# STATE OF WEST BENGAL & ORS v. CALCUTTA CLUB LIMITED

- **Citation:** [2019] 15 S.C.R. 865
- **Court:** Supreme Court of India
- **Decided:** 2019-10-03
- **Case number:** Civil Appeal No.4184 of 2009
- **Bench:** R. F. Nariman, Surya Kant, V. Ramasubramanian
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-west-bengal-ors-v-calcutta-club-limited-33894
- **Pages:** 71

## Headnote

Doctrines/Principles - Doctrine of Mutuality - Applicability
of, after the 46th Amendment to Art.366(29-A) - In C.A. No.4184 of
2009, the assessee-respondent Club, registered u/s.25, 1956 Act
was issued notice informing that it had failed to make payment of
sales tax on sale of food and drinks to the permanent members -
Respondent contended that there could be no sale by it to its own
permanent members, for doctrine of mutuality would come into play
- West Bengal Taxation Tribunal held that the respondent is not
eligible to tax under the 1994 Act - Affirmed by the High Court -
Division Bench of the Supreme Court set out inter alia 3 questions to
be answered by larger Bench, viz.(i) Whether the doctrine of
mutuality is still applicable to incorporated clubs or any club after
the 46th Amendment to Art.366(29-A) of the Constitution of India?;
(ii) Whether the judgment of Supreme Court in Young Men's Indian
Association case still holds the field even after the 46th Amendment?
and (iii) Whether the 46th Amendment, by deeming fiction provides
that provision of food and beverages by the incorporated clubs to
its permanent members constitute sale, thus liable to sales tax? - In
C.A. No.7497 of 2012 and connected matters, issue involves levying
of service tax by Finance Act, 1994 upon members' clubs, majority
of them being registered as Companies u/s.25 of the 1956 Act, or as
co-operative societies under various State Acts - Held: Young Men's
Indian Assn. made no distinction between a club in the corporate
form and a club by way of a registered society or incorporated by a
deed of trust - What is the essence of the judgment is that the holding
of property must be a holding for and on behalf of the members of
the club, there being no transfer of property from one person to
another - In members' clubs there is a complete identity between
contributors and participators - Thus, in members' clubs there is
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no sale by one person to another for consideration, as one cannot
sell something to oneself - What is of essence in applying the
doctrine of mutuality is that there is no sale transaction between
two persons, as one person cannot sell goods to itself - Ratio of
Young Men's Indian Assn. has not been done away with by the limited
fiction introduced by Art.366(29-A)(e) - Questions answered (i)
Doctrine of mutuality continues to be applicable to incorporated
and unincorporated members' clubs after the 46th Amendment adding
Art.366(29-A); (ii) Young Men's Indian Assn. and other judgments
which applied this doctrine continue to hold the field even after the
46th Amendment; and (iii) Sub-clause (f) of Art.366(29-A) has no
application to members' clubs - No interference called for in the
findings of fact or declaration of law in this case - Further, in C.A.
No.7497/12 and connected matters- Argument on behalf of the
respondents that incorporated clubs or associations prior to 1st July,
2012 were not included in the service tax net is accepted - What
has been stated in the present judgment so far as sales tax is
concerned applies on all fours to service tax- Explanation 3(a) to
s.65B(44) of the Finance Act, 1994 does not apply to members'
clubs which are incorporated - From 2005 onwards, the Finance
Act, 1994 does not purport to levy service tax on members' clubs in
the incorporated form - Jharkhand High Court and the Gujarat
High Court correct in their view of the law in following Young Men's
Indian Assn. Case - Thus, show-cause notices, demand notices and
other action taken to levy and collect service tax from incorporated
members' clubs are void and of no effect in law - West Bengal Sales
Tax Act, 1994 - ss.2(5), (10), (30) & s.9 Constitution of India -
Art.366(29-A)(e)(f) - Companies Act, 1956 - s.25 - Constitution
(Forty-sixth Amendment) Act, 1982 - General Clauses Act - Income
Tax Act, 1961 - s.2(24)(vii), 2(31), 44, 45(2) - Finance Act, 1994 -
ss.64(3), 6

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 STATE OF WEST BENGAL & ORS.
 v.
 CALCUTTA CLUB LIMITED
 (Civil Appeal No.4184 of 2009)
 OCTOBER 03, 2019
[R. F. NARIMAN, SURYA KANT AND
V. RAMASUBRAMANIAN, JJ.]
Doctrines/Principles - Doctrine of Mutuality - Applicability
of, after the 46th Amendment to Art.366(29-A) - In C.A. No.4184 of
2009, the assessee-respondent Club, registered u/s.25, 1956 Act
was issued notice informing that it had failed to make payment of
sales tax on sale of food and drinks to the permanent members -
Respondent contended that there could be no sale by it to its own
permanent members, for doctrine of mutuality would come into play
- West Bengal Taxation Tribunal held that the respondent is not
eligible to tax under the 1994 Act - Affirmed by the High Court -
Division Bench of the Supreme Court set out inter alia 3 questions to
be answered by larger Bench, viz.(i) Whether the doctrine of
mutuality is still applicable to incorporated clubs or any club after
the 46th Amendment to Art.366(29-A) of the Constitution of India?;
(ii) Whether the judgment of Supreme Court in Young Men's Indian
Association case still holds the field even after the 46th Amendment?
