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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4184 OF 2009

State of West Bengal and Others Appellant(s)

Versus

Calcutta Club Limited Respondent(s)

J U D G M E N T

DIPAK MISRA, J.

The present appeal, by special leave, is directed

against the judgment and order passed by the Division

Bench of the High Court of Calcutta in W.P.T.T. No.652 of

2006, wherein it has affirmed the view expressed by the

West Bengal Taxation Tribunal (for short, 'the tribunal')

and disposed of the appeal preferred by the respondent

along with other connected appeals holding, inter alia, that

the assessee, the Calcutta Club Limited, was not liable for

Page 2 2

payment of sales tax under the West Bengal Sales Tax Act,

1994 (for brevity, 'the Act').

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.

Page 3 3

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. and there was

only reimbursement of the amount by the members and

therefore, no sales tax could be levied.

4.The tribunal referred to Article 366(29A) of the

Constitution of India, Section 2(30) of the Act, its earlier

decision in Hindustan Club Limited v. Additional

Commissioner of Commercial Taxes and Others

1

,

distinguished the authority rendered in The Automobile

Association of Eastern India v. State of West Bengal

and Others

2

and, eventually, opined as follows:-

“Considering the relevant fact presented before

us and the different judgments of the Supreme

Court and the High Court we find that supplies of

food, drinks and refreshments by the petitioner

clubs to their permanent members cannot be

treated as 'deemed sales' within the meaning of

section 2(30) of the 1994 Act. We find that the

payments made by the permanent members are

1(1995) 98 STC 347

2(2002) 40 STA 154

Page 4 4

not considerations and in the case of Members'

Clubs the suppliers and the recipients

(Permanent Members) are the same persons and

there is no exchange of consideration.”

Being of this view, the tribunal accepted the contention

of the respondent-Club and opined that it is not exigible to

tax under the Act.

5.Being dissatisfied with the aforesaid order passed by

the tribunal, the revenue preferred a writ petition and the

High Court opined that the decision rendered in

Automobile Association of Eastern India (supra), was

not a precedent and came to hold that reading of the

Constitutional amendment, as well as the provisions of the

definition under the Act, it was clear that supply of food,

drinks and beverages had to be made upon payment of

consideration, either in cash or otherwise, to make the

same exigible to tax but in the case at hand, the drinks

and beverages were purchased from the market by the club

as agent of the members. The High Court further ruled

that the members collectively was the real life and the club

was a superstructure only and, therefore, mere fact of

presentation of bills and non-payment thereof

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consequently, striking off membership of the club, did not

bring the club within the net of sales tax. The High Court

further opined that in the obtaining factual matrix the

element of mutuality was not obliterated. The expression

of the aforesaid view persuaded the High Court to lend

concurrence to the opinion projected by the tribunal.

6.We have heard Mr. Kailash Vasdev, learned senior

counsel along with Mr. Soumik Ghosal, learned counsel for

the appellants and Mr. Rana Mukherjee, learned senior

counsel along with Mr. Arijit Prasad, learned counsel for

the respondent.

7.It is submitted Mr. Vasdev, learned senior counsel that

the reasoning of the tribunal as well as the High Court is

faulty as there has been erroneous appreciation and

application of clause (29A) of Article 366 of the

Constitution of India. It is urged by him that after the

constitutional amendment, the concept of mutuality and

the pronouncements made in that context have no

applicability. He has commended us to the decision in

Bharat Sanchar Nigam Ltd. and another v. Union of

India and others

3

.

3 (2006) 3 SCC 1

Page 6 6

8.Mr. Mukherjee, learned senior counsel for the

respondent, in his turn, would contend that the view

expressed by the High Court is absolutely flawless and

irreproachable inasmuch as the constitutional amendment

does not envision sale by one to himself or for that matter

by the agent to those who have engaged it as an agent. It

is further argued that the aspect of mutuality still holds

the field. For the aforesaid purpose, inspiration has been

drawn from the authorities in Fateh Maidan Club v.

Commercial Tax Officer, Hyderabad

4

and

Cosmopolitan Club v. State of Tamil Nadu & Others

5

.

Learned counsel has further submitted that the concept of

deemed sale is not attracted to the present nature of

transaction and supply.

