Hardayal Hardy, J.
(1) The following two questions of law have been submitted to this Court by the Lieutenant Governor Delhi for its opinion:-
(A) Whether the Roshanara Club, which sells goods to its members, is not a dealer as defined under clause (c) of Section 2 of the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union Territory of Delhi (b) Whether such a Club is liable to pay tax on its sales, under the aforesaid Act, in accordance with the provisions contained in Section 4 of the Act ?'
(2) This reference has been made under Section 21 of the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union Territory of Delhi, hereafter to be described as the Act. The statement of case sets out the contentions urged on behalf of the respondent before the Assessing Authority and the orders made by the said Authority and the two revising authorities under the Act in which they were rejected. It also mentions the order made by the Additional District Judge, Delhi under sub-Section (3) of Section 20 whereby the respondents contentions were accepted and have thus given rise to the questions of law formulated by the Lieutenant Governor at the instance of the Commissioner of Sales Tax.
(3) The facts as found by the learned Addl, District Judge are briefly as under :-
(4) The respondent Roshara Club Limited Delhi, was registered as a dealer under the Act on receipt of an application dated 1-11-1951 and was assessed for the purposes of sales-tax for several years. On 14-11-1962 it made an application for cancellation of registration on the ground that it had been applied for and granted under a mistake and that assessments had also been made under a mistaken view. It was contended that the respondent was a members' club and was not a dealer within the meaning of the term as used in the Act, that no sales were made by it to its members and all that it did was that arrangements were made for social entertainment and physical recreation of its members and that there was neither any profit motive nor any business activity. The objection was turned down by the Assessing Authority by its order dated 1-2-1962 on the short ground that according to Explanationn I added to Section 2(c) which defines the terms 'dealer', a club which sells goods to its members is a dealer, and that it was not necessary that the club should carry on the business of sale of goods. Against that order two revision petitions were field in due course. The first petition was filed before the Assistant Commissioner Sales Tax, with delegated powers of Commissioner and was dismissed while the second one was filed before the Commissioner which too was dismissed by his order dated 14-2-1964.
(5) Meanwhile, the respondent was assessed to tax for the assessment year 1960-61. The appeal by the respondent was dismissed by the Appellate Assistant Commissioner by his order dated 5-8-1963 and a revision filed against the same was also dismissed by Shri V. R. Bapat, Commissioner Sales Tax Delhi by his order dated 14-2-1964.
(6) The position with regard to the assessment year 1961-62 was also the same. An appeal against the order of the Assessing Authority was dismissed by the Appellate Assistant Commissioner by his order dated 5-8-1963 and a revision against the same was dismissed by Shri N. W. K. Yusafzai, Addl. Commissioner Sales Tax by his order dated 31-5-1966.
(7) Against the three orders viz., the order refusing to cancel registration of the respondent and the orders regarding assessments for the year 1960-61 and 1961-62 three separate petitions were filed by the respondent before the Addl. District Judge Delhi and were heard together and accepted by the order dated 18-9-1967 made by him. The main point for determination in the three matters was whether the petitioner was a 'dealer' within the meaning of S. 2(c) of the Act,
(8) According to the respondent the contention raised on its behalf was that the essential ingredient of the definition of the term 'dealer' is that a person must carry on the business of selling goods and the mere fact that the words 'will carry on business' or 'in the course of business' are not mentioned after the word 'sale' used in Explanationn I is not at all material. It was urged that the Explanationn should not be construed to over-ride the substantive provision to make out any fundamental change in the object of the Act.
(9) On behalf of the Department, it was submitted that strict interpretation must be put on the word 'dealer'. It was claimed that Explanationn I was added by the legislature to clarify and explain the provisions of the statue and since in the instant case the legislature had itself expressed its intention that a club which sells goods to its members, is a 'dealer', it must be held that serving refreshments by the club to its members amounts to a sale even if the activity of the club is not a business activity,
(10) The learned Addl. District Judge came to the conclusion that the contention urged on behalf of the department was not correct. The term 'sale' forms part of the definition of the term 'dealer'. These two definitions have, thereforee, to be read together. According to the learned Addl. District it should be borne in mind that these terms are used in a commercial sense and their essential ingredient is that there should be a sale by the person while he is carrying on a business. Sale made otherwise than while carrying on a business, is undoubtedly sale, but it does not have the effect of bringing the person making the sale into the definition of the term 'dealer'. The Explanationn I to Section 2(c) should, thereforee, be read along with the main definition and not in such a way as to eliminate such important words as constitute the definition of the term 'dealer'.
