Service Tax payable on Consideration received under Vanprastha Ashram Scheme by Patanjali Trust

M/s. Patanjali Yogpeeth Trust Vs C.C.E. (CESTAT Delhi)

Now coming to the demand qua the donations received by the appellant under one of its Scheme called Vanprastha Ashram Scheme, it is held that under this scheme the appellant was leasing the accommodation to all those who are interested to visit the appellant premises till their life time on payment of certain amount ranging from Rs.5,00,000/- to 21,00,000/-. By making such payments, such person does not become the member of the Trust as such, but become the lease-holder for a particular accommodation respective to the price paid by him under the Scheme. This observation is sufficient to hold that such person become the shareholders of the appellant’sScheme but not the members of the Trust. Such members cannot be cloth with the status as that of founder members of the Trust and the element of mutuality therefore, is missing in such a relationship. The transaction with such members will be the one with some other person with no principle of mutuality involved. As such, the Trust and the member of Vanprastha Ashram Scheme become two different legal entities. Any services of club and association being provided by the appellant to such members are therefore, taxable services under Section 65 (25a) and are absolutely out of the scope of Sport Club (supra) decision. Hence we are of the opinion that The Adjudicating authority below has rightly confirmed the said demand.

In the present case, the members of Vanprastha Ashram Scheme are not member of the Patanjali Trust, the appellant herein, but are the members under particular scheme of the said Trust for the only purpose of being leased out a residential accommodation for their life time. The said leasing, to our opinion, is not ancillary and incidental object to the main charitable object of the appellant Trust. No doubt the members of Vanprastha Ashram Scheme are also getting that accommodation for attending the Yoga Camps but the fact is apparent and admitted that Yoga Camps can still be attended by any member of the appellant Trust irrespective of the being the member of Vanprastha Ashram Scheme. Hence, the consideration received as lease money under this scheme by the appellant is a consideration not because of mutuality between the appellant and the members of the said scheme, as discussed above, but is purely commercial in nature. Hence, for this particular consideration the benefit of exemption for appellant being charitable in nature cannot be granted. The said consideration is taxable under 65 (25AA) of the Act and the demand therefore is held to have been rightly confirmed.

FULL TEXT OF THE CESTAT JUDGMENT

Present is an appeal against the Order-in-Original dated 7/11^th November, 2013. The fact of the case is that the appellant are alleged to be engaged in the activity of providing various taxable services in respect of which they have neither taken registration nor the Service Tax with the intention to evade the same. After conducting basic investigation, show cause notice dated 18^th October, 2012 was served upon the appellant raising a demand of Rs.5,14,54,521/- Service Tax for rendering the taxable service of Club and Association while receiving subscriptions in the form of Donations qua the Membership and service tax for the amount received for leasing the cottages under Swami Sankaradev Vanprastha Ashram Scheme, for rendering the renting of immovable property service and also with respect to intellectual property service. The said demand has been confirmed vide the order under challenge. Resultantly, the present appeal.

2. We have heard both the parties.

3. It is submitted that 3 demands have been raised by the Department as follows:-

Club and Association Services have already been held ultra vires in the case of Sports Club of Gujarat Ltd. vs. Union of India – 2013 (31) STR 645. Hence, the major portion of demand qua the same is not sustainable. With respect to the Vanprastha Ashram donations also the Sports Club case only is relied upon and the said demand is also prayed to be set aside. The demand of renting of immovable property however, has been conceded. Finally, with respect of demand for Intellectual Property Services, it is submitted that what appellant had permitted to the news channel is only a right to cover their Yoga camp with the permission for same to be telecasted. No doubt an amount of Rs.8.00 Lakhs per month is received by the appellant from the News Channel the Star News, but the demand for considering the said amount as the value for rendering Intellectual Property Service is not actually sustainable because the right as mentioned above may amount to a copy right but not the Intellectual Property Service and that the definition of the service under Section 65 (55) A of Finance Act, 1944 specifically excludes copy-right. Therefore the said demand is also prayed to be set aside. Order under challenge is alleged to suffer infirmity. Appeal is accordingly, prayed to be allowed.