9.At the very outset, we may mention certain undisputed

facts. It is beyond cavil that the respondent is an

incorporated entity under the Companies Act, 1956. The

respondent-assessee charges and pays sales tax when it

sells products to the non-members or guests who

accompany the permanent members. But when the

4 (2008) 12 VST 598 (SC)

5 (2009) 19 VST 456 (SC)

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invoices are raised in respect of supply made in favour of

the permanent members, no sales tax is collected.

10. Section 2(30) of the Act defines ‘sale’ as follows:-

“(30) “sale” means any transfer of property in

goods for cash, deferred payment or other

valuable consideration, and includes-

(a) any transfer, otherwise than in pursuance of a

contract, of property in any goods for cash,

deferred payment or other valuable

consideration;

(b) any delivery of goods on hire-purchase or any

system of payment by instalments;

(c) any transfer of the right to use any goods for

any purpose (whether or not for a specified

period) for cash, deferred payment or other

valuable consideration;

(d) any supply, by way of, or as part of, any

service or in any other manner whatsoever, of

goods, being food or any other article for human

consumption or any drink(whether or not

intoxicating), where such supply or service is for

cash, deferred payment or other valuable

consideration;

(e) any supply of goods by any unincorporated

association or body of persons to a member

thereof for cash, deferred payment or other

valuable consideration, and such transfer,

delivery, or supply of any goods shall be deemed

to be a sale of those goods by the person or

unincorporated association or body of persons

making the transfer, delivery, or supply and a

purchase of those goods by the person to whom

such transfer, delivery, or supply is made, but

does not include a mortgage, hypothecation,

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charge or pledge.

Explanation: A sale shall be deemed to take place

in West Bengal if the goods are within West

Bengal –

(a)In the case of specific or ascertained goods,

at the time of the contract of sale is made; and

(b)In the case of unascertained or future goods,

at the time of their appropriation to the contract

of sale by the seller, whether the assent of the

buyer to such appropriation is prior or

subsequent to the appropriation:

PROVIDED that where there is a single contract

of sale in respect of goods situated in West

Bengal as well as in places outside West Bengal,

provisions of this Explanation shall apply as if

there were a separate contract of sale in respect

of the goods situated in West Bengal;.”

11. The said provision has been introduced after

incorporation of clause (29A) to Article 366 of the

Constitution vide 46

th

amendment, 1982, which reads as

follows:-

“(29A) “tax on the sale or purchase of goods”

includes –

(a) a tax on the transfer, otherwise than in

pursuance of a contract, of property in any goods

for cash, deferred payment or other valuable

consideration;

(b) a tax on the transfer of property in goods

(whether as goods or in some other form) involved

in the execution of a works contract;

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(c) a tax on the delivery of goods on hire-purchase

or any system of payment by instalments;

(d) a tax on the transfer of the right to use any

goods for any purpose (whether or not for a

specified period) for cash, deferred payment or

other valuable consideration;

(e) a tax on the supply of goods by any

unincorporated association or body of persons to

a member thereof for cash, deferred payment or

other valuable consideration;

(f) a tax on the supply, by way of or as part of any

service or in any other manner whatsoever, of

goods, being food or any other article for human

consumption or any drink (whether or not

intoxicating), where such supply or service, is for

cash, deferred payment or other valuable

consideration, and such transfer, delivery or

supply of any goods shall be deemed to be a sale

of those goods by the person making the transfer,

delivery or supply and a purchase of those goods

by the person to whom such transfer, delivery or

supply is made;”

12. It is submitted by Mr. Vasdev that statutory

provision is in accord with the Constitution of India.

Learned senior counsel would submit that clause (29A)(f)

clearly lays a postulate that when there is a supply by way

of or as a part of supply of food or any other article for

human consumption or any drink whether or not

intoxicating for supply or service, for cash or deferred

payment or valuable consideration would amount to

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deemed sale. According to Mr. Vasdev, the earlier decisions

which related to the concept of mutuality have lost their

force.