and (iii) Whether the 46th Amendment, by deeming fiction provides
that provision of food and beverages by the incorporated clubs to
its permanent members constitute sale, thus liable to sales tax? - In
C.A. No.7497 of 2012 and connected matters, issue involves levying
of service tax by Finance Act, 1994 upon members' clubs, majority
of them being registered as Companies u/s.25 of the 1956 Act, or as
co-operative societies under various State Acts - Held: Young Men's
Indian Assn. made no distinction between a club in the corporate
form and a club by way of a registered society or incorporated by a
deed of trust - What is the essence of the judgment is that the holding
of property must be a holding for and on behalf of the members of
the club, there being no transfer of property from one person to
another - In members' clubs there is a complete identity between
contributors and participators - Thus, in members' clubs there is
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no sale by one person to another for consideration, as one cannot
sell something to oneself - What is of essence in applying the
doctrine of mutuality is that there is no sale transaction between
two persons, as one person cannot sell goods to itself - Ratio of
Young Men's Indian Assn. has not been done away with by the limited
fiction introduced by Art.366(29-A)(e) - Questions answered (i)
Doctrine of mutuality continues to be applicable to incorporated
and unincorporated members' clubs after the 46th Amendment adding
Art.366(29-A); (ii) Young Men's Indian Assn. and other judgments
which applied this doctrine continue to hold the field even after the
46th Amendment; and (iii) Sub-clause (f) of Art.366(29-A) has no
application to members' clubs - No interference called for in the
findings of fact or declaration of law in this case - Further, in C.A.
No.7497/12 and connected matters- Argument on behalf of the
respondents that incorporated clubs or associations prior to 1st July,
2012 were not included in the service tax net is accepted - What
has been stated in the present judgment so far as sales tax is
concerned applies on all fours to service tax- Explanation 3(a) to
s.65B(44) of the Finance Act, 1994 does not apply to members'
clubs which are incorporated - From 2005 onwards, the Finance
Act, 1994 does not purport to levy service tax on members' clubs in
the incorporated form - Jharkhand High Court and the Gujarat
High Court correct in their view of the law in following Young Men's
Indian Assn. Case - Thus, show-cause notices, demand notices and
other action taken to levy and collect service tax from incorporated
members' clubs are void and of no effect in law - West Bengal Sales
Tax Act, 1994 - ss.2(5), (10), (30) & s.9 Constitution of India -
Art.366(29-A)(e)(f) - Companies Act, 1956 - s.25 - Constitution
(Forty-sixth Amendment) Act, 1982 - General Clauses Act - Income
Tax Act, 1961 - s.2(24)(vii), 2(31), 44, 45(2) - Finance Act, 1994 -
ss.64(3), 65(25a), (25aa), 65(105)(zze), 65(A), 65B(37), Explanation
3(a) to s.65B(44), 66B, 66D, 67, 68 - Finance Act, 2006 - Finance
Act, 2012 - Interpretation of Statutes - Central Sales Tax Act, 1956.
Constitution of India - 46th Amendment to Art.366(29-A) -
61st Law Commission Report - Plea on behalf of the appellants,
referring to the said Report, which preceded the enactment of
Art.366(29-A); the 'Statement of Objects and Reasons' appended
to the 1981 Bill, which led to the insertion of Art.366(29-A); and in
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particular to Art.366(29-A)(e), (f) to contend that Art.366(29-A)(e)
was inserted in order to do away with the doctrine of mutuality,
insofar as it applied to members' clubs and, therefore, sought to do
away with the basis of the judgment in Young Men's Indian Assn.
case - Held: Statement of Objects and Reasons has not read the
case of Young Men's Indian Assn. in its correct perspective - Young
Men's Indian Assn. had three separate appeals before it, in one of
which a company was involved - To state, therefore, that under the
law as it stood on the date of the 46th Amendment, a sale of goods
by a club having a corporate status to members is taxable, is wholly
incorrect - Proceeding on this incorrect basis, the 46th Amendment
then sought to bring to tax sales by clubs which have no separate
existence from that of their members - In so doing, the 46th
Amendment used the expression "any unincorporated association
or body of persons" - This expression, when read with the Statement
of Objects and Reasons, makes it clear that it was only clubs which
are not in corporate form that were sought to be brought within the
tax net, as it was wrongly assumed that sale of goods by members'
clubs in the corporate form were taxable -"Any" is the equivalent
of "all"- This word, therefore, also lends itself to the aforesaid
interpretation, as the emphasis of the legislature is on all
unincorporated associations or bodies being brought within subclause(e) - Constitution (Forty-sixth Amendment) Bill, 1981 -
Constitution (Forty-sixth Amendment) Act, 1982 - Interpretation of
Statutes - Doctrine of Mutuality.