4. While rebutting these arguments, the ld. DR has mentioned that the case law as relied upon by the appellant is not applicable to the facts of the present case because that decision is based on the concept of mutuality, but in the present case element of mutuality is absolutely missing. As the Trust here in and its Members are 2 different legal entities. Specifically, in case where amount are received from people for leasing them the cottages of different description till their life time and designating them as members under the said pretext are concerned. The order is justified qua confirming the demand on Club and Association Services. Coming to the demand with respect to Intellectual Property Services, it is mentioned that the permission by the appellant for telecast their Yoga Shivers in the News Channels is the permission for the work of the appellant exclusively being the thought of appellant is nothing but the service of providing Intellectual Property. The demand to that extent has also been rightly confirmed. Appeal is accordingly, prayed to be rejected.

5. After hearing both the Counsels and perusing the entire record, we are of the opinion:

5.1 It is the apparent fact that appellant is a Trust engaged in the activities of teaching Yoga and for research on Vedic traditions of Yoga and are registering the interested people in these activities as their members. The Department has considered the activities of the appellant under the category of Club and Association Services as defined under Section 65 (25) A of the Finance Act, 1994 and taxable under Section 65 (105) (zzze) of the Act. The decision of Sports Club of Gujarat by the Hon’ble High Court of Gujarat is actually relevant for the alleged services. The Hon’ble High Court while relying upon another decision of Commissioner of Income Tax vs. Ranchi Club Ltd. – 1992 (1) PLJR 252 (Pat. – Full Bench) has held as follows:-

“18. However, learned counsel for the petitioner submits that sale and service are different. It is true that sale and service are two different and distinct transaction; the sale entails transfer of property whereas in service, there is no transfer of property. However, the basic feature common in both transaction requires existence of the two parties; in the matter of sale, the seller and buyer, and in the matter of service, service provider and service receiver. Since the issue whether there are two persons or two legal entity in the activities of the members^‟ club has been already considered and decided by the Hon^‟ble Supreme Court as well as by the Full Bench of this Court in the cases referred above, therefore, this issue is no more res integra and issue is to be answered in favour of the petitioner and it can be held that in view of the mutuality and in view of the activities of the club, if club provides any service to its members may be in any form then it is not a service by one to another in the light of the decisions referred above as foundational facts of existence of two legal entities in such transaction is missing. However, so far as services by the club to other than members, learned counsel for the petitioner submitted that they are paying the tax.”

6. The Hon’ble Court has declared that Section 65(25a), Section 65(105)(zzze) and Section 66 of the Finance (No. 2) Act, 1994 as incorporated/amended by the Finance Act, 2005 to the extent that the said provisions purport to levy service tax in respect of services purportedly provided by the petitioner club to its members, to be ultra vires.

7. The amount of consideration ranging from Rs.11,000/- to 11,00,000/- has been received by the appellant for extending life time membership is an amount, which is received where the person paying it is becoming the member as a shareholder of the Trust and the element of mutuality as discussed in the Sport Club case (supra) comes into existence between the Trust and the said members. As a result, this demand is held to be squarely covered under the Sport Club Accordingly, is held to have been wrongly confirmed by the Department.

8. Now coming to the demand qua the donations received by the appellant under one of its Scheme called Vanprastha Ashram Scheme, it is held that under this scheme the appellant was leasing the accommodation to all those who are interested to visit the appellant premises till their life time on payment of certain amount ranging from Rs.5,00,000/- to 21,00,000/-. By making such payments, such person does not become the member of the Trust as such, but become the lease-holder for a particular accommodation respective to the price paid by him under the Scheme. This observation is sufficient to hold that such person become the shareholders of the appellant’sScheme but not the members of the Trust. Such members cannot be cloth with the status as that of founder members of the Trust and the element of mutuality therefore, is missing in such a relationship. The transaction with such members will be the one with some other person with no principle of mutuality involved. As such, the Trust and the member of Vanprastha Ashram Scheme become two different legal entities. Any services of club and association being provided by the appellant to such members are therefore, taxable services under Section 65 (25a) and are absolutely out of the scope of Sport Club (supra) decision. Hence we are of the opinion that The Adjudicating authority below has rightly confirmed the said demand.

9. For this particular demand, the ld. Counsel for appellant has, in addition, argued that in case this demand is opined to be the one as under Club and Association Services then also the same has wrongly been raised, as the appellant-Trust is the body constituted for doing activities having objective, which are in the nature of public service and are of charitable, religious or political nature. Keeping that argument in mind, and the facts in the present case, and while drawing our support from the case of Joint Commercial Tax Officer vs. Young Men’s Indian Association- 1970 (1) SCC 462, where the Hon’ble Apex Court has held, while relying upon the Ranchi Club Ltd. (Supra) case and the Sports Club (Supra) case has held that by applying the principle of mutuality, member club always claim exemption in respect of the contributions received by the Club for their members. But this principle cannot have any application in respect of the money received from non-members. It is not difficult to conceive of case where one and the same concern may indulge in activities, which are partly mutual and partly non-mutual. The transaction between appellant Trust and the Cottage lease holders of Vanprastha Scheme is opined as the one between two different legal entities. Hence these exist no element of mutuality between the two.