13.In this context, he has referred to the decision in

Northern India Caterers (India) Ltd. v. Lt. Governor of

Delhi

6

, the three-Judge Bench was dealing with the issue

whether in the case of non-residents the service of meals

by the appellant in the restaurant constitutes a sale of

foodstuffs. Answering the said issue, the Court held:-

“It has already been noticed that in regard to ho-

tels this Court has in Associated Hotels of India

Ltd.

7

adopted the concept of the English law that

there is no sale when food and drink are supplied

to guests residing in the hotel. The Court pointed

out that the supply of meals was essentially in

the nature of a service provided to them and

could not be identified as a transaction of sale.

The Court declined to accept the proposition that

the Revenue was entitled to split up the transac-

tion into two parts, one of service and the other of

sale of foodstuffs. If that be true in respect of ho-

tels, a similar approach seems to be called for on

principle in the case of restaurants. No reason

has been shown to us for preferring any other.

The classical legal view being that a number of

services are concomitantly provided by way of

hospitality, the supply of meals must be regarded

as ministering to a bodily want or to the satisfac-

tion of a human need”.

6 (1978) 4 SCC 36 : AIR 1978 SC 1591

7 State of Punjab v. Associated Hotels of India Ltd., (1972) 1 SCC 472

Page 11 11

14.Earlier the Constitution Bench decision in Joint

Commercial Tax Officer v. Young Men’s Indian

Association

8

dealing with the liability of a club to pay

sales tax when there is supply of refreshment to its

members, had Court concluded thus:-

“The essential question, in the present case, is

whether the supply of the various preparations

by each club to its members involved a transac-

tion 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 Seventh 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 Section 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 matter of supply

of various preparations to them no sale would be

involved as the element of transfer would be com-

pletely absent. This position has been rightly ac-

cepted even in the previous decision of this

Court”.

15. In Fateh Maidan Club (supra), the Court was

considering the defensibility of the judgment and order of a

Division Bench of the High Court of Andhra Pradesh

whereby it has held that the assessee club was liable to

pay sales tax under the Andhra Pradesh General Sales Tax

8 (1970) 1 SCC 462

Page 12 12

Act, 1957 on the supplies of food and drink to their

members. It was contended before the Court that when

the club supplies food or drink to its members, there is no

sale because a members’ club only acts as the agent of the

members. The Court placed heavy reliance on Young

Men’s Indian Association (supra) and remanded the

matters stating that:-

“In some of the present matters the appellants

filed writ petitions against notices seeking to

assess them to sales tax on the supply of food

and beverages to their members. There was,

therefore, no determination by the fact-finding

authorities of the relationship between the

appellants and their members in the matter of

supply by the former to the latter of food and

drink and such like; that is to say, was the club

acting as the agent of the members or did the

property in the food and drink pass from the club

to the members? In the other matters the High

Court was approached after orders of assessment

had been made and appeals filed but there was

no inquiry into the said relationship. We think it

appropriate, therefore, that the matters should go

back to the assessing authorities who will

determine, on facts in regard to each appellant.

What was the said relationship and, with that

finding in mind, decide, whether or not the

appellants are liable to sales tax in this behalf

under the provisions of the Andhra Pradesh

General Sales Tax Act, 1957.”

16. In the case of Cosmopolitan Club (supra), the

controversy related to liability of the club to pay sales tax

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under the Tamil Nadu General Sales Tax Act, 1959 for

supply of food and drinks to its members. Relying on the

earlier judgment, the Court remanded the matter by

holding that:-

“…. it may be further stated that the said show

cause notice was challenged in 1993 by the Club

by filing a Writ Petition in the High Court which

came to be later transferred to the Tribunal. The

Tribunal dismissed the matter on merits. That

decision of the Tribunal has been confirmed by

the impugned judgment. Suffice it to state that in

this case there was no determination by the fact

finding authorities regarding the relationship

between the Club and its members in the matter

of supply of food and drinks; that is to say, was

the Club acting as an agent of the members or

did the property in food and drinks pass from the

Club to the members?

At this stage it may be mentioned that after the

judgment of the High Court dismissing the Writ

Petition, the Assessment Order was passed

against which the Club has preferred an appeal

before the First Appellate Authority which has

also dismissed this appeal and as of today the

matter, being T.A.No. 17 of 2000, is pending

before the Tribunal.