Words & Expressions - "unincorporated association or body
of persons" in sub-clause (e) to Art.366(29-A) - Plea on behalf of
the appellants that the said expression must be read disjunctively
and thus, would include incorporated persons such as companies,
cooperative societies etc. - Held: On the assumption that
"unincorporated association or body of persons" must be read
disjunctively, "a body of persons" cannot be equated with "person"
- "Person" as defined by the General Clauses Act (which applies
to the interpretation of the Constitution vide Art.367) states that
"person" shall include any company or association or body of
individuals, whether incorporated or not - Art.366(29-A) does not
use this expression, as "person" would then include corporate
persons as well - "body of persons" is used to make it clear beyond
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doubt that corporate persons are not referred to - Further, contrast
in the language of the 1961 Act and Art.366(29-A)(e) again leads
to the conclusion that "body of persons" would not refer to the
corporate form unless "person" by itself is accompanied by the
expression "whether incorporated or not" - Constitution of India
- Art.366(29-A)(e), 367 - General Clauses Act - Income Tax
Act, 1961 - s.2(31) - Interpretation of Statutes.
Contract Act, 1872 - s.2(d) - Plea on behalf of the respondent
that s.2(d) makes it clear that consideration must flow from one
person to another and in the absence of two players, as in the case
of Young Men's Indian Assn., Art.366(29-A) would have no application
- Held: "supply" of goods by an unincorporated association or
body of persons has to be to a member for cash, deferred payment
or other valuable consideration - Correctly argued by the
respondents, the definition of "consideration" in s.2(d) of the 1872
Act necessarily posits consideration passing from one person to
another - This is further reinforced by the last part of Art.366(29A), as under this part, the supply of such goods shall be deemed to
be sale of those goods by the person making the supply, and the
purchase of those goods by the person to whom such supply is made
- As the Young Men's Indian Assn. case and the doctrine of mutuality
state, there is no sale transaction between a club and its members -
Ratio of Young Men's Indian Assn. has not been done away with by
the limited fiction introduced by Art.366(29-A)(e) - Constitution of
India - Art.366(29-A) - West Bengal Sales Tax Act, 1994 - ss.2(5),
(30) - Doctrine of Mutuality.
Constitution of India- Art.366(29-A)(e), (f)- Applicability of
sub-clause (f) to members' club - Held: Reason for sub-clause (f),
as stated in the Statement of Objects and Reasons, is the doing
away with of two judgments of Supreme Court, viz., Associated Hotels
of India Ltd. and Northern India Caterers - This is also clear from the
subject matter of sub-clause (f) (which does not include "goods" in
their entirety, but only food or any other article for human
consumption, or any drink), which is the serving of such food or
drink in hotels or restaurants - This is further made clear by s.6 of
the 46th Amendment Act, which is a validation and exemption
provision - s.6(1)(a) specifically refers to transactions referable to
the aforesaid two Supreme Court judgments - Sub-clause (a) of
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s.6(2) refers to 07.09.1978, which is the date on which Northern
India Caterers was pronounced and sub-clause (b) refers to
04.01.1972, when Associated Hotels of India Ltd. was pronounced -
46th Amendment Act, therefore, when read as a whole, would make
it clear that Art.366(29-A)(f) refers only to an undoing of the
aforesaid two judgments, the subject matter being the taxability of
food or drink served in hotels and restaurants - Thus, the taxability
of food or drink served in members' clubs is not the subject matter
of sub-clause (f) - Subject matter of sub-clause (f) is entirely
different and distinct from that of sub-clause (e), and cannot possibly
apply to members' clubs - Thus, expression "in any manner
whatsoever", being part and parcel of sub-clause (f) cannot be
held to extend to a supply of all goods so as to bring such goods to
tax when applied to members' clubs - Constitution (Forty-sixth
Amendment) Act,1982 - s.6.
Income Tax Act, 1961 - ss.2(24)(vii), 44, 45(2) - Held:
Doctrine of Mutuality has not been done away with by sub-clause
(e) to Art.366(29-A) is also clear when sub-clause (e) is contrasted
with s.2(24)(vii) of the 1961 Act r/w s.44 - A reading of the said
provisions make it clear that when profits and gains of a mutual
insurance company are sought to be brought to tax, they are so
done by express reference to the fact that the business of insurance
is carried on by a mutual insurance company - Absence of any
such language in sub-clause (e) of Art.366(29-A) is also an important
pointer to the fact that the doctrine of mutuality cannot be said to
have been done away with by the said 46th Amendment - Also, s.45(2)
is an example of a provision by which a deemed transfer by a person
to himself gets taxed - Modalities such as these to bring to tax
amounts that would do away with any doctrine of mutuality are
conspicuous by their absence in the language of Article 366(29A)(e) - Constitution of India - Art.366(29-A)(e) - Constitution (Fortysixth Amendment) Act, 1982 - Doctrine of Mutuality.
Words & Expressions - Expression "body of persons"
occurring in the explanation to s.65 and s.65(25a) and (25aa) -
Meaning of - Held: Said expression does not refer to an
incorporated company or an incorporated cooperative society -
Finance Act, 1994 - Explanation to s. 65, ss.65(25a), (25aa);
s.65B(37) and Explanation 3(a) to s.65B(44) - Finance Act, 2006.
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Finance Act, 1994 - Explanation to s.65, ss.65(25a), (25aa);
s.65B(37) and Explanation 3(a) to s.65B(44) - Applicability of
explanation 3(a) to s.65B(44) to incorporated members' clubs -
Discussed - Finance Act, 2006 - Finance Act, 2012.
