CLUB SERVICE: - MEANING OF TERM CHARITABLE
BY: - CA SUDHIR HALAKHANDI
- This article was written by me when a circular mentioned in this was issued. Journal I am not abole to recall. Actually I lost the habit of keeping a records of published Articles but anyway it is an interesting article- sudhir halakhandi
The club services were made taxable by Finance Act-2005 w.e.f. 16th June 2005 and in this respect the services provided or to be provide by any club or association to it’s members were made taxable and in this respect the definition of “Club and Services” is given in Section 65(25a) and according to this section the definition of “Club and Services” is as under: -
“Club or association" means any person or body of persons providing services, facilities or advantages, for a subscription or any other amount, to its members, but does not include—
(i) any body established or constituted by or under any law for the time being in force; or
(ii) any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry; or
(iii) any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or
(iv) any person or body of persons associated with press or media”
Here see the third part of this definition, which is being reproduced again: -
(iii) Any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature; or
Any person or body of persons engaged in any activity having objectives, which are in the nature of public service and are of charitable, religious or political nature are excluded from the definition of the club or association. It was the general conception that all the clubs or associations, which are registered under the income tax Act, are exempt from the service tax also. Hence recently on 19-09-2006 a notification is issued: -
Scope of term "charitable" used in the definition of club or association service - reg.
Circular No. 84 /2/2006-ST, dated 19-9-2006
The issue is whether any club or association that enjoys exemption under the provisions of Income Tax Act on the ground of being a public charitable institution gets automatically excluded from levy of service tax under section 65(105)(zzze) read with section 65(25a) of the Finance Act, 1994.
2. Exemption under the Income Tax Act on the ground of being a public charitable institution is of no consequence to levy of service tax. Levy of service tax is entirely governed by the provisions contained in the Finance Act, 1994 and the rules made thereunder.
3. The definition of “charity” and “charitable” as defined in Black’s Law Dictionary may be kept in mind. “Charity” is defined as “aid given to the poor, the suffering or the general community for religious, educational, economic, public safety, or medical purposes”, and “charitable” as “dedicated to a general public purpose, usually for the benefit of needy people who cannot pay for the benefits received”.
4. The officer concerned should examine the matter on a case-by-case basis, and the decision should be made after taking into account all material facts and statutory provisions.
5. Trade and field formations may be advised accordingly.
WHAT WAS THE ISSUE
The issue was whether the public charitable Institutions as registered under Income tax Act would directly eligible for this exemption on the ground that the said Institution is enjoying the exemption under the Income tax Act.
WHAT WAS THE OPINION
The opinion was provided in the said notification that both the Acts are separate Acts because the Finance Act –1994, governs service tax and it cannot be directly linked with the Income Tax Act. Hence it is not necessary that the intuitions enjoying the benefit of exemption under the Income Tax Act can be said to be eligible for exemption from the Service tax.
The above circular has given guidance to the concerned officers while deciding the exclusion from service tax on club services connected with charitable cause and in this respect the following instructions are given: -
1. While deciding the matter the concerned officer should examine the matter on: -
(a). On case to case basis;
(b). All the material facts;
(c). Statutory provisions.
2. The word charity and charitable should construed as per their natural meaning and in this respect the definition of charity and charitable as given in the Black’s law dictionary.
MEANING AS PER BALCK’S DICTINARY
“Charity” is defined as “aid given to the poor, the suffering or the general community for religious, educational, economic, public safety, or medical purposes”,
2. CHARITABLE: -
“Charitable” as “dedicated to a general public purpose, usually for the benefit of needy people who cannot pay for the benefits received”.
Here the meaning of this circular is not only to restrict the meaning of charity and charitable but here the purpose of the circular is to prevent all the entities registered under the income tax Act as charitable or religious trust to get the automatic exemption on the basis of sole reason of that they are entitled to exemption under Income tax Act. Here the concerned officer should see the real purpose of establishment and involvement of the concerned entity while deciding its eligibility of exclusion from service tax.
The main thrust should be that from the activities of the concerned concern should be help to poor or sufferings or to the general community for religious, economic, public safety or medical purpose.
The charitable trust of concern should be dedicated to a general public purpose and this dedication should usually be for the purpose of persons who cannot pay for the benefits received.
WHY THIS CIRCULAR
There may be two meaning of this circular and one out of them is apparently mentioned in the circular and the second one is implied. The first meaning and purpose of this circular is instruction of the concerned officers not to give benefit of this exclusions to all the entities which are registered under the income tax act as charitable trusts on the sole reason that they are registered as such under the Income tax Act because Income Tax Act and the law governing the service tax are different law. The officers should give the benefit of this exclusion to these entities after going through the facts of the case. As it is already mentioned that an entity registered as a charitable trust under the income tax is fulfilling all the formalities and criteria as mentioned in the circular then even after examining the case it will not be possible for the concerned officer to take the other view.
Second meaning is that the entities which are not registered under the income tax Act as charitable trust can be given the benefit of this exclusion but this second meaning which has not been mentioned anywhere in this circular is more important and now through this circular it is explained that to be eligible for this exclusion it is not necessary that the person or body of individuals should be registered under the income tax Act as a charitable trust.
WILL IT RESOLVE THE CONTROVERSY
Normally under the income tax Act the trust registered as charitable trust have their objective as help to poor or sufferings or for the well being of the society with respect to religious, educational, economic, public safety or medical purpose. The definition of the charity and charitable in the Black’s law dictionary is wide enough because it has words like usually, general community, religious purpose etc to make it more open-ended. But it will certainly give benefit to persons or body of persons which are not registered as Charitable trust under the income tax Act.
Section 2 (15): - “charitable purpose” includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility.
If we see the definition of Section 2(15) of the income tax Act then it will be very clear to us that this definition is also based on the definition of charity given in the Black’s Law dictionary as mentioned in the circular. Further to be registered under the income tax Act to get the exemption the trust created on or after 1st. April 1962 should also comply the following conditions: -
1. The trust should not be created for the purpose of a particular religious community or cast;
2. No part of the income of the trust should ensure directly or indirectly, for the benefit of settlor or any other specified person;
3. The property should be held wholly for the charitable purpose.
Here see with all these specification a trust is getting the exemption from the income tax then how it can not get the exemption from the service tax also when the service tax Act i.e. the Finance Act- 1994 does not defined the word precisely in itself. How the trust registered under the income Tax Act as such will lose this exemption under the Service tax law even after issuance of this circular has not been made clear. Though these entities which are really engaged in the cause of charity will now get the exemption from service tax after consideration of other material facts including the meaning of the word charity and charitable given in the Black’s Law dictionary.
The circular issued in the matter of the subject mentioned above is just an explanation of the word and it is issued to show the fact that Income Tax Act and the Law Governing the service tax in India are the separate Acts and the governance of Service Tax does not depend on the Income Tax Act and for the purpose of words not defined in the Finance Act –1994 it is not necessary to follow the Income Tax Act 1962 and first time it is mentioned that a specific dictionary has to be consulted for this purpose.
This is very casual approach to deal with a controversy, which will itself generate some other controversies and this is the process, which our lawmakers are following since the inception of service tax. See there was a demand to defined Commercial Concern since long time and how it was dealt with is not a very old story and they have repeated the same story while dealing with the demand to defined the word Charitable and this demand was also met with the very confusing clarification instead of defining the word in very clear terms.