In the circumstances, we think it appropriate

that the matter should go back to the Tribunal,

who will decide, on facts, as to the exact

relationship between the parties in the matter of

supply by the Club of food and drinks to its

members. In other words, the principle of

mutuality and agency among other

circumstances shall be gone into by the Tribunal

before which the said appeal is pending.”

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17. The aforesaid decisions, thus, refer to principle of

mutuality and agency. Submission of the learned counsel

for the appellant is that after the amendment the said

principles cannot be made applicable. For the aforesaid

purpose, he has commended us to the pronouncement in

Bharat Sanchar Nigam Ltd. (supra). Learned senior

counsel has drawn our attention to the views expressed by

Lakshmanan, J., which is to the following effect:-

“104. Parliament had to intervene as the power to

levy tax on goods involved in works contract

should appropriately be vested in the State Legis-

latures as was pointed out in Gannon Dunkerley

& Co

9

., the passages quoted hereinabove. There

were five transactions in which, following the

principles laid down in Gannon Dunkerley & Co.

relating to works contract, this Court ruled that

those transactions are not exigible to sales tax

under various State enactments. Parliament,

therefore, in exercise of its constituent power, by

the Forty-sixth Amendment, introduced Article

366(29-A). The Statement of Objects and Reasons

has fully set out the circumstances under which

the Forty-sixth Amendment was necessitated.

105. The amendment introduced fiction by which

six instances of transactions were treated as

deemed sale of goods and that the said definition

as to deemed sales will have to be read in every

provision of the Constitution wherever the phrase

“tax on sale or purchase of goods” occurs. This

definition changed the law declared in the ruling

in Gannon Dunkerley & Co. only with regard to

9 State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., AIR 1958 SC 560

Page 15 15

those transactions of deemed sales. In other re-

spects, law declared by this Court is not neu-

tralised. Each one of the sub-clauses of Article

366(29-A) introduced by the Forty-sixth Amend-

ment was a result of ruling of this Court which

was sought to be neutralised or modified. Sub-

clause (a) is the outcome of New India Sugar Mills

Ltd. v. CST

10

and Vishnu Agencies (P) Ltd. v.

CTO

11

. Sub-clause (b) is the result of Gannon

Dunkerley & Co. Sub-clause (c) is the result of

K.L. Johar and Co. v. CTO

12

. Sub-clause (d) is

consequent to A.V. Meiyappan v. CCT

13

. Sub-

clause (e) is the result of CTO v. Young Men’s In-

dian Assn. (Regd.)

14

. Sub-clause (f) is the result of

Northern India Caterers (India) Ltd. v. Lt. Governor

of Delhi (supra) and State of Punjab v. Associated

Hotels of India Ltd. (supra).”

18. In addition to the aforesaid paragraphs, learned

senior counsel appearing for the appellant has also heavily

relied on paragraphs 106 and 107 of the said judgment.

They read as follows:-

“106. In the background of the above, the history

prevailing at the time of the Forty-sixth Amend-

ment and pre-enacting history as seen in the

Statement of Objects and Reasons, Article

366(29-A) has to be interpreted. Each fiction by

which those six transactions which are not other-

wise sales are deemed to be sales independently

operates only in that sub-clause.

107. While the true scope of the amendment may

be appreciated by overall reading of the entirety

of Article 366(29-A), deemed sale under each par-

10 1963 Supp (2) SCR 459: (1963) 14 STC 316

11 (1978) 1 SCC 520

12 AIR 1965 SC 1082

13 (1967) 20 STC 115 (Mad)

14 (1970) 1 SCC 462

Page 16 16

ticular sub-clause has to be determined only

within the parameters of the provisions in that

sub-clause. One sub-clause cannot be projected

into another sub-clause and fiction upon fiction

is not permissible. As to the interpretation of fic-

tion, particularly in the sales tax legislation, the

principle has been authoritatively laid down in

Bengal Immunity Co. Ltd. v. State of Bihar

15

, SCR

at p. 647:

“The operative provisions of the several parts of

Article 286, namely, clause (1)(a), clause (1)(b),

clause (2) and clause (3) are manifestly intended

to deal with different topics and, therefore, one

cannot be projected or read into another.” (S.R.