Dismissing the Civil Appeal No.4184 of 2009 and the
appeals of the Revenue, while allowing the Writ Petition (Civil)
No.321 of 2017 in terms of prayer (i) therein, the Court
HELD: 1.1 Young Men's Indian Association made no
distinction between a club in the corporate form and a club by
way of a registered society or incorporated by a deed of trust.
What is the essence of the judgment is that the holding of property
must be a holding for and on behalf of the members of the club,
there being no transfer of property from one person to another.
Proprietary clubs were distinguished, as there the owner of the
club would not be the members themselves, but somebody else.
The present appeal deals with a company that is registered under
Section 25 of the Companies Act. In these companies, payment
of dividend to shareholders is prohibited, and the profits, if any,
have to be applied to promote the objects of the company. Bacha
F. Guzdar did not deal with a Section 25 company - it dealt with
two tea companies which were Public Limited Companies,
registered under the Companies Act. Given the differences
pointed out in Cricket Club of India between clubs registered as
Companies under Section 25 of the Companies Act and other
companies, it is clear that the ratio decidendi in the judgment in
Bacha F. Guzdar would not apply to such clubs - there being no
shareholders, no dividends declared, and no distribution of profits
taking place. Such clubs, therefore, cannot be treated as separate
in law from their members. If persons carry on a certain activity
in such a way that there is a commonality between contributors
of funds and participators in the activity, a complete identity
between the two is then established. This identity is not snapped
because the surplus that arises from the common fund is not
distributed among the members - it is enough that there is a
right of disposal over the surplus, and in exercise of that right
they may agree that on winding up, the surplus will be transferred
to a club or association with similar activities. Most importantly,
the surplus that is made does not come back to the members of
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the club as shareholders of a company in the form of dividends
upon their shares. Since the members perform the activities of
the club for themselves, the fact that they incorporate a legal
entity to do it for them makes no difference. What is of essence,
therefore, in applying this doctrine is that there is no sale
transaction between two persons, as one person cannot sell goods
to itself. [Paras 26, 30] [908-B-D, H; 909-A; 911-C-D; 914-B-D]
C.T.O. v. Young Men's Indian Association (1970) 1 SCC
462 : [1970] 3 SCR 680 - explained.
Bacha F. Guzdar v. Commissioner of Income Tax,
Bombay [1955] 1 SCR 876 - distinguished.
Cricket Club of India Ltd. v. Bombay Labour Union
[1969] 1 SCR 600 ; Bangalore Club v. Commissioner
of Income Tax and Anr. (2013) 5 SCC 509 : [2013] 1
SCR 267 - relied on.
1.2 The 61st Law Commission Report had observed that
there cannot be said to be any evasion of tax as a member of
members' clubs "really takes his own goods" and, therefore, did
not seek to tax such goods. The framers of the 46th Amendment
thought otherwise, and made it plain that they sought to bring to
tax sales made by unincorporated clubs or an association of
persons to their members, as it was thought that such transactions
were not taxable, as such club or associations in law has no
separate existence from that of the members. The Statement of
Objects and Reasons has not read the case of Young Men's Indian
Association in its correct perspective. Young Men's Indian
Association had three separate appeals before it, in one of which
a company was involved. To state, therefore, that under the law
as it stood on the date of the 46th Amendment, a sale of goods by
a club having a corporate status to members is taxable, is wholly
incorrect. Proceeding on this incorrect basis, what the 46th
Amendment sought to do was to then bring to tax sales by clubs
which have no separate existence from that of their members. In
so doing, the 46th Amendment used the expression "any
unincorporated association or body of persons". This expression,
when read with the Statement of Objects and Reasons, makes it
clear that it was only clubs which are not in corporate form that
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were sought to be brought within the tax net, as it was wrongly
assumed that sale of goods by members' clubs in the corporate
form were taxable. "Any" is the equivalent of "all". This word,
therefore, also lends itself to the aforesaid interpretation, as the
emphasis of the legislature is on all unincorporated associations
or bodies being brought within sub-clause (e). Thus, it is clear
that even going by the argument as to the intention of the
legislature, as seen through the object that the legislature sought
to achieve, would lead to the aforesaid expression applying only
to clubs which were not in the corporate form.
[Paras 32-34] [914-F-H; 915-A-D]
1.3
Even
otherwise,
on
the
assumption
that
"unincorporated association or body of persons" must be read
disjunctively, "a body of persons" cannot be equated with
"person". "Person" as defined by the General Clauses Act,
(which applies to the interpretation of the Constitution vide Article
367) states that "person" shall include any company or association
or body of individuals, whether incorporated or not. Article
366(29-A) does not use this expression, as "person" would then
include corporate persons as well. On the other hand, "body of
persons" is used to make it clear beyond doubt that corporate
persons are not referred to. The definition of "person" in other
Acts such as the Income Tax Act, 1961 is also very wide, and
includes an association of persons or body of individuals, whether
incorporated or not- Section 2(31) of the Income Tax Act, 1961.
Quite clearly, this language was available and in common usage
by the legislature, as the definition of "person" under the Income
Tax Act has stood in the statute book since 1961. The contrast in
the language of the Income Tax Act, 1961 and Article 366(29A)(e) again leads to the conclusion that "body of persons" would
not refer to the corporate form unless "person" by itself is
accompanied by the expression "whether incorporated or not".
