Joint Commercial Tax Officer, Harbour
Div. II Madras Vs. Young Men's Indian Association Madras & Ors  INSC 20
(12 February 1970)
12/02/1970 GROVER, A.N.
HIDAYATULLAH, M. (CJ) HEGDE, K.S.
CITATION: 1970 AIR 1212 1970 SCR (3) 680 1970
SCC (1) 462
CITATOR INFO :
RF 1978 SC1765 (12) R 1985 SC1293 (45)
Madras General Sales Tax Act, 1959, s. 2(g)
Exp. I & S 2(n) Exp.I--Member's club--Supply of refreshments to Members and
their guests--Whether, sales tax leviable.
The respondents are members' clubs. They
supply refreshments in the form of 'food, snacks and beverages to their members
or their guest S to be paid for by the members. The articles necessary for this
purpose are purchased by the clubs in the market out of club funds which
consisted of the subscription of the members. The preparations are made within
the club premises and are supplied to members at fixed prices. On the question
whether the clubs are "dealers" liable to sales tax under the Madras
General Sales Tax Act, 1959,
HELD : (Per Full Court) As no transaction of
sale was involved there could be no levy of sales tax under the provisions of
(Per Hidayatullah, C. J. Hegde, Grover, Ray
and Dua, JJ.) The State Legislature is only competent to legislate on taxes on
sale or purchase of goods under Entry 54, List 11 of the 7th Schedule to the
Constitution. If there is no transfer of property from one to another there is
no sale which would be exigible to tax, in spite of the definition of 'sale' in
S.2(n) read with Exp. I of the Act. [686G] In proprietary clubs where some of
the shareholders are not members or some of the members are not shareholders,
the members are not owners of, nor interested in, the property of the clubs.
Unlike proprietary clubs the case of a members' club is analogous to that of an
agent investing his own monies for preparing things for the consumption of the
principal and later recouping himself for the expenses incurred. Therefore, in
the present case, even though the clubs are distinct legal entities they were
,Only acting as agents for members in the matter of supply of various preparations
to them and no sale would be involved as the element of transfer would be
completely absent. [685 A-B, 686 H] Cosmopolitan Club, Madras v. District
Commercial Tax Officer, Triplicane (1952) 1 M.L.J. 401; Deputy Commercial Tax
Officer Triplicane Division, Madras v. Cosmopolitan Club, I.L.R.  Mad.
1042. Graf V. Evans,  8 Q.B.D. 373, Trebanog Working Men's Club and
v. Macdonald [19401 1 A.E.L.R. 454, Bengal
Nagpur Cotton Mills Club, Rajnandangaon v. Sales Tax Officer Raipur & Anr.
8 S.T.C. 781, Century Club & Anr. v.
State of Mysore, 16 S.T.C. 38, Deputy Commercial Tax Officer v. Enfiend India
Ltd.  2 S.C.R. 421, and Inland Revenue Commissioners v. Westleigh Estate
Co. Ltd. Same v. .South Behar Railway Co. Ltd. [19241 1 K.B. 390, referred to.
681 (Per Shah, J. concurring) : The analogy
of cases decided under the Licensing Act in the United Kingdom concerning the
supply by clubs of alcoholic drinks to their members is not appropriate.
Whether refreshments, beverages and other articles supplied by members' club
for consideration, to its members, are in law sold depends upon the,
circumstances in which the transaction takes place. in each case the liability
to tax -of the transaction will depend upon its strictly legal form. If an
incorporated members' club supplies its property to its members at a fixed
tariff-the transaction would readily be deemed to be one for sale, even if the
transaction is on a non-profit basis; such a transaction would be liable to
sales tax. Where, however, the club is merely acting on behalf of the members
to make available to them refreshments, beverages and other articles, the transaction
will not be regarded as a sale, for the club is the agency through which the
members have arranged that the refreshments, beverages and other articles
should be made available. The test in each case is whether the club transfers
property belonging to it for a price or the club acts as an agent for making
available property belonging to its members. [687 G, 688 B] State of Madras v.
Gannon Dunkerley & Co. Ltd.  S.C.R. 379, Duke of West Minster v.
Inland Revenue Commissioner, 19 T.C. 490, Bank of Chettinad Ltd. v. Commissioner
of Income-tax, Madras, L.R. 67 I.A. 394, Commissioner of Income-tax, Andhra
Pradesh v. Motors & General Stores (P) Ltd., 66 I.T.R. 692 S.C. and
Commissioner of Income-tax Gujarat v. B. M. Kharwar, 72 I.T.R. 603 S.C., referred
In the present case on the findings recorded,
the respondents were not transferring property belonging to them but were
merely acting as agents for and on behalf of the members and hence, the
transactions were not sales and could not therefore be subject to sales tax
under the Act. [688 D]
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1724 to 1727 of 1967.