Das, Actg. C.J.)”

19. Before we proceed further, it is necessary to

appreciate the doctrine of mutuality in proper perspective.

The said doctrine or the general law relating to mutual

concern is predicated on the principle enunciated in

Styles v. New York Life Insurance Company

16

by Lord

Watson in the following words:-

“When a number of individuals agree to

contribute funds for a common purpose, such as

the payment of annuities or of capital sums, to

some or all of them, on the occurrence of events

certain or uncertain, and stipulate that their

contributions, so far as not required for that

purpose, shall be repaid to them, I cannot

conceive why they should be regarded as traders,

or why contributions returned to them should be

regarded as profits.”

15 (1955) 2 SCR 603

16 (1889) 2 TC 460, 471 (HL)

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20. This doctrine was subsequently explained in IR v.

Cornish Mutual Assurance Co. Ltd.

17

and it has been

laid down that the mutual concern should be held to be

carrying on business or trade with its members, albeit the

surplus arising from such trade is not taxable as income or

profit. However, the principle is not free from diversity or

contra opinion which can relate to issues like complete

identity between the contributors and participators or

whether such doctrine would equally apply to incorporate

company which is a juristic entity, and if so, under what

circumstances. The principle of mutuality was examined

by this Court in CIT v. Royal Western India Turf Club

Ltd.

18

and then in CIT v. Bankipur Club Ltd.

19

, followed

by Chelmsford Club v. CIT

20

. In Bankipur Club Ltd.

(supra), it has been observed as under:-

“... The gist of the various English decisions has

been succinctly summarised in the textbooks

which we have adverted to hereinabove ( Hals-

bury’s Laws of England, Simon’s Taxes,

Wheatcroft etc.). Particular stress was laid on the

decisions of the Supreme Court in CIT v. Royal

Western India Turf Club Ltd. (supra), CIT v. Kum-

bakonam Mutual Benefit Fund Ltd.

21

, Fletcher v.

17 [1926] 12 TC 841 [HL]

18 AIR 1954 SC 85

19 (1997) 5 SCC 394

20 (2000) 3 SCC 214

21 1964 SCR 204 : AIR 1965 SC 96

Page 18 18

CIT

22

. We do not think it necessary to deal at

length with the above decisions except to state

the principle discernible from them. We under-

stand these decisions to lay down the broad pro-

position — that, if the object of the assessee com-

pany claiming to be a “mutual concern” or “club”,

is to carry on a particular business and money is

realised both from the members and from non -

members, for the same consideration by giving

the same or similar facilities to all alike in respect

of the one and the same business carried on by

it, the dealings as a whole disclose the same

profit-earning motive and are alike tainted with

commerciality. In other words, the activity carried

on by the assessee in such cases, claiming to be

a “mutual concern” or “members’ club” is a trade

or an adventure in the nature of trade and the

transactions entered into with the members or

non-members alike is a trade/business/transac-

tion and the resultant surplus is certainly profit

— income liable to tax. We should also state, that

“at what point, does the relationship of mutuality

end and that of trading begin” is a difficult and

vexed question. A host of factors may have to be

considered to arrive at a conclusion. “Whether or

not the persons dealing with each other, is a ‘mu-

tual club’ or carrying on a trading activity or an

adventure in the nature of trade”, is largely a

question of fact. (Wilcock case

23

Tax Cases at p.

132; KB at pp. 44 and 45).”

21. Earlier in Kumbakonam Mutual Benefit Fund

Ltd (supra) the Court had held that where an association

or a company trades with its members only and the

surplus out of the common fund is distributable among the

22 (1971) 3 ALL ER 1185 : (1972) 2 WLR 14 (PC)

23 Wilcock (Inspector of Taxes) v. Pinto & Co., 9 TC 111 : (1925) 1 KB 30, CA

Page 19 19

members, there is no mutuality and the surplus is

assessable to tax as profit, for there is no complete identity

between the contributors and the participators. The reason

being that the members, who have not contributed to

surplus as customers, are nevertheless entitled to

participate and receive a part of the surplus. However,

where the surplus is distributed among the customers as

such, there would be complete identity between the

contributors and the participators, for only customers

would be entitled to participate in the surplus.

