction which properly
>nca,ing would not amount to sale...
The Court held that within
t.hc meaning of the Act an incorporated members' club distributing refreshments to i!S 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
mcrciy utilise the services of the club for their needs ;wd the
rncrnhcrs divide ;imongst themselves the total expenses.
Essenti;illl'. i.1 the view of the Court, the matter is not different from
the -case of a number of persons in a family purchasing jointly
;,11 "nidc and later sharing the same among themselves.
In such
a case. it was said. there is no elemen: of transfer of property
fn1m one 10 another, and the fact that the club helps its members
i1~ arr;111ging to run a common mess will not make it the owner
ot the ~niclcs supplied to the members. for it is at best an agent
o•· mandatory whose services are utilised by the members for
obtaining their needs, and there is no transfer of propa:y involved
in the arrangement. The Court proceeded further to observe that
th.: distinction between members' clubs unincorporated and inc,1rrorated is chat in the former the distribution made
by
the
cl!1h :o one of ics members is a release bv all the members in
L1rnw of a joint owner who takes the goods, in the latter the
su;ip!y Clf anicles to a member is tantamount to delivery by an
;:~cni 1'r trustee to the principal or beneficiary, and there is in
either case mi transfer of ownership by a person absolutely enti:let1 to the property to another who acquires title thereto on
~uch tr<insfer.
Jn these appeals the Deputy Commercial Tax Officer contends
that the transactions of the respondent Society
are taxable and
-
-
I I) 14 S.T.C. I'•)
A
B
c
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A
B
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F
G
C.T.O. v. ENFIELD LTD. (Shah, J.)
.t-2 5
submils that the High Court was in error in holding that the
Explanations 10 s. 2(g) and s. 2(n) are ultra vires the powers of
the State Legislature. Entry 54 of List II of the Seventh Schedule
of the Conwtution. authorises the State Legislature to legislate on
the topic of tax on the sale- or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I.
This
Court has consistently held that the expression "sale of goods"
used in lhc legislative entries in the Constitution and the Government. of India Act, 1935, bears the same meaning which it has
in the Sale of Goods Act, I 930, ·and therefore the Stale Legis!a·
turc may under Entry 54 List II legislate in respect of the series
of acts beginning with an agreemcn: of sale between parties competent to contract. and resulting in transfer of proper.ty from one
of the parties to the agreement to !he other for a price, and matters
incidental there!o, but cannot make a transaction which i" not a
sale wi!hin the Sale of Goods Act a sale by a statutory !ic!ion and
impose tax thei·eon : State of Madras v. Gannon Dun~<rley & Co.
Ltd:('), New Indian Sugar Millsv. Ccmmissionerof Sales Tax:('J
:rn<l /iho11a/ Sugar Industries v. Sales Tax Officer('). Consequently if the clement of transfer of property from one person to
another is lacking in any transaction, there is no sale and the
l_egislature cannot by treating lt as a sale by a deen1ing clause
bring it within the ambit of the taxing statute.
We are however unable to hold that the transactions of the
respondent Society of supplying refreshments to its members for
a price paid or promised were not taxable under the Madras
Genera! Sales Tax Ac:, 1959.
By the definilion in s. 2( g) a
'dealer' is a persbn who carries on the business of buying, selling.
supplying or distributing goods, whether for cash, or for deferred
payment, or for other valuable consideration.
The expression
'business· is defined in s. 2 ( d) as meanirg any trade, commerce
m manufacture or any adventure or concern in the nature. of
tract,,, commerce or manufacture, whether or not any profit accrues
fro111 such trade. co1nn1erce, tnanufacture, adventure or concer11.
A scheme for supplying goods to its members by a Society, for
price may partake of the activity of the nature of adventure or
concern in the nature of trade, even if the activity is not 'lCtuated
by a profit motive.
The respondent Society which has according
to its object of incorporation made arrangements for the s(\pplv
and 'distribution of refreshments to its members without a profit
motive may be regarded as carryin~ on trade and would on that
account fall within the definition of a 'dealer' within the meanh1~
of s. 2(g).
A Co-operative Society registered under the Madrn~
C<i-operative Societies Act 6 of 1932 is by virtue of s. 20 of th•it
(ll [1959] S.C.R. 379.
(2) [1963] Supp. 2 S.C.R. 459.
ill [1964] 1 S.C.R. 481.
426
SUPREME COURT REPORTS
[1968] 2 S.C.R.
Act a body corporate with perpetual succession and a common
seal, and with power to hold property, to enter in~o contracts, to
institute and defend suits and other legal proceedmgs and to do
all things necessary for the purposes for which it was constituted.
Such a co-operative society w_!iich carries on the business of
supplying goods to its members for cash or deferred payment falls
within the definition of 'dealer' in s. 2(g). We_ are unable to
hold that by the Explanation to s. 2(g) it was intended to overstep the limits of legislative power. By the Explanation the State
Legislature has merely clarified that a taxable entity will be
regarded as a dealer within the meaning of the Act even though
it buys, sells, supplies or distributes goods from or to its members, whether in the course of business or not : it is not intended
by the Explanation to declare all transactions of the taxable entity
with its members to be transactions of sale or purchase.