Even otherwise, the "supply" of goods by an unincorporated
association or body of persons has to be to a member for cash,
deferred payment or other valuable consideration. The definition
of "consideration" in Section 2(d) of the Indian Contract Act,
1872 necessarily posits consideration passing from one person
to another. This is further reinforced by the last part of Article
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366(29-A), as under this part, the supply of such goods shall be
deemed to be sale of those goods by the person making the
supply, and the purchase of those goods by the person to whom
such supply is made. As the Young Men's Indian Association case
and the doctrine of mutuality state, there is no sale transaction
between a club and its members. there cannot be a sale of goods
to oneself. the ratio of Young Men's Indian Association (supra)
has not been done away with by the limited fiction introduced by
Article 366(29-A)(e). [Paras 35-38] [915-E-H; 916-A-C, H;
917-A-B]
Pollock and Mulla, The Indian Contract & Specific
Relief Acts (16th Edn.) - referred to.
1.4 The reason for sub-clause (f), as has been stated in the
Statement of Objects and Reasons, is the doing away with of two
judgments of this Court, namely, State of Punjab v. Associated
Hotels of India Limited AIR 1972 SC 1131 and Northern India
Caterers (India) Ltd.. This is clear not only from the Statement
of Objects and Reasons, but from the subject matter of sub-clause
(f) (which does not include "goods" in their entirety, but only
food or any other article for human consumption, or any drink),
which is the serving of such food or drink in hotels or restaurants.
This is further made clear by Section 6 of the 46th Amendment
Act, which is a validation and exemption provision. Section 6(1)(a)
specifically refers to transactions referable to the aforesaid two
Supreme Court judgments. The exemption provision puts the
matter beyond doubt. Sub-clause (a) refers to 7th September, 1978,
which is the date on which Northern India Caterers was
pronounced and sub-clause (b) refers to 4th January, 1972, which
is the date on which Associated Hotels of India Ltd. was
pronounced. The 46th Amendment Act, therefore, when read as
a whole, would make it clear that Article 366(29-A)(f) refers only
to an undoing of the aforesaid two judgments, the subject matter
being the taxability of food or drink served in hotels and
restaurants. This being the case, it is obvious that the taxability
of food or drink served in members' clubs is not the subject matter
of sub-clause (f). A members' club may supply goods which are
not food or drink - for example, soap, cosmetics and other
household items. These items would be "goods", but would not
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be within sub-clause (f) - not being food or drink, and cannot,
therefore, be taxed under sub-clause (f), leading to the absurd
situation of the supply of food and drink being taxable in members'
clubs, and the supply of other goods in such clubs being outside
the tax net. For this reason also, it is clear that the subject matter
of sub-clause (f) is entirely different and distinct from that of subclause (e), and cannot possibly apply to members' clubs. In this
view of the matter, the expression "in any manner whatsoever",
being part and parcel of sub-clause (f) cannot be held to extend
to a supply of all goods so as to bring such goods to tax when
applied to members' clubs. [Paras 39-42] [917-C-E; 918-B-F]
Northern India Caterers (India) Ltd. v. Lt. Governor of
Delhi (1978) 4 SCC 36 : [1979] 1 SCR 557 ; State of
Punjab v. Associated Hotels of India Limited AIR 1972
SC 1131 : [1972] 2 SCR 937 - referred to.
1.5 That the doctrine of mutuality has not been done away
with by sub-clause (e) is also clear when sub-clause (e) is
contrasted with certain provisions of the Income Tax Act, 1961.
Section 2(24)(vii) of the Income Tax Act, 1961 has to be read
with Section 44 of the Income Tax Act, 1961. A reading of the
aforesaid provisions makes it clear that when profits and gains of
a mutual insurance company are sought to be brought to tax,
they are so done by express reference to the fact that the business
of insurance is carried on by a mutual insurance company. The
absence of any such language in sub-clause (e) of Article
366(29-A) is also an important pointer to the fact that the doctrine
of mutuality cannot be said to have been done away with by the
said 46th Amendment. Also, Section 45(2) of the Income Tax Act,
1961 is an example of a provision by which a deemed transfer by
a person to himself gets taxed. It can be seen from this provision
that profits or gains arising from a transfer by way of conversion
by the owner of a capital asset into, or its treatment by him as
stock-in-trade of a business, is by a deeming fiction brought to
tax, despite the fact that there is no transfer in law by the owner
of a capital asset to another person. Modalities such as these to
bring to tax amounts that would do away with any doctrine of
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mutuality are conspicuous by their absence in the language of
Article 366(29-A)(e). [Paras 45, 46 and 48] [920-E, H; 921-C, F;
922-C]
Income Tax Officer, Mumbai v. Venkatesh Premises
Cooperative Society Limited (2018) 15 SCC 37:
[2018] 3 SCR 214 - referred to.
1.6 The three questions posed by the Division Bench in
State of West Bengal v. Calcutta Club Limited are answered as
follows:
(1) The doctrine of mutuality continues to be applicable to
incorporated and unincorporated members' clubs after the
46th Amendment adding Article 366(29-A) to the Constitution of
India.