22. In the light of the aforesaid position and the law

of mutual concerns, we have to ascertain the impact and

the effect of sub-clause (e) to clause (29A) to Article 366 of

the Constitution of India, as enacted vide 46

th

amendment

in 1982 and applicable and applied to Sales or VAT Tax.

The said clause refers to tax on supply of goods by an

unincorporated association or body of persons. The

question would be whether the expression ‘body of persons’

would include any incorporated company, society,

association, etc. The second issue is what would be

included and can be classified as transactions relating to

Page 20 20

supply of goods by an unincorporated association or body

of persons to its members by way of cash, deferred

payment or valuable consideration. Such transactions are

treated and regarded as sales. The decisions of the Court

in Fateh Maidan Club (supra) and Cosmopolitan Club

(supra) in that context have drawn a distinction when a

club acts as an agent of its members and when the

property in the goods is sold, i.e., the property in food and

drinks is passed to the members. The said distinction, it is

apparent to us, has been accepted by the two Benches.

However, the decisions do not elucidate and clearly

expound, when the club is stated and could be held as

acting as an agent of the members and, therefore, would

not be construed as a party which had sold the goods. The

agency precept necessarily and possibly refers to a third

party from whom the goods, i.e., the food and drinks had

been sourced and provided to by the club acting as an

agent of the members, to the said members. These are

significant and relevant facets which must be elucidated

and clarified so that there is no ambiguity in appreciating

and understanding the aforesaid concepts “acting as an

Page 21 21

agent of the members” or when property is transferred in

the goods sold to the members.

23. At this stage, we would appropriately like to refer

to some of the arguments raised, to understand the scope

and width of the controversy. Learned senior counsel for

the State has submitted that the revenue has treated it as

a sale under Section 2(30) and clause (29A) (e) and (f) to

Article 366 of the Constitution. Mr. Rana, learned senior

counsel appearing for the respondent-assessee would

submit that once a club is incorporated, it is beyond the

State to impose tax or its provision. He would submit that

clause (29A)(f) would not apply and in any case when the

Club is acting as an agent for its members in supply of

various preparation, there cannot be any demand of any

sales tax as the concept of mutuality is still alive after the

amendment to the Constitution. Mr. Vasdev has taken us

through the objects and reasons to the 46

th

amendment

and stressed how various decisions of this Court were

referred to in the objects and reasons to remove the base of

certain judgments. Paragraph 8 of the objects and reasons

which has been emphatically placed reliance upon is

Page 22 22

extracted below:-

“Besides the above mentioned matters, a new

problem has arisen as a result of the decision of

the Supreme Court in Northern India Caterers

(India) Ltd. v. Lt. Governor of Delhi (supra). States

have been proceeding on the basis that the

Associates Hotels of India case was applicable

only to supply of food or drink by a hotelier to a

person lodged in the hotel and that tax was

leviable on the sale of foodstuffs by a restaurant.

But, overruling the decision of the Delhi High

Court, the Supreme Court has held in the above

case that service of meals whether in a hotel or

restaurant does not constitute a sale of food for

the purpose of levy of sales tax but must be

regarded as the rendering of a service in the

satisfaction of a human need or ministering to

the bodily want of human beings. It would not

make any difference whether the visitor to the

restaurant is charged for the meal as a whole or

according to each dish separately”.

24. Learned senior counsel for the State would

contend that the objects and reasons throw immense light

how clause (29A) was added and what it intends to cover.

It is argued by him that the club has an independent entity

and it supplies food and beverages to the permanent

members and invoices are raised. Money goes to the club

and, therefore, there is supply or service for value. Mr.

Mukherjee would submit that the controversy is covered by

the decisions in Young Men’s Indian Association (supra)

Page 23 23

and the concept of mutuality applies, because neither

clause (e) or (f) to clause (29A) of Article 366 of the

Constitution has removed the concept of mutuality or

agency. It is urged by him that the club merely acts as an

agent for supply of goods and agent does not sell the goods

to the principal. It only acts as a conduit to pass on the

goods and the money whether it is in cash deferred

payment or by way of security.

