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In one of the prominent case State of West Bengal vs. Calcutta Club Limited, the Apex court on 3rd October 2019 has stated that incorporated clubs are exempted from sales tax. This case verdict will work as a milestone especially in case of levying taxes on the incorporated association.

Timeline and Facts

The case came into light when Assistant commissioner of the commercial taxes issued a notice on 30.6.2002 against the club regarding non-payment of the sales tax by the club. In response to the notice, the club moves to the Appellate Tribunal in which the tribunal stated that the club does not fall in the peripheral of the sales tax. In this regard, the tribunal also stated that in this case the club is merely acting as an agent for its members and there is no transfer of property between the members and club.

Further, it also stated that there was no sales transaction or any type of transfer of property among the club and its members and for its reference it took the reference of Article 366(29-A) as well as Supreme Court and High court decision in the case of Hindustan Club Limited vs. CCT as well as distinguished the authority in the case of Automobile Assn. Eastern India vs. State of West Bengal in which it clearly stated that the term deemed sales will not be applicable to the cases as serving food supplies to its permanent members will not be amounted as sales. Hence there is no attraction of sales tax to the club for serving its permanent members.

Writ Petition against Calcutta Club Limited

After the dissatisfactory decision of the tribunal, Revenue Board filed a writ petition in the Calcutta High Court. The learned advocate on behalf of the revenue board argued that in this case that the insertion of Article 366 (29A-e) has struck down the essence of the doctrine of mutuality/trust or agency so far and hence in this case the doctrine of mutuality cannot be considered in this case. In response to the argument, the learned advocated from the respondent said that the section 2(5) of the West Bengal Sales Tax states that the association that has been formed must have a profit motive which is absent in this cases and that profit means the surplus that has been gained by the club through sales. He also objected that the companies under Section 25 of the Companies Act cannot be fitted under the definition of the body of a person and hence, Article 366 (29A-e) will not be applicable. After which Calcutta High Court was of the opinion that Doctrine of Mutuality cannot be removed completely, it still holds the important part and, hence, in this case, there are no sales been made by the club to its members. It further explained that the club is working as an agent to the members and is just a superstructural only, and no sale is occurring and upheld the tribunal decision.

The decision of the Court

The Higher appeal was made to the Supreme Court in which bench constituting Justice R.F. Nariman, Justice Surya Kant and Justice V. Ramasubramanian upheld the Calcutta High Court decision. Under this, the apex court upholds the position of Young Man’s Indian Association case in which the court stated that any type of preparation from one club member to its other members will not amount to sales and hence in this case also the sales tax will not attract club working.

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