(11) On this view of the matter, the; learned Addl. District Judge came to the conclusion that the view taken by the officers below that inasmuch as Expiration I to Section 2(c) does not mention the words 'while carrying on business' after the words 'sells goods', the respondent must be held to be a dealer irrespective of the fact whether its activities are business activities or not, is erroneous and cannot be sustained.
(12) Learned Addl. Judge, then tried to see whether the activity of the respondent which provides refreshments and drinks to its members to the exclusion of others on a fixed price, without making any gain, is a business activity or not. On a reference to the decision of Madras High Court in Deputy Commercial Tax Officer Triplican Division & Others v. Cosmopolitan Club 1955-56 S T C 1 the learned Addl. District Judge reached the conclusion that such an activity is not a business activity.
(13) The order made' by the learned Addl. District Judge also refers to several other cases, some of which will be noticed hereafter, and reached the conclusion that in the case of a members' club whose function is to arrange refreshments and drinks for its members only to the exclusion of the rest of the world without any profit motive, it was not possible to say that what was done by the club was distinct from a proprietory club within the meaning of Section 2(c) of the Act.
(14) Against the view taken by the learned Addl. District Judge, the Commissioner of Sales Tax moved the Lieut. Governor and obtained the present reference whereby the two questions of law mentioned above have been submitted to this Court for its opinion.
(15) We find that recently this very question came up before a learned Single Judge of this Court (T. V. R. Tatachari, J.) in two writ petitions filled by the Delhi Gymkhana Club Limited and the Chelmsford Club Limited, Delhi. Both these petitions were partially allowed by the learned Judge by his two separate orders passed on 22-1-1971 whereby the assessment orders made in those cases were quashed to the extent that they related to supplies made by the clubs to their members and the Department was directed to separate the questions from those transactions of the club with their members during the years in questions from those transactions, if any, with non-members or out siders during the said period and to assess only the latter transactions and to refund the sales-tax relating to the former transactions.
(16) As regards registration of the two clubs as a 'dealer' under the Act, the learned Judge held that since the registration was made by the authorities under the Act at the instance of those clubs themselves and there was likelihood of supplies being made by the clubs to non-members or outsiders, at separate special occasions when they are allowed to participate in the functions on such occasions, their prayer for cancellation of registration was rejected.
(17) While dealing with those orders, the learned Judge (T. V. R. Tatachari J.) followed a recent decision or me Supreme Court in Joint Commercial Tax Officer, Harbour Division, v. The Young Men's Indian Association (Regd.) Madras and others : [1970]3SCR680 with particular reference to the note appended to that judgment by J. C. Shah (as he then was). We are in complete agreement with the learned Judge. Ordinarily, thereforee, it would hardly seem necessary to deal with the matter further and the only proper order to be made is on lines similar to those on which the two decisions in the cases of Delhi Gymkhana Club Limited and Chelmsford Club Ltd., were made.
(18) Mr. B. N. Kirpal, learned counsel for the Department, however, urged that the recent decision of the Supreme Cour in Joint Commercial officer, Harbour Division) does not appear to be in consonance with an earlier decision of the Supreme Court in Deputy Commercial Tax Officer, Saidapet, Madras, and another v. Enfield India Ltd. Co-operative Canteen Ltid. (21 S TC 317. In saying so, the learned counsel appears to have been influenced by the report of the last named case (Joint Commercial Tax Officer Harbour Division) in : [1970]3SCR680 where, before the Judgment of J.C. Shah J. there is a note to the effect to to the effect'dissenting judgment of the Court was delivered by Shah J. This note is not to be found in the judgment as : [1970]3SCR680 . It is also significant that in para 9 of that judgment the case reported in 21 S.T. C 317, has been specifically mentioned and in para Ii it is stated that 'if the club. even though a distinct legal entity, is only acting as an agent for its members in the matter of supply of various preparations to them, no sale would be involved as the element of transfer would be completely absent,' has been approved by the majority. J. C. Shah, J., was also a party to the latter judgment and has agreed with the majority in a separate note that the appeals must fail. On the main question, however, there seems to be some difference between the majority (Grover J. who spoke on behalf of M. Hidayatullah C.J., K. S. Hegde, A. N. Ray and 1. D. Dua JJ) and Shah J. and it is, thereforee, the opinion of majority that has to prevail. In that view of the matter the latest opinion of the Supreme Court is that none of the clubs in that case could be regarded as a 'dealer' within the meaning of Section 2(g) of the Madras General Sales Tax Act I of 1959, read with Explanationn I of the Act nor would there be any sale in the activity of the club within the meaning of Section 2(n) in the word 'sale' read with Explanationn I of the Act. The levy of sales-tax on such supplies was, thereforee, illegal.