25. Mr. Vasdev has submitted that whether mutuality

exists or not is a question of fact, for the contention of the

State is assuming the mutuality clause applies then also

the respondent assessee is liable to pay tax , for its supply

or sale to a member by the club which is a dealer. In

Bharat Sanchar Nigam Ltd. (supra), the Court has

opined that by virtue of the constitutional amendment, the

Parliament has neutralised the rulings of this Court. In

Fateh Maidan Club (supra), the three-Judge Bench

remanded the matter as there was no determination by the

fact-finding authorities as regards the relationship between

the club and its members in the matter of supply by the

former to the latter of food and drinks and such like. The

Page 24 24

Court has also observed the relationship would govern the

fate of imposition of sales tax. In Cosmopolitan Club

(supra), the Court has remarked that there was no

determination that the club was acting as an agent of the

members or for that matter its property in food and drink

has passed from the club to the members. The matter was

remanded to the tribunal to decide on facts as regards the

relationship between the parties in the matter of supply of

food and drinks to its members. The Court clarified

whether the principle of mutuality amongst other

circumstances has to be gone into. Thus, in a way, the

principle of mutuality has been regarded as the base of

imposition or non-imposition of sales tax. It is also

noticeable that the Court has not addressed the issue

whether the facet of mutuality survives after the

amendment to the Constitution. There is observation in

the case of Bharat Sanchar Nigam Ltd. (supra) that the

judgment of this Court has been neutralised. Clause

(29A)(f), as Mr. Vasdev would submit has to be understood

independently and not in conjunction with Clause 29A(e).

It is put forth by him that the litmus test has to be that the

Page 25 25

transaction has to be determined only within the

parameters of provisions in that sub-clause. Learned

senior counsel would submit that clause (29A)(e) relates to

a different field altogether and clause (29A)(f) has a

different field wherein it operates. In any case, according

to him, the club does not act as an agent. An attempt has

been made to draw a distinction between doctrine of

mutuality and principle of agency and also between

“unincorporated association” or “body of persons”.

26. It is appropriate to state here what has transpired

in the course of hearing. Learned senior counsel for both

sides, at one point of time, had submitted that this Court

following the decision in Cosmopolitan Club (supra) and

Fateh Maidan Club (supra) can remand the matter. In

the said cases, the Court had observed that the authorities

below had not recorded any finding with regard to exact

relationship or the mutuality facet. The argument before

us is that even if the principle of mutuality or agency is in

existence or established, still it would be a sale on the

basis of clause (29A)(e) or (29A)(f). Thus, the initial

suggestion by the learned senior counsel for the parties

Page 26 26

was not pursued and we are disposed to think, rightly.

27. In our considered opinion, the controversy that

has arisen in this case has to be authoritatively decided by

a larger Bench in view of the law laid down in

Cosmopolitan Club (supra) and Fateh Maidan Club

(supra). We are disposed to think so as none of the

judgments really lay down that doctrine of mutuality would

apply or not but proceed on the said principle relying on

the earlier judgments. It is desirable that the position

should be clear. For the aforesaid purpose, the matter

should be referred to a larger Bench and for the said

purpose, we frame following three questions.

i.Whether the doctrine of mutuality is still

applicable to incorporated clubs or any club

after the 46

th

amendment to Article 366 (29A) of

the Constitution of India?

ii.Whether the judgment of this Court in

Young Men’s Indian Association (supra) still

holds the field even after the 46

th

amendment of

the Constitution of India; and whether the

decisions in Cosmopolitan Club (supra) and

Fateh Maidan Club (supra) which remitted the

matter applying the doctrine of mutuality after

the constitutional amendment can be treated to

be stating the correct principle of law?

iii.Whether the 46

th

amendment to the

Constitution, by deeming fiction provides that

provision of food and beverages by the

Page 27 27

incorporated clubs to its permanent members

constitute sale thereby holding the same to be

liable to sales tax?

28. Let the papers be placed before the Hon’ble Chief

Justice of India for constitution of appropriate larger

Bench.

.........................J.

(Dipak Misra)

..........................J.

(Shiva Kirti Singh)

New Delhi;

May 04, 2016.