Simply because some incidental activity of the assessee is revenue generating, does not provide any justification to hold that it is tainted with “commerciality” and reaches a point where relationship of mutuality ends and that of trading begins.
19. In the present case, as already noted above, the respondent is incorporated as a society and the main objective is to improve the purpose of public enterprises. The membership of the society is open to public sector enterprises of Central/State Governments. It is, thus, performed for the benefit of its members, which are public sector. Enterprises it is not including in any “commercial activities” in traditional sense, but is catering to the needs of its members. In its building at Lodhi Road, New Delhi, it has convention centre which is normally given to its members for functions. Likewise, other part of the premises are available to the members for their use. Of course, for using convention centre as well as other parts of the building, these members pay some charges which becomes additional source of income. That by itself cannot be treated as commercial activity of the assessee. In Bankipur Club (supra), the Supreme Court held that if the dealings as a whole disclose the profit earning motives and are alike tainted with commerciality, only then principle of mutuality would cease to apply. The principle in this behalf was discerned as under:
“We understand these decisions to lay down the broad, proposition that, if the object of the assessee company claiming to he 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 t-v»r. 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/ transaction and the resultant surplus is certainly profit – income liable to tax.”
20. This, such company claiming to be mutual concern or club whose object is to carry on particular business or where income is general from members and non members through the business carried on by it, then only it would be treated as tainted with commerciality. Profit earning has to be the prime motive behind. Such activities, which are business like activities. Obviously in the present case, this cannot be attributed to the assessee. The AO got influenced by the fact that the assessee had let out part of the premises to its members and was receiving rents and also giving the convention centre to non-members. That is not sufficient to clothe the activity of the assessee as commercial activity, which is* not the object with which the assessee society is formed. Pre-dominant object is to render appropriate assistance and help to its members for improving their performance and role. Thus, all the three ingredients laid down by the Supreme Court in Chelmsford Club would be applicable in the present case.
21. We may also refer to the judgment of the Calcutta High Court in the case of Dalhousie Institute Vs. Asstt. Commissioner, Service Tax Cell, 2006 (3) STR 311. Though it was a case where ‘maandap’ facilities were provided by the club to its members and the question of service tax had arisen, the Calcutta High Court applied the principle of mutuality holding that the aforesaid facilities provided by the club to its members for such functions cannot be termed as commercial activity. Following observations are to be noted in this behalf:
“The principle of mutuality in this case is also squarely applicable, as going by the definitions of mandap, mandap keeper and the taxable service, in the facility of use of the premises to the members by its club cannot be termed to be a letting out nor the members of the club using the facility of any portion of the premises for any function can be termed to be a client. The services rendered by any person to his client presupposes the element of commerciality and obviously this transaction must be involved with the third parties, as opposed to the members of the club.”
Similar question was answered in the case of Saturday Club Ltd. Vs. Asstt. Commissioner, Service Tax Cell, (2006) 3 STR 305 in the following manner:-
“So far as the merit is concerned, law is well settled by now that in between the principal and agent when there is no transfer, of property available question of imposition of service tax cannot be made available, it is true to say that there is a clear distinction between the ‘members club’ and ‘proprietor’ club’. No argument has been put forward by the respondents to indicate that the club is a proprietary club. Therefore, if the club space is allowed to be occupied by any member or his family members or by his guest for a function by constructing a mandap, the club cannot be called as mandap keeper, because the club is allowing his own member to do so who is, by virtue of his position, principal of the club. If any outside agency is called upon to do the needful it may raise a bill along with the service tax upon the club and the club as an agent of the members, is supposed to pa^ the same. The authority cannot impose service tax twice once upon the people carrying out the business of ‘mandap keeper’ as well as the members’ club for the purpose of using the space for constructing or using it as ‘mandap’. Therefore, apart from any other question possibility of double taxation cannot be ruled out. If I explain my first query as above it will be crystal clear that if a person being an owner of the house allows another to occupy the house for the purpose of carrying out any function in that house it will not be construed as transfer of property. But if such person calls upon a third party ‘mandap keeper’ to construct a ‘mandap’ in such house then in that case such ‘mandap keeper’ can be able to raise bill upon the user of the premises along with the service Tax. Therefore, I cannot hold it good that members club is covered by the Finance Act, 1994 for imposition of service tax to use its space as `mandap’. So far as the other point is concerned whether the ratio of the judgments can be acceptable herein or not I like to say `yes it is applicable if there is an income. Sales tax is applicable if there is a sale Service tax is applicable if there is a sale Service tax is applicable if there is a service. All three will be applicable in a case of transaction between, two parties. Therefore, principally there should be existence of two side/entities for having transaction as against consideration. In a members’ club there is no question of two sides. `Members’ and `club’ both are same entity. One may be called as principal when the other may be called as agent, therefore, such transaction in between themselves cannot be recorded as income, sale or service as per applicability of the revenue tax of the country. Hence, I do not find it is prudent to say that members `club’ is liable to pay service tax in allowing its members to use its space as `mandap’.
22. Therefore, simply because some incidental activity of the assessee is revenue generating, does not provide any justification to hold that it is tainted with “commercially” and reaches a point where relationship of mutuality ends and that of trading begins.