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2023 Supreme(Ker) 156
IN THE HIGH COURT OF KERALA AT ERNAKULAM
A.K.JAYASANKARAN NAMBIAR, MOHAMMED NIAS C.P., JJ.
M/s. Madhavaraja Club – Appellant
Versus
The Commercial Tax Officer (Luxury Tax) – Respondent
O.P.(TAX).NOS.9 & 23 of 2016, O.T.REV.NOS.97 & 98 of 2017 & W.A.NO.601 of 2021
Decided on : 14-03-2023
Advocate Appeared:
For the Appellant : SRI.HARISANKAR V. MENON, SMT.SMT.MEERA V.MENON
For the Respondent: SRI. MOHAMMED RAFIQ, SPL. GOVT. PLEADER (TAXES)
Point of Law: Doctrine of mutuality is relevant only for purposes of Income Tax Act and is not apposite in context of KTL Act cannot be seen as laying down the correct law.
Headnote:
Kerala Tax on Luxuries Act - Section 4, 4 (2A) - Central Excise Act - Income Tax Act - Constitution of India, 1950 - Article 366 (29-A) (e) - Writ Appeal - Applicability of principle of mutuality in tax matters - Doctrine of mutuality - whether, when a membership club provides a luxury to its member, the doctrine of mutuality will apply to insulate the club and its member from the levy of tax under the Act - whether the 46th Amendment to Constitution had done away with the doctrine of mutuality, as applied to members’ clubs - Observations of court in said judgments cannot have effect of altering taxable event under Kerala Tax on Luxuries Act, charging provision of which is specific when it states that levy of tax is on ‘luxury provided’ meaning thereby that it is levied when luxury is provided. (Para 13).
Findings of the Court :
Mutuality principle will apply to insulate petitioner club from levy of tax under KTL Act, save under Section 4 (2A) there under, on charges collected from its members for amenities provided to them. Since it is not in dispute that petitioner club has paid tax in terms of Section 4 (2A) during assessment years in question, Court allow O.P (Tax). and O.P (Tax). by setting aside orders of Appellate Tribunal impugned therein and orders of penalty passed against petitioner under KTL Act for assessment years 2008-09, 2009-10, 2010-11 and 2011-12 - Court also allow W.A. by setting aside judgment of learned Single Judge in W.P(C) and allowing writ petition by quashing assessment orders and first appellate orders passed against appellant under KTL Act for assessment years 2014-15, 2015-16, 2016-17 and 2017-18. The assessing authority shall proceed to complete assessment of appellant club under KTL Act for aforesaid assessment years afresh by excluding that part of turnover for said years, as is covered by mutuality principle discussed above. The assessing authority shall complete said exercise within a period of three months from date of receipt of a copy of this judgment.
Result: Petition disposed of.
JUDGMENT :
A.K. Jayasankaran Nambiar, J.
These O.P (Tax) cases, O.T Revision cases and Writ Appeal are taken up together for consideration since they pertain to the same assessee and involve a common issue regarding the applicability of the principle of mutuality in tax matters.
O.P.(TAX).NO.9/2016; O.P.(TAX).NO.23/2016 & W.A.NO.601/2021:
THE FACTS IN BRIEF:
In O.P(Tax).No.9 of 2016, the petitioner M/s Madhavaraja Club impugns an order of the Kerala Sales Tax Appellate Tribunal that confirmed the demand of penalty on the petitioner under the Kerala Tax on Luxuries Act, 1976 (hereinafter referred to as the ‘KTL Act’ for brevity) for the assessment years 2009-10, 2010-11 and 2011-12. O.P.(Tax).No.23 of 2016 is filed by the same assessee viz. M/s Madhavaraja Club impugning the order of the Appellate Tribunal that conformed penalty on it under the KTL Act for the assessment year 2008-09. W.A.No.601 of 2021 is preferred by M/s Madhavaraja Club aggrieved by the judgment of a learned Single Judge in W.P(C).No.2942/2021 that dismissed the writ petition that impugned the assessment orders and first appellate orders passed against the appellant under the KTL Act for the assessment years 2014-15, 2015-16, 2016-17 and 2017-18, and relegated the appellant to its alternate remedy of preferring appeals before the Appellate Tribunal against the first appellate orders. In all the above cases, the assessee M/s Madhavaraja Club had taken a specific contention before the lower authorities that in view of the principle of mutuality that applied to cases where a members’ club supplied goods or provided luxury to its members, it could not be fastened with any tax liability under the KTL Act on the amounts collected from its members for providing them rooms/auditoriums on rent or other amenities against specified charges.
2. The mutuality principle recognises that 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. The surplus that is made does not come back to the members of 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 (See: State of West Bengal v. Calcutta Club Ltd – ((2019) 19 SCC 107 @ p.144)).
THE ARGUMENTS OF COUNSEL:
3. The argument of Sri. Harishankar Menon, the learned counsel for the petitioner-assessee in the O.P (Tax) cases is that the mutuality principle applies to insulate the club from paying tax on any charges collected from its members for providing amenities such. as rooms/auditoriums/halls on rent and the only amount on which tax can be levied and collected from it are the membership charges paid to it by the members that attract the levy under Section 4 (2A) of the KTL Act. It is his case that the decision of the Supreme Court in Calcutta Club Ltd. applies on all fours to the facts in his case and hence the penalty orders passed against the petitioner assessee under the KTL Act cannot be legally sustained. For the same reason, he also contends that the assessment orders and first appellate orders under the KTL Act for the assessment years 2014-15, 2015-16, 2016-17 and 2017-18 ought to be set aside and the assessing officer directed to re-do the assessment for the said years under the KTL Act by excluding such part of the turnover as is covered by the mutuality principle.
4. Per contra, Sri. Mohammed Rafiq, the learned Special Government Pleader (Taxes) would contend that the mutua