(19) The facts in the present case are more or less on the same lines as in the case of Deputy Commercial Tax Officer Triplican Division and others v. Cosmopolitan Club(1), which was one of the clubs in that case and the appellate Bench decision of the Madras High Court in that case. which was approved by the Supreme Court, was relied upon by the learned Add). District Judge in the present case (see (1955) 6 S T C 1 I.L.R, 1955 Mad 1042 of the Madras General Sales Tax Act, 1959 is in the following terms- ''dealers.-' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or distributing goods, directly or otherwise whether for cash or for deferred payment or for commission, remuneration or other valuable consideration and includes-
(I)..............(ii) .............. (iii) .............. (iv) ..............
ExplanationN1.-A society including a Co-operative society, club or firm or an association which, whether or not in the course of business, buys, sells or distributes goods from or to its members for cash or for deferred payment or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purpose of this Act; Explanationn II..........' The definition of 'sale' as given in Section 2(n) is in these terms :- 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of business for cash or for deferred payment or other valuable consideration Explanationn 1.-.'The transfer of property involved in the supply or distribution of goods by a society (including a co-operative society), club. firm or any association to its members, for cash, or for deferred payment, or other valuable consideration, whether or not in the course of (business shall be deemed to be a sale for the purpose of this Act.' The word 'turnover' is defined to mean: 'the aggregate amount for which goods are brought or sold or supplied or distributed by a dealer either directly or through another on his own account or an account of others whether for cash or for deferred payment or for other valuable consideration........' The definition of these terms in the Bengal Finance (Sales Tax Act, 1941 as extended to the Union Territory of Delhi is as follows:- 2(c) 'dealer' means any person who carries on the business of selling goods in the Union Territory of Delhi and includes the Government, Explanationn 1.-A co-operative society or a club or any association which sells goods to its members is a dealer. Explanationn 2,-A factor, a broker, a commission agent, a decreed agent, an auctioneer or any other mercantile agent, by whatever name called, and whether of the same description as hereinbefore mentioned or not, who carries on the business of selling goods and who has in the customary course of business, authority to sell goods belonging to principals, is a dealer. Explanationn 3.-The manager or an agent in the Union Territory of Delhi or a dealer who resides outside Union Territory of Delhi and carries on the business of selling goods in the Union Territory of Delhi shall, in respect of such business, be deemed to be a dealer; 2(g) 'Sale' with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes a transfer of goods on hire-purchase or other system of payment by Installments, but does not include a mortgage or hypothecation of or a charge or pledge on goods.
(20) ExplanationN.-A sale or purchase of goods shall be deem ed to take place inside the Union Territory of Delhi if the goods are within that territory-
(I) in the case of specific or ascertained goods, at the time the contract of sale is made; and (ii) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation; 2(i) 'turnover' used in relation to any period means the aggregate of the sale-price or parts of sale prices receiveable. or if a dealer so elects, actually received by the dealer during such period after deducting the amounts, if any, refunded by the dealer in respect of any goods returned by the purchaser within such period. Provided that an election as aforesaid once made shall not be altered except with the permission of the Commissioner and on such terms and conditions as he may think fit to impose.'
(21) It is common ground that for the levy of sales tax there must be a sale of refreshments, beverages and other preparation by the club to its members. If there is no transfer of property involved in the supply or distribution of goods by a club it would not fall within the definition term 'sale' contained in the definition in section 2(g). It is also true that in the definition of the word 'dealer' in S. 2(c) the word 'transfer' does not occur, but the word 'transfer' appears to us to be implicit in the words 'who carries on the business of selling goods' because the word 'sale' in S. 2(g) means 'any transfer of property in goods by one person to another. The words 'dealer' and 'sale' must, thereforee, be read together and if there is no transfer of property the person who sells the goods cannot be regarded as a dealer.
(22) Explanationn I to the word 'dealer' in Section 2(c) adds to the definition of the word a co-operative society, or a club or any association which sells goods to its members. But the very fact that it introduces the idea of sale of goods by the club to its members in order that a club should become a dealer within the meaning of Section 2(c) itself goes to show that unless there is a sale by the club to its members it cannot become a dealer and in order that a person should be a dealer it must be one in which there is sale of goods by it to another and that sale connotes the notion of 'any transfer of property in goods'. It may be that the sale is made either in cash or for deferred payment or for any other valuable consideration. It may even include a transfer of goods on hire-purchase or other system of payment by Installments but nevertheless it must be a sale in which transfer of property takes place from one person to another.