(2) Young Men's Indian Association and other judgments
which applied this doctrine continue to hold the field even after
the 46th Amendment.
(3) Sub-clause (f) of Article 366(29-A) has no application to
members' clubs.
No interference is called for in the findings of fact or
declaration of law in this case. C.A. No. 4184 of 2009 stands
dismissed. [Paras 49, 50] [922-E-H]
State of West Bengal v. Calcutta Club Limited
(2017) 5 SCC 356 : [2016] 6 SCR 748 - referred to.
C.A. No.7497 of 2012 and other connected matters
2.1 Service tax was introduced for the first time by the
Finance Act, 1994. Under Section 64(3), Chapter V of the Finance
Act applied to taxable services as defined, with effect from 16th
June, 2005. Under Section 65(25a), "club or association" was
defined. Under Section 65(105)(zze), "taxable service" was
defined. With effect from 1st May, 2011, "club or association"
was defined by Section 65(25aa). Likewise, in Section
65(105)(zzze), the expression "or any other person" was added
after the expression "to its members", thus making it clear that
the tax net had now been widened so as to include non-members
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of clubs or associations as well. Under Section 66, it was stated
that there shall be levied the tax (referred to as "the service
tax") at the rate of 12% of the value of taxable services referred
to in sub-clauses...(zzze) of clause (105) of section 65, and
collected in such manner as may be prescribed. Under Section
67, where service tax is chargeable on any taxable service with
reference to its value. With effect from 1st July, 2012, Sections
65 and 65A were made inapplicable, and a new Section 65B
introduced, in which under Section 65B(37), the term "person"
was defined. Under Section 65B(44), "service" was defined. A
new Section 66B was then introduced. Service tax was thus
leviable on all services as defined, short of a negative list of
services which was then set out in Section 66D of the Act.
[Paras 58-63, 65-68] [925-F; 926-C-D, H]
2.2 The definition of "club or association" contained in
Section 65(25a) makes it plain that any person or body of persons
providing services for a subscription or any other amount to its
members would be within the tax net. However, what is of
importance is that anybody "established or constituted" by or
under any law for the time being in force, is not included.
Companies and cooperative societies which are registered under
the respective Acts, can certainly be said to be constituted under
those Acts. This being the case, the argument on behalf of the
Respondents that incorporated clubs or associations or prior to
1st July, 2012 were not included in the service tax net is accepted.
[Paras 72, 73] [931-E-F; 932-G-H]
R.C. Mitter & Sons, Calcutta v. CIT, West Bengal,
Calcutta [1959] Suppl. 2 SCR 641 - relied on.
DALCO Engineering Private Limited v. Satish
Prabhakar Padhye and Ors. Etc. (2010) 4 SCC 378 :
[2010] 4 SCR 15 ; CIT, Kanpur and Anr. v. Canara
Bank (2018) 9 SCC 322 : [2018] 7 SCR 866 -
referred to.
2.3 The definition of "service" contained in Section 65B(44)
is very wide, as meaning any activity carried out by a person for
another for consideration. "Person" is defined in Section 65B(37)
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as including, inter alia, a company, a society and every artificial
juridical person not falling in any of the preceding sub-clauses,
as also any association of persons or body of individuals whether
incorporated or not. What has been stated in the present judgment
so far as sales tax is concerned applies on all fours to service
tax; as, if the doctrine of agency, trust and mutuality is to be applied
qua members' clubs, there has to be an activity carried out by
one person for another for consideration. It has been seen how
in the judgment relating to sales tax, the fact is that in members'
clubs there is no sale by one person to another for consideration,
as one cannot sell something to oneself. This would apply on all
fours when the definition of "service" is construed under Section
65B(44) as well. However, Explanation 3 has now been
incorporated, under sub-clause (a) of which unincorporated
associations or body of persons and their members are statutorily
to be treated as distinct persons. [Paras 75-77] [933-B-E]
2.4 The definition of "service" contained in Section 65B(44)
is very wide, as meaning any activity carried out by a person for
another for consideration. "Person" is defined in Section 65B(37)
as including, inter alia, a company, a society and every artificial
juridical person not falling in any of the preceding sub-clauses,
as also any association of persons or body of individuals whether
incorporated or not. What has been stated in the present
judgment so far as sales tax is concerned applies on all fours to
service tax; as, if the doctrine of agency, trust and mutuality is to
be applied qua members' clubs, there has to be an activity
carried out by one person for another for consideration. In the
judgment relating to sales tax, the fact is that in members' clubs
there is no sale by one person to another for consideration, as
one cannot sell something to oneself. This would apply on all
fours when the definition of "service" under Section 65B(44) as
well is to be construed. However, Explanation 3 has now been
incorporated, under sub-clause (a) of which unincorporated associations or body of persons and their members are statutorily
to be treated as distinct persons. The explanation to Section 65,
inserted by the Finance Act, 2006 is in substantially the same
terms as Article 366(29-A)(e) of the Constitution of India.
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Earlier in this judgment qua sales tax, it has already been held
that the expression "body of persons" will not include an
incorporated company, nor will it include any other form of
incorporation including an incorporated co-operative society.