10. As far as the plea of the appellant being charitable in nature, we draw our support from the case of FICCI vs. CST, Delhi – 2015 (38) STR 529 (Tni. Del.), wherein it was held that for any association to be called as the one of charitable nature discharging the public service it is essential and necessary that the activity qua which the demand has been raised must be essential and necessary for the proper functioning of the organisation and must be incidental to carrying out all the purposes for which it is constituted. No doubt, in this case the Hon’ble Apex Court has held that if primary and dominant purpose of a Trust or Association is a charitable, any other object of the association would not derogate from the inference that the Trust or the Institution is a valid charity but only in a case where the such other object is merely ancillary or incidental to the primary or dominant purpose of the Association/Trust.

11. In the present case, the members of Vanprastha Ashram Scheme are not member of the Patanjali Trust, the appellant herein, but are the members under particular scheme of the said Trust for the only purpose of being leased out a residential accommodation for their life time. The said leasing, to our opinion, is not ancillary and incidental object to the main charitable object of the appellant Trust. No doubt the members of Vanprastha Ashram Scheme are also getting that accommodation for attending the Yoga Camps but the fact is apparent and admitted that Yoga Camps can still be attended by any member of the appellant Trust irrespective of the being the member of Vanprastha Ashram Scheme. Hence, the consideration received as lease money under this scheme by the appellant is a consideration not because of mutuality between the appellant and the members of the said scheme, as discussed above, but is purely commercial in nature. Hence, for this particular consideration the benefit of exemption for appellant being charitable in nature cannot be granted. The said consideration is taxable under 65 (25AA) of the Act and the demand therefore is held to have been rightly confirmed. 

Renting of Immovable Property:-

12. The same has not been contested by the appellant. Hence, the order under challenge to that effect stands

Intellectural property:

13. The moot question for deciding the demand under this head is whether the permission as given by the appellant Trust to Star News Channel to record the Yoga Camps and to telecast on their News Channel can be termed as a right to Intellectual property, which is either a trade mark or design(s) or patent(s) or any other similar intangible property recognized as such under any existing Indian law. The Intellectual property right is defined under Section 65 (55A) of the Act. It was introduced by Finance No.2 Bill 2004 enacted on 10^thSeptember, 2004 through CBEC Circular No. B-2/8/2004 TRU dated 10^th September, 2004.

“9.1 Intellectual property emerges from application of intellect, which may be in the form of an invention, design, product, process, technology, book, goodwill etc. In India, legislations are made in respect of certain Intellectual Property Rights (i.e. IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copy-right) that are prescribed under law for the time being in force. As the phrase ^„law for the time being in force^‟ implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed information (not covered by Indian law) would not be covered under taxable services (emphasis supplied).”

14. The permission as granted by appellant Trust is neither a trade mark nor a design nor even a patent. We opine that at best it is in the form of copy-right, which has been excluded from the definition of Intellectual Property Service. Hence, we are of the opinion that mere grant of permission by the appellant to cover its Yoga Camps for being telecasted does not emerge from the above definition of Intellectual Property. Hence, we held that the demand confirmed under this head has wrongly been confirmed. The same is accordingly, set aside.

15. With respect to the findings qua limitation and invoking the extended period thereof, we find no infirmity in the findings of the adjudicating authority below, for the simple reason that appellant is a Trust rendering its services across the country at mega level. It is also been registered for rendering some taxable services. Unawareness on part of such Trust cannot be Thus, not disclosing the taxable income shows an intention to evade payment of tax. Hence, the said findings are also confirmed.

16. As a result of entire above discussion, the appeal in hand is partly allowed, whereby the demand qua the membership donations to the Trust and the demand under IPR is hereby set aside. However, the demand for receiving amount under Vanprastha Ashram Scheme and that for Renting Immovable Property are hereby confirmed alongwith the proportionate interest and the penalty. Consequential benefit accordingly, to follow.

[Pronounced in the open Court on 23.07.2018]