(23) The mere mention of the word 'club' in Explanationn 1 to Section 2(c) is thereforee not enough to transform it into a ''dealer' unless the other requirement of transfer of property also takes place in the dealings between the club and its members. The definition of the term 'turnover' also means the aggregate of sale prices of parts of sale prices etc. which again shows that the price paid by the members to the club should be for the sale of its goods by the club to them and that again brings in the notion of transfer of property.
(24) As has been said by their Lordships of the Supreme Court that the law in England has always been that members' club to which category the club with which we are concerned in the present case belongs, cannot be made subject to the provisions of the licensing Act concerning the sale because thei members are joint owners of all the club property including the excisable liquor. The supply of liquor to a member at a fixed price by the club cannot be regarded as a sale. This was the view with respect town-incorporated clubs, but as regards incorporated clubs a distinction was drawn. Where such a club has all the characteristics of a members' club consistent with its incorporation, that is to say, where every member is a share-holder and every share-holder is a member no license need be taken out if liquor is supplied only to the members. This principal was laid down in Graff v. Evans 1882) 3 Q.B.D. 373 (*) and appears to have been followed throughout. A distinction was, however, made in a case where the legal property ordinarily vesting in the trustees of the members' club or in the incorporated body was surmounted by invoking the theory of agency, i.e. the club or the trustees acting as agents of the members.
(25) In Trebanog Working Men's Club and Institute Ltd. v. Macdonald (1940) 1 K.B. 576 Lord Hewardt L.C.Q., however, held that once it was conceded that a members' club did not necessarily require a license to serve its members with intoxicating liquor it was difficult to draw any distinction between the various legal entities which might be entrusted with the duty of holding the property on behalf of members, be is individual or a body of trustee or a company formed for the purpose so long as the real interest in the liquor remained in the members of the club. What was essential was that the holding of the property by the agent or trustee must be a holding for and on behalf of and not a holding antagonistic to members of the club.
(26) In the two cases to which a reference has been made by their Lordships of the Supreme Court, namely Bengal Nagpur Cotton Mills Club v. Sales Tax Officer and another (8 S T C 781and in Country Club and another v. The State of Mysore and another 16 S T C 38 the principle adverted to in Trebanog Working means Club (5) was adopted and it was said that if the agent or a trustee supplied goods to the members such supplies would not amount to a transaction of sale.
(27) In Deputy Commercial Tax Officer v. Enfield India Ltd.(3) in which the judgment was delivered by Shah J. the learned Judge was pleased to say that in the case of an un-incorporated society, club or a firm , an association ordinarily, the supply and distribution by such a society, club, firm or an association of all goods belonging to it to its members may not result with sale of goods. A distinction was however, sought to be made between an un-incorporated members' club and an incorporated members' club. The case of Graff v. Evans(4) was the case of a manager of an un-incorporated club. But in the case of an incorporated members' club where, according to Shah J. for a turnover from a transaction to be taxable under the Act the transaction must have the following four constituent elements viz,. (1) parties competent to contract; (2) mutual assent; (3) thing, the absolute or general property in which it is transferred from the seller to the buyer: and (4) price in money paid of promised. When a co-operative society supplies goods to its members, the four constituent elements of sale are normally present. A registered society is a body corporate with power to hold property and is capable of entering into a contract. It cannot, thereforee, be assumed that the property which it holds is the property of which its members are owners. All the four constituents may not apply to the case of an incorporated members' club where the transaction is noe in which the legal owner of property transfers it to another pursuant to a contract for price and that transaction has to be regarded as a sale. The analogy of cases under the licensing Act in the United Kingdom also does not appear to be appropriate,
(28) There is a great deal of force in what was said by Shah J. in that the case. But the majority in the recent judgment of the Joint Commercial Tax Officer Harbour Division : [1970]3SCR680 held that in England even in 'taxation laws the position of a members' club though incorporated has been recognised to be quite different and we are bound by that decision.
(29) In Inland Revenue Commissioners v. Westleigh Estates Company Ltd. etc. (1924) 1. K. B. 390 where Pollock M. R., dealing with the case of Eccentric Club Limited pointed out that the members' club was only structurally a company and it did not carry any trade or business so as to attract the Corporation Profit Tax under the relevant provisions of Section 52 of the Finance Act, 1920.