The
Explanation is a part of the definition of "dealer" and not of
"sale".
For the purpose of levying sales tax it was open to the
Legislature to devise a definition of the word "dealer" and further
to provide that certain bodies shall be deemed to be dealers within
the meaning of the Act. We are unable, therefore, to agree with
the High Court that the Explanation to s. 2 (g) is ultra vi res the
State Legislature.
A
B
c
D
E
For turnover from a transaction to be taxable under the Act,
the transaction must have four constituent elements, viz. ( 1) parties competent to contract; (2) mutual assent; (3) thing, the
absolute or general property in which is transferred from
the
seller 10 the buyer; and ( 4) price in money paid or promised.
When a Co-operative Society supplies to its members for a price
refreshments in the canteen maintained by it the four constituent
clements of sale are normally present : the parties are competent
to contract; there is mntual assent; refreshments which belonged
absolutely to the Society stand transferred to
the buyer and
pi'ice is either paid or promised.
F
There is nothing on the record of the case which shows that
the Society".is acting merely as an agent of its members in providing facilities for making food available to the members.
From
the mere fact ·that the Society supplies refreshments to its members only and claims to make no profit, it cannot be inferred that
in preparing refreshments, and making them available to its members it is acting as an agent of the members. Nor can it be said
that the Society is holding its property including refreshments
prepared by it for supply to its members as a trustee for its members.
A registered Society •is a body corporate with power to
hold property and is capable of entering into contracts. It cannot be assumed that property which it holds is property of which
its members are owners. The property in law is the property of
/
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A
C.T.O. v. ENFIELD LTD. (Shah, J.)
427
the Society.
The me1itbers are undoubtedly entitled to compel
the Society to act according to its constitution and to apply the
propertv for the purposes for which it is held, but on that account
the property of the Society cannot be treated as the property of
the members.
'J.:he Soci~ty is a person : the property in the
refreshments which it supplies to its members is vested in the
B Society and when refreshments are supplied for a price paid or
promised transfer of property in the refreshment results. In the
case of an unincorporated Society, club or. a firm or an association ordinarily the supply and distribution by such a Society, club,
firm or an association of goods belonging to it to its members may
not result in sale of the goods which are jointly held for the benec
D
E
F
G
H
fit of the members by the Society, club, firm or the association,
when by virtue of the relinquish~1ent of the common rights of
the members the property stands transfen-ed to a member in payment of a price, and the transaction may not prima facie be
regarded as a 'sale' within the meaning of the Act. By providing
that a transfer of property in goods from a corporate body to its
members for a price, the Legislature does not over-step the limits
of its authority,_ and it cannot on that account be held that the
first Explanation to s. 2(n) is in its entirety ultra vires the State
Legislature. It is, however, unnecessary in this case to say more,
for. the case of the respondent Society falls within the definition
of 'sale' and no assistance need be sought from the first Explanation to s. 2(n).
Reference may briefly be made to the judgment in Trebanog
Working Men's Club and Institute Ltd. v. Macdonald and Monk1i:earmouth Conservative Club Ltd. v. Smith('), on which the
High Court strongly relied.
In a members' club incorporated
under the Industrial and Provident Societies Acts, the sharehoklers
and the members were identical.
Tbe club purchased intoxicating liquor and supplied it from time to time to individual members
for payment as in an ordinary club. The society was convicted
of selling by retail, contrary to s. 65 of the Licensing (Consolidation) Act, 1910, certain intoxicating liquor without a justices'
licence.
The Conrt of Appeal quashed the conviction holdini
that the incorporated society was a legal entity distinct from the
members, and could act as their agents or trustees, the real interest
in the liquor being in the members, and the Society was not
obliged to take out a licence, for sale of liquor by retail.
The
principle of that case has, in our judgment, no application to the
case before us.
There was a Jong course of authorities in the
Courts in England dealing with the liability of the clubs supplying intoxicating liquors to their members to obtain the justices'
licence. In Graff v. Evans('), Graff, the manager of an unincor-
(1) [1940] 1 K.B. 576.
(2) [1882) 8 Q.B.D. 373.
SUPREME COURT REPORTS
[1968] 2 S.C.R.
poratcd club, the property of which was vested in trustees, and
A
the committee of management whereof arranged to supply liquor
.to its members at a fixed percentage above its cost, supplied liquor
to a member, and he was prosecuted for selling by retail intoxi-
.cating liquor without a licence.
It was held that there was no
sale by retail, for the member was as much a co-owner of the
liquor supplied as any other member of the club.
