Are all activities of a club or an association covered under the ambit of Service tax or there are certain exclusions to the same?
Becoming a member of an elite club is looked upon as a prestige symbol or a style statement; however, the high price tag attached to their membership and bearing with the recurring cost needs deep pockets.
Cost factors like Service tax are obviously an additional burden passed on to the members. Club or association services are taxable services since June 16, 2005. Exclusions have been made in respect of specific clubs or associations, which have been segregated from the chapter of Service tax.
These are the clubs in relation with union trade, press or media, promotion of agriculture, horticulture or animal husbandry, and related to charitable trusts which have been exempted from the purview of taxable services.
In a layman's language, an association is involvement of people at one platform to meet a single interest or objective. Members are enrolled and facilitated with advantages based on the price tags of membership. Nevertheless, at elite clubs, members access various facilities like sports, education and entertainment according to their personal preferences and that may or may not be the "identical aim" of all members. The nature of clubs may vary from social, cultural, sports, children, health etc.
There are clubs or association at Internet World that help users or members to share their knowledge for a particular sector and are exempted from the criteria of Service tax norms.
A variety of associations try to meet the requirements of paid members or subscribers. The associations engaged in humanitarian work for the welfare and development of society, e.g. Lions Club, are free from the purview of Service tax regime.
Additionally, clubs that are meant to relate with mass media, e.g. Press Club of India, are not covered under the ambit of Service tax. Industry protagonists join hands and form an association to discuss the growth or progress of their particular sector. This type of association is a Specialized Association. Committees and members are structured hierarchically. One such example is Advertising Agencies Association of India (AAAI) to particularly promote the advertising sector.
Further, social or cultural clubs are engaged in multiple services. They are intended to benefit ordinary people. Members are provided with modern conveniences. Service tax norms are applicable to these services but only for the contracted services of clubs. For instance, if clients are in association with clubs on a contract basis and are provided catering and room services, Service tax will be payable. But, if the same services are included in the list of services offered by clubs to their members, they are not subject to Service tax.
An issue arose about the applicability of Service tax for letting out of a club's rooms/halls and premises. A demand for payment of Service tax was made by treating the said (rental) charges as that of a mandap keeper from his clients. Such an issue arose in the cases of Dehradun Club Limited (STO 2007 CESTAT 191), Dalhousie Institute (STO 2004 CAL 30) and Saturday Club Ltd. (STO 2004 CAL 110). In these cases, the department concerned took the view that letting out of club's rooms/halls and premises for a charge is like the services of a mandap keeper, and Service tax is payable on that charge.
In this background, the counsel of Dehradun Club Limited submitted that the club is a non-profit company registered under Section 25 of the Companies Act, 1956. It is a members' club, in as much as every member is a shareholder and every shareholder is a member, and the club is open only to its members and or to members of reciprocating or associate clubs.
In view of the same, the counsel contended, the recipients of services from such a members' club are not clients and no tax is attracted, since Service tax is in regard to the service rendered to a client.
The hon'ble court, in order to come to a definite conclusion in respect of the subject matter had two questions: (a) If the owner of a house allows any of the family members or friends to carry out a marriage or other ceremony at his house, and whether in such a case the owner is liable to pay service? and (b) Is there any difference of principle about the applicability of income-tax or sales tax or service tax?
The court observed principally that there should be existence of two sides/entities for having a transaction for a consideration. In a members' club, there is no question of two sides. 'Members' and 'club' both are same entity. Therefore, a transaction between themselves cannot be recorded as income, sale or service as per applicability of the revenue tax of the country. Hence, the court observed that it did 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'.
MONISH BHALLA
, Last updated: 11 February 2010
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