Appeals from the judgments and orders dated
November 23, 1962 and November 4, 1963 of the Madras High Court in Writ
Petitions Nos. 129, 130 and 181 of 1960 and Writ Appeal No. 275 of 1963.
M. C. Chagla and A. V. Rangam, for the
appellants (in all the appeals).
D. Narsaraju and R. Gopalakrishnan, for the
respondents (in C.As. Nos. 1724, 1725 and 1727 of 1967).
P. Ram Reddy, P. Parameswara Rao and A. V. V.
Nair, for the respondent (in S.A. No. 1726 of 1967).
The Judgment of M. HIDAYATULLAH, C.J., K. S.
HEGDE, A.N. GROVER, A. N. RAY and 1. D. DUA, was delivered by GROVER, J. J. C.
SHAH gave a separate opinion. Grover, J. These appeals by certificate are
directed against a common judgment, of the Madras High Court in petitions filed
under Art. 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 682 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 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 refreshment 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 therefore 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 September 15, 1911 entered into between the Maharja of
Bibbli and the Collector of Nilgiris and others.
The management of the Institute vests
absolutely in the board of trustees. It is 683 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.
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
a cooperative society, a club, a firm or any
association which sells goods to its members is a dealer within the meaning of
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(1). 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 (Deputy Commercial Tax Officer, Triplicane Division, Madras v. The
Cosmopolitan Club('). 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)...................
Explanation-1. A society including a
cooperative, society, club or firm or an association which, whether or not in t
he course of business, buys, sells or distributes goods from or to its members
for cash or for deferred (1)  1 M.L.J. 401.
(2) I.L.R.  mad. 1042.
684 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 or other valuable consideration Explanation 1.
"The transfer of property involved in the supply or distribution of goods
by a society (including a cooperative 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 1.
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 685 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.(See
Halsbury's Laws of England, 3rd Ed., Vol. 5, pp. 280-281.) The principle laid
down in Graff v. Evans(') 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
According to Lord Hewart (L.C.J.) in Trebanog
Working Men's Club and Institute Ltd. v. Macdonald (2) once it was conceded
that a members' club did not -necessarily require a license 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 be a holding for and
on behalf of and not a holding antagonistic to members of the club.
In the various cases which came to be decided
by the High Courts in India the view which had prevailed in England was
accepted and applied. We may notice the decisions of the Madhya Pradesh High
Court in Bengal Nagpur Cotton Mills Club, Rajnandangaon v. Sales Tax Officer
Raipur & Another ( 3 ) and of the Mysore High Court in Century Club &
Another v. The State of Mysore & Anr. (4). In the former it was held -that
the supply to the member of a members' club registered under s. 26 of the
Indian Companies Act 1913 of refreshments purchased out of club funds which
consisted of members' subscription was not a transfer of property from the club
as such to a member and the club was not liable to sales tax under the C.P.
& Barar Sales Tax Act 1947 in respect of such supplies of refreshment. The
principle adverted to in Trebanog Working Men's Club (2) was adopted (1) 
8 Q. B. D. 373.
(3) 8 S. T. C. 781.
(2)  1 A.E.L.R. 454.
(4) 16 S. T. C. 38.
686 and it was said that if the agent or a
trustee supplied goods to the members such supplies would not amount to a
transaction of sale. The Mysore court expressed the same view that a purely
member's club which makes purchases through a Secretary or manager and supplies
the requirements to members at a fixed rate did not in law sell these goods to
On behalf of the appellant reliance has been
placed on a decision of this court in Deputy Commercial Tax Officer & Anr.
v. Enfiend India Ltd. (1). In that case the Explanation to s. 2 (g) was found
to be intravires and within the competence of the State legislature. The
judgment proceeded on the footing that when a cooperative society supplied
refreshments to its members for a price the following four constituent elements
of sale were present :
(1) parties competent to contract; (2) mutual
consent; (3) thing, the absolute or general property in which is transferred
from the seller to the buyer and (4) price in money paid or promised. The mere
fact that the society supplied the refreshments to its members alone and did
not make any profit was not considered sufficient to establish that the society
was acting only as an agent of its members.