Any member
B
or the club was entitled to obtain liquor on payment of the price
.and since the1e was no bargain, nor any contract with the manager in r~spect of the liquor supplied, and the member to whom
the liquor was supplied was acting upon his rights as a member
·of the club, not by reason of any new contract, but under his old
contract of association by which he subscribed a sum to the funds
c
of the club, and on that account he became entitled to have liquor
,upplicd to him as a member at a certain price.
in Metford v. Edwards( 1) a working men's club was registered under the Friendly Societies Act, 1896.
It was held that
liquor kept on the premises of the club by the members who are
owners of the liquor and intended for c·onsumption by the members, is distributed to the members by one of them in return for
payment, is not sold by retail within the meaning of the Licensing
(Consolidation) Act, 1910.
In National Sporting Club Ltd. v. Cope(') it was held that
a member's club formed into a joint stock company, of which
shares were held by persons who were not members, was guilty
of breaches of s. 17 of the Beerhouse Act, 1834, and s. 19 of the
Refreshment Houses Act, 1860, when in carrying on the club
retail intoxicating liquors and tobacco were supplied to the members of the club. The Court held in that case that the Company
was a separate legal entity from the members, and the sale of
intoxicating liquors to members was not a distribution of the
common property of the members among themselves.
Channell
J.. observed at p. 354 :
"Nqw. the law with reference to purely members'
clubs may be taken to be settled, namely, that in the
cases of purely members' clubs a licence is not required,
that the form that is gone through in the coffee room or
in other parts of the club house where refreshments are
sold is in one sense not a selling of liquors so as to make
the licensing laws applicable, but that it is merely a
mode of distributing common property."
The question was again raised before the Court of Appeal in
Trebaiwg Working Men's Club and lnvtitlife Ltd. v.
Mac-
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--
(!) [191511 KB. 171.
(2) 82 L.T. 353.
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C.T.O. V. ENFIELD LTD. (Shah, J.)
429
4onald('). tlewart, C.J., delivering the judgment of the Court
observed that the principle of the decision in ·Graff v. Evans( 2 )
applied even though the clubs before the Court were incorporated
either under the Industrial and Provident Societies Acts or the
Companies Act. The learned Chief Justi~e observed at p. 582 :
"Once it is conceded that a members' club does not
necessarily require a licence to serve its members with
intoxic~ting liquor, because the legal property in the
liquor is not in the members themselves, it is difficult to
draw any legal distinction between the various legal
entities that may be entrusted with the duty of holding
the .property ort behalf of the 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 remains,
as in this case it clearly does, in the members of the club.
There ·is no magic in this connection in the expressions
"trustee" or "agent". What is essential is that the holding of the property by the agent or trustee must be a
holding for and on behalf of, and not holding antagonistic to, the members of the club."
The Courts in these cases were dealing with case of quasi-crintinal
nature, and the substance of the transaction rather than the legal
form m which it may be clothed had to be determined. It was
held that if in substance the property in the liquor held by the
club-whether incorporated or unincorporated-was vested in
the members, when a member received a.nd paid for it, there was
no sale within the meaning of the Licensing Act, but was a
transfer of a special property.in the goods from all the other members of the club to the consum~r in consideration of the price
paid.
•
We are not dealing in this case with liability criminal or quasicrintinal. The question is one of liability under a taxing statute
and the Court in deterntinmg the liability of the Society to pay
tax cannot ignore the form and look at what is called the "substance of the .transaction'~· Ex facie, the transaction is one in
which the legal owner of property transfers it to another pursuant
to a contract for a price, and that transaction must be regarded
as a sale. Whether by appropriate provisions in the Articles pi
Association or Rules, a scheme may be devised under which the
goods supplied may be treated as belonging to the members of
the Society, and the Society merely acts as an agent in supplying
the food to its members, need not be considered in the present
case. It will suffice to state that it cannot be urged as a proposition of law that when a Co-operative Society supplies to its members refreshments for a price under a scheme for distribution or
(1) [194-0) 1 K.B. 576.
(2) [1882) 8 Q.B.D. 373.
LIS.P,CI/68-13
430
SUPREME COURT RF.PORTS
(1968] 2 S.C.R.
supply of refreshments, the transaction can in no event be regarded
as a sale of the refreshments supplied for a price.
We arc not called upon in thi> case to decide whether an unincorporated club supplying good.; for a price to its members may
be regarded as selling goods to iL~ members.
We are of the view that the Explanation to s. 2!g) of the
Madras General Sales Tax Act 1 of 1959 is not ultra vires the
Legislature. Whether any part of the Explanation (l) to s. 2(n)
is 11/tra vires the Legislature does not fall to be determined in this
case, for, we are of the view that the transactions of the respondent Society fell within the substantive part of the definition of
the expression "sale", and on that account those transactions are
taxable under the Madras General Sales Tax Act 1 of 1959.
The appeals must therefore be allowed, and the petitions filed
by the Society dismissed.
In view of the order passed by this
Court on August 12, J 965, when leave was granted to appeal to
this Court, the aj>pcllan: will pay costs of these appeals to the
respondent. There will be one hearing fee in the three appeals.
G.C.
Appeals allowed.
A
B
c
D