"Club or association" was earlier defined under Section 65(25a)
and 65(25aa) to mean "any person" or "body of persons"
providing service. In these definitions, the expression "body of
persons" cannot possibly include persons who are incorporated
entities, as such entities have been expressly excluded under
Section 65(25a)(i) and 65(25aa)(i) as "anybody established or
constituted by or under any law for the time being in force". "Body
of persons", therefore, would not, within these definitions,
include a body constituted under any law for the time being in
force. When the scheme of service tax changed so as to
introduce a negative list for the first-time post 2012, services
were now taxable if they were carried out by "one person" for
"another person" for consideration. "Person" is very widely
defined by Section 65B(37) as including individuals as well as all
associations of persons or bodies of individuals, whether
incorporated or not. Explanation 3 to Section 65B(44), instead
of using the expression "person" or the expression "an
association of persons or bodies of individuals, whether
incorporated or not", uses the expression "a body of persons"
when juxtaposed with "an unincorporated association". The
expression "body of persons" occurring in the explanation to
Section 65 and occurring in Section 65(25a) and (25aa) does not
refer to an incorporated company or an incorporated cooperative society. As the same expression has been used in Explanation 3 post-2012 (as opposed to the wide definition of "person"
contained in Section 65B(37)), it may be assumed that the
legislature has continued with the pre-2012 scheme of not taxing
members' clubs when they are in the incorporated form. The
expression "body of persons" may subsume within it persons
who come together for a common purpose, but cannot possibly
include a company or a registered cooperative society. Thus,
Explanation 3(a) to Section 65B(44) does not apply to members'
clubs which are incorporated. The expression "unincorporated
associations" would include persons who join together in some
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common purpose or common action. The expression "as the case
may be" would refer to different groups of individuals either
bunched together in the form of an association also, or otherwise
as a group of persons who come together with some common
object in mind. Whichever way it is looked at, what is important
is that the expression "body of persons" cannot possibly include
within it bodies corporate. The Jharkhand High Court and the
Gujarat High Court are correct in their view of the law in
following Young Men's Indian Association. From 2005 onwards,
the Finance Act of 1994 does not purport to levy service tax on
members' clubs in the incorporated form. The appeals of the
Revenue are, therefore dismissed. Writ Petition (Civil) No.321
of 2017 is allowed in terms of prayer (i) therein. Consequently,
show-cause notices, demand notices and other action taken to
levy and collect service tax from incorporated members' clubs
are declared to be void and of no effect in law.[Paras 75-85]
[933-B-H; 934-A-H; 935-A-B]
Deputy Commercial Tax Officer, Saidapet & Anr. v.
Enfield India Ltd., Co-operative Canteen Ltd. [1968] 2
SCR 421 - explained.
Cosmopolitan Club v. State of T.N (2017) 5 SCC 635 ;
Fateh Maidan Club v. CTO (2017) 5 SCC 638 ; State
of Gujarat v. Raipur Manufacturing Co. Ltd. [1967] 1
SCR 618 ; BSNL v. Union of India (2006) 3 SCC 1 :
[2006] 2 SCR 823 ; State of Madras v. Gannon
Dunkerley AIR 1958 SC 560 : [1959] SCR 379; Union
of India and Ors. v. Margadarshi Chit Funds Private
Limited and Ors. (2017) 13 SCC 806 : [2017] 7 SCR
375; All-India Federation of Tax Practitioners and Ors.
v. Union of India and Ors. (2007) 7 SCC 527 : [2007]
9 SCR 147; ICT, Bombay North, Kutch and Saurashtra,
Ahmedabad v. Indira Balkrishna [1960] 3 SCR 513
- referred to.
K. Damodarasamy Naidu & Bros. and Ors. v. State of
T.N. and Anr. (2000) 1 SCC 527 ; Federation of Hotel
and Restaurant Associations of India v. Union of India
and Ors. (2018) 2 SCC 97 : [2017] 12 SCR 503
- relied on.
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Inland Revenue Commissioners v. Westleigh Estates
Company, Limited 1924 K.B. 390; Walter Fletcher v.
Income Tax Commissioner (1972) Appeal Cases 414;
Graff v. Evans (1882) 8 Q.B. 373 ; Trebanog Working
Men's Club and Institute Ltd. v. Macdonald (1940) 1
K.B. 576 ; Thomas (Inspector of Taxes) v. Richard Evans
& Co. Ltd. (1927) 1 K.B. 33 ; Currie v. Misa (1875)
LR 10 EX 153 - referred to.