As a registered society was a body corporate
it could not be assumed that the property which it held was the property of
which its members were owners. The English decisions were distinguished on the
ground that the courts in those cases were dealing with matters of quasi
It appears that in England even in taxation
laws the position of a members' club though incorporated has been recognised to
be quite different. In Inland Revenue Commissioners v. West leigh Estate Co.
Ltd.('); Same v. South Behar Railway Co. Ltd. and Same v. Eccentric Club
Pollock M.R. dealing with the case of the Eccentric Club pointed out that the
members' club was only structurally a company and it did not carry on trade or
business so as to attract the Corporation Profits Tax.
The essential question, in the present case,
is whether the supply of the various preparations by each club to its members
involved a transaction of sale within the meaning of the Sale of Goods Act 1930.
The State Legislature being competent to legislate only under Entry 54, List II
of the 7th Schedule to the Constitution the expression "sale of
goods" bears the same meaning -which it has in the aforesaid Act. Thus in
spite of the definition contained in S. 2(n) read with Explanation I of the Act
if there is -no transfer of property from one to another there is no sale which
would be exigible to tax. If the club even though a distinct legal entity is
only acting as an agent for its members in the matter of ,supply of various
preparations to them no sale would be involved (1)  2 S.C.R. 421.
(2)  1 K. B. 390.
687 as the element of transfer would be
completely absent. This position has been rightly accepted even in the previous
decision of this Court.
The final conclusion of the High Court in the
judgment under appeal was that the case of each club was analogous to that of
an agent or mandatory investing his own monies for preparing things for
consumption of the principal, and later recouping himself for the expenses
incurred. Once this conclusion on the facts relating to each club was reached
it was unnecessary for the High Court to have expressed any view with regard to
the vires of the Explanations to S. 2(g) and 2(n) of the Act. As no transaction
of sale was involved there could be no levy of tax under the provisions of the
Act on the supply of refreshments and preparations by each one of the clubs to
The appeals must fail and are dismissed but
there will be no order as to costs.
Shah, J. Where general property in goods
belonging to a person is under a contract transferred to another for a price
paid or promised, the transaction is a sale. The State Legislature has under
the Constitution power to legislate under Entry 54 List 11 in respect of taxes
on sale or purchase of goods and the expression "sale" has the same
meaning it bears in the Sale of Goods Act, 1930: see State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd.('). A transaction which is not of the nature
of sale within the meaning of the Sale of Goods Act, cannot, therefore, be
subjected to tax under a law enacted in exercise of power under Entry 54 List
Whether refreshments, beverages and other
articles supplied by a Member's Club for consideration to its members are in
law sold depends upon the circumstances in which the transaction takes place.
In each case the liability to tax of the transaction will depend upon its
strictly legal form.
If an incorporated members' club supplies its
property to its members at a fixed tariff, the transaction would readily be
deemed to be one for sale, even if the transaction is on a non-profit basis;
such a transaction would be liable to sales tax. Where, however, the club is
merely acting on behalf of the members to make available to them refreshments,
beverages and other articles, the transaction will not be regarded as a sale,
for the club is the agency through which the members have arranged that the
refreshments, beverages and other articles should be made available. The test
in each case is whether the (1)  S.C.R. 379.
688 club transfers property belonging to it
for a price or the club acts as an agent for making available property
belonging to its members.
In my judgment, the analogy of the cases
decided under the Licensing Act in the United Kingdom concerning the supply by
clubs of alcoholic drinks to their members is not appropriate. In a criminal
trial or a quasi-criminal proceeding, the Court is entitled to consider the
substance of the transaction and determine the liability of the offender. But
in a taxing statute the strict legal position as disclosed by the form and not
the substance of the transaction is determinative of its taxability : see Duke
of West Minister v.Inland Revenue Commissioners('); Bank of Chittinad Minister
v.Inland Revenue Commissioners('); Bank of Chittinad Income-tax, Andhra Pradesh
v. Motors & General Stores(P) Ltd.('); and Commissioner of Income-tax,
Gujarat v. B. M. Kharwar (4).
It appears on the findings recorded by the
High Court that the clubs or associations sought to be rendered liable in these
appeals were not transferring property belonging to them but were merely acting
as agents for and on be-half of the members. They were not selling goods but
were rendering a service to their members.
I agree therefore that the appeals must fail.
Y.P. Appeals dismissed.
(1) 19 T.C. 490. 519.
(2) L. R. 67 I. A. 394.
(3) 66 I.T.R. 692 S.C.
(4) 72 I.T.R. 603 S.C.