(30) Learned counsel for the Commissioner drew our attention to a decision of Orissa High Court in Indal Employees' Co-operative Society Ltd. v. State of Orissa and two others 22 S.T.C. 460 where a cooperative society registered under the Orissa Co-operative held to be a 'dealer' and the sale by it to the members was 'sale' as defined in the Orissa Sales Tax Act, 1947. 'dealer' and 'sale' in the said Act are similar to those given in the Act with which we are concerned. An examination of the judgment shows that the learned Judge relied upon the decision of the Supreme Court in Deputy Commercial Tax Officer v. Enfield India So-operative Canteen Limited 21 S.T.C. 317. They also referred to what was said before them by the learned Standing Counsel that the profit motive was not totally absent in the activity engaged in by the petitioner. Reference was made in this connection to certain bye-laws which provided for disposal of the profit by way of contribution to the reserve fund and grant of dividend to its members and it was urged that these bye-laws indicated a profit motive in carrying on the activity or business of the society. The learned Judges, however, held that the existence of profit motive was not essential for creation of taxable entity, but nevertheless following the decision in Deputy Commercial Tax Officer v. Enfield Co-operative Canteen Limited(3) they held that regardless of a motive for profit or gain, by pursuing a particular activity of sale or supplying of goods to its members for a price the co-operative society was a 'dealer' as defined in the Act.
(31) We are unable to agree with what was said in that case. In Bengal Nagpur Cotton Mills Club Miflandgaon v. Sales Tax Officer. Raipur and Another 8 S.T.C. 781('') Hidayatullah C.J. and Chaturvedi J. held that in a non-proprietary members' club the element of 'profit' in the price charged to the members did not make any difference. The excess paid by the member did not cease to be his property. He had a share in it just as he had a share in the stocks carried by the club. This was, however, true in the case of supplies made to a member but if goods were supplied or sold to non-members and profit was made. the club or the society could be said to be running a business and was as such a dealer. This decision has been approved by the Supreme Court.
(32) As against the cases cited by Mr. Kirpal, our attention has been drawn to another case decided by the High Court of Bombay. In Mahabaleshwar Club v. the State of Maharashtra 22 S.T.C. 123 it was held that the object of the Club was to provide recreation to its members and as such the club while supplying articles of food, refreshment and cigarettes etc., to its members was not liable to pay sales tax on the sales made by it. as the club was not a dealer within Section 2(11) of the Bombay Sales Tax Act, 1959.
(33) Mr. Kirpal lastly referred to the case of Mithan Lal and Others v. The State of Delhi and Others 9 S.T.C. 417 (11) decided by the Supreme Court and argued that Delhi being a Union Territory the definition of sale of goods as accepted by the Supreme Court in Cannon Dunkerley & Co. v. State of Madras 5 S.T.C. 216 (12) did not apply to Delhi and as such Parliament was competent to add to the definition of 'sale' and convert 'the sale of goods into something different from what it had to be in the case of a statute made by the State.' It may be that Parliament had the necessary power but no such change has been made in the definition of 'sale' and if the 'dealer' and 'sale' have to be read together. Parliament has not made any difference between what is to be found in the various State Acts and the one in force in Delhi. The decision has, thereforee, no application to the facts of the present case. An attempt was also made to draw a distinction between proprietary and non-proprietary clubs and also between incorporated and un-incorporated members' clubs. All that distinction is, however, of no consequence so far as the present case is concerned which in our opinion has to be decided in accordance with the decision of the Supreme Court in Joint Commercial Tax Officer, Harbour Division v. The Young Men's Indian Association (Regd.) Madras and other(2) referred to above.
(34) Mr. Kirpal also added that in question No. 1 the question starts with the assumption that there was a sale by the respondent. It may be so but merely because it is stated in the question that the club sells goods to its members, its activity does not become a business activity. We are, thereforee, of the opinion that the respondent-club is not a 'dealer' as defined under clause (c) of Section 2 of the Bengal Finance (Sales Tax) Act, 1941 as extended to the Union Territory of Delhi in so far as it supplies goods to its members. If there is any transaction in which the club has been making supplies to nonmembers, it will be the duty of the Sales-tax authorities to separate those sales from the sales made to its members and to charge tax thereon. In view of our answer to the first question, the answer to the second question is also the same and the club is not liable to pay tax on its sales to member in accordance with the provisions of Section 4 of the Act. The position will, however, be different in the case of sales made by it to non-members, in case there are any such sales.
(35) So far as registration of the club is concerned since the club was registered at the request of the respondent itself, we do not consider it necessary to order that its registration should be cancelled, for it may be that some of its transactions with non-members and outsiders are brought to the notice of the Assessing authorities. In that case the transactions would be liable to sales-tax. But if the authorities are satisfied that there are no such transactions by the respondent club, its registration may be cancelled. Both the questions are, thereforee, answered in the light of the above observations. The Commissioner will also pay costs to the respondent-club. Counsels fee Rs. 250.