Case Law Reference
[2016] 6 SCR 748
referred to
Para 1
[1970] 3 SCR 680
 explained
Para 2
[1968] 2 SCR 421
explained
Para 5
[1955] 1 SCR 876
distinguished Para 5
[1967] 1 SCR 618
referred to
Para 6
[1979] 1 SCR 557
referred to
Para 6
[2006] 2 SCR 823
 referred to
 Para 13
[1959] SCR 379
referred to
Para 16
[1969] 1 SCR 600
relied on
Para 28
[2013] 1 SCR 267
relied on
Para 30
[2018] 3 SCR 214
referred to
Para 30
[1972] 2 SCR 937
referred to
Para 39
(2000) 1 SCC 527
relied on
Para 43
[2017] 12 SCR 503
relied on
Para 44
[2017] 7 SCR 375
referred to
Para 69
[2007] 9 SCR 147
referred to
Para 70
[2010] 4 SCR 15
referred to
Para 72
[2018] 7 SCR 866
referred to
Para 72
[1959] 2 Suppl. SCR 641
relied on
 Para 72
[1960] 3 SCR 513
referred to
Para 83
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CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil Appeal
No.4184 of 2009
From the Judgment and Order dated 01.02.2008 of the Division
Bench of the Calcutta High Court in W.P.T.T. No. 652 of 2006
With
Civil Appeal Nos.7497/2012, 7773/2019, 7771/2019, 7772/2019,
4377-4380/2015, 5157/2015, 7030/2015, 8543/2015, 7259/2015, 7924/2015,
7774/2019, 7775/2019, 7781/2019, 7780/2019, 7783/2019, 7778/2019,
7779/2019, 7777/2019, 5946/2016, 5949/2016, 6593/2016, 7366-7367/2016,
626/2017, 7776/2019, 3584/2017, 5087/2017, 3819-3821/2017, W.P. (C)
No. 321/2017, C.A. Nos. 10674/2017, 11224/2017, 72-73/2018, 104/2019,
7790/2019, 5338/2019, 5215-5217/2019 and 7789/2019.
K. M. Natraj, ASG, Dhruv Agarwal, Shyam Divan, S.K. Bagaria,
Arvind P. Datar, Devang Nanavati, Rana Mukherjee, Nakul Dewan,
Jaideep Gupta, Sr. Advs., Ms. Madhumita Bhattacharjee, Ms. Srija
Choudhury, Ms. Nisha Bagchi, Ms. Sunita Rani Singh, D.L. Chidananda,
Ms. Pooja Sharma, Sharath Nambiar, B. Krishna Prasad, B. V. Balaram
Das, Amit Thakkar, Mahesh Agarwal, Shamik Sajanwala, Abhinav
Agrawal, Udayaditya Banarjee, Yojit Mehra, E. C. Agrawala, Neerav
Mainkar, Ms. Dhwani Mainkar, Anil Kumar Gautam, Amar Dave, Ajitsinh
Jadeja, Pradhuman Gohil, Ms. Taruna Singh Gohil, Vikash Singh,
Ms. Ranu Purohit, Shiva P., Dhruraj Rana, Krishal H. Patel, Partha Sil,
Tavish B. Prasad, Lakshmi N. Kaimal, Rajesh Kumar, Ms. Sunita Rawat,
Rahul Krishna, S.K. Kulkarni, M. Gireesh Kumar, Ankur S. Kulkarni,
Ejaz Maqbool, Ms. Akriti Chaubey, Kunwar Aditya Singh, Gautam
Prabhakar, V. Raghuraman, Anand Sukumar, S. Sukumaran, Bhupesh
Kumar Pathak, Mrs. Meera Mathur, Rajeev Singh, M/s. S. Narain &
Co., Prateek Chadha, Pratap Venugopal, Ms. Surekha Raman, Ms.
Viddusshi, Akhil Abraham Roy (for M/s. K J John and Co,) Ajay Kumar,
Vijay Goswami, Ranjith Kumar, Shivam Ojha, Ms. Charanya
Lakshmikumaran, V. Lakshmikumaran, Karan Sachdev, Aaditya
Bhattacharya, Ms. Apeksha Mehta, Ms. Ishita Mathur, Ms. Mounica
Kasturi, Punit Dutt Tyagi, M. P. Devanath, P.K. Sahu, Prashant Shukla,
Kedar Nath Tripathy, J.K. Mittal, Ms. Vandana Mittal, Praveen Swarup,
Advs. for the appearing parties.
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The Judgment of the Court was delivered by
R. F. NARIMAN, J.
C.A. No.4184 of 2009
1. This Appeal arises out of a reference order by a Division Bench
of this Court, reported in State of West Bengal v. Calcutta Club
Limited (2017) 5 SCC 356. The facts of Civil Appeal No. 4184 of 2009
are set out in the said reference order as follows:
"2. The facts that are necessary to be stated are that the Assistant
Commissioner of Commercial Taxes issued a notice to the
respondent Club assessee apprising it that it had failed to make
payment of sales tax on sale of food and drinks to the permanent
members during the quarter ending 30-6-2002. After the receipt
of the notice, the respondent Club submitted a representation and
the assessing authority required the respondent Club to appear
before it on 18-10-2002. The notice and the communication sent
for personal hearing was assailed by the respondent before the
Tribunal praying for a declaration that it is not a dealer within the
meaning of the Act as there is no sale of any goods in the form of
food, refreshments, drinks, etc. by the Club to its permanent
members and hence, it is not liable to pay sales tax under the Act.
A prayer was also made before the Tribunal for nullifying the
action of the Revenue threatening to levy tax on the supply of
food to the permanent members.
3. It was contended before the Tribunal that there could be no
sale by the respondent Club to its own permanent members, for
doctrine of mutuality would come into play. To elaborate, the
respondent Club treated itself as the agent of the permanent
members in entirety and advanced the stand that no consideration
passed for supplies of food, drinks or beverages, etc.