WHETHER THE BENEFIT OF COMPOSITION SCHEME UNDER WORKS CONTRACT SERVICE IS AVAILABLE FOR ONGOING WORKS CONTRACT?
Works Contract (Composition Scheme for Payment of Service Tax) Rules was made by the Government made effect from 01.06.2007. The term 'Works Contract Service' has the meaning as defined under Sec. 65(105)(zzzza) of Finance Act, 1994. According to Sec.65(105)(zzzza) the taxable service means any services provided to be provided to any person, by any other person in relation to the execution of a works contract, excluding works contract in respect of roads, airports, railways, transport terminals, bridges, tunnels and dams. The explanation to above section defines 'works contract' as a contract wherein-
Transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods; and
· Such contract is for the purposes of carrying out-
· Erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating, ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and escalator, fire escape staircases or elevators; or
· Construction of a new building or a civil structure or a part thereof, or of a pipeline or conduit, primarily for the purposes of commerce or industry; or
· Construction of a new residential complex or part thereof; or
· Completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to the previous two points; or
· Turnkey projects including engineering, procurement and construction or commissioning (EPC) projects.
The person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying an amount equivalent to four per cent of the gross amount charged on the works contract.
The gross amount charged for the works contract shall not include value added tax or sales tax as the case may be, paid on transfer of property in goods involved in the execution of the said works contract.
The provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.
The provider of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract.
The case law 'In Re. M.B. Chitale Constructions' 2008 (11) STR 583 (Commr. Appeals) gives the answer for the question arised in the topic. The appellant with the intention to avail the benefit under Composition Scheme for payment of service tax approached the Central Excise Authorities and gave option of composition scheme under the new head of taxable service i.e., works contract service and accordingly requested for issuing fresh/amended registration certificate. They further informed that they were issuing running bills and service tax was charged accordingly but they will take the benefit of composition scheme for the remaining part of the works contract. The Deputy Commissioner in response to the letter of the appellant informed that they could not to pay service tax at 2% in respect of ongoing contracts due to the reasons spelt out in Rule 3 of the Rules as under:
Option should be given in respect of works contract prior to payment of service tax;
· The option exercised shall be applicable for the entire work contract.
The appellants against the order of Deputy Commissioner, in this appeal made the following contentions:
That in the absence of any expression 'ongoing works contract' in the statutory provisions, notification or clarificatory circular of the Board, the Deputy Commissioner has no authority to give such a decision;
· That the option under Rule 3(3) of Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007, is open and hence available to any service provider including the appellant on the part of works contract which is yet to be provided or completed and he can pay service tax @ 2% in respect of the part of the works contract to be executed after 1.6.2007.
· That running bills are obviously made only part of the contract is completed in a progressive manner and when such running bills is made and when service tax is paid on such portion, then the next portion is totally a new job for further progress of the entire works contract;
· That portion of the contract already executed before 01.06.2007 rightly attracted service tax under the then appropriate category.
The Commissioner (Appeals) held that in the instant case the appellant who is holder of service tax registration under 'commercial and industrial construction services', had already started paying service tax under the provisions of Notification No.1/2006 read with Section 66. Besides the same Rules speaks that the option has to be exercised for the entire works contract. In the instant case the appellant himself has accepted that they have provided some services and paying service tax on the running bills. Therefore, a part of service has already been completed and service tax has been paid under Sec. 66. Therefore, the appellant cannot exercise option under Rule 3(1) of the Works Contract (Composition Scheme for payment of Service Tax) Rules, 2007.
The Commissioner further held that composite scheme itself means that various elements which are taken together will complete a works contract. In other words, the works contract is a contract for the sale of goods as well as the provision of work or services, but is indivisible in nature, meaning that the value cannot be easily broken into these constituent elements. In the instant case the appellant has already provided some services and paid service tax. As such the services for which the appellant wants to exercise option under works contract may not constitute a composite contract. Besides in the composite contract the works contractor is required to pay service tax on the entire value of the contract without making a split of the value of the goods and material supplied and the value of the services provided. But in the present case a part of the services have already been completed and therefore the remaining part of the service for which the appellant wants to exercise option under works contract services may not be considered as a composite works contact.
In view of the above, the Commissioner held that the appellant is not eligible to exercise option under Rule 3(1).
Sunday, September 14, 2008
DOCUMENTS IN SERVICE TAX
IMPORTANT DOCUMENTS IN SERVICE TAX
Let us discus few important documents which assessees are expected to maintain under service tax provisions.
Following are the important documents required to be maintained by service tax assessees —
Invoice
Time period for raising an Invoice
Rule 4A of Service Tax Rules states that every person providing taxable service, not later than fourteen days from the date of completion of such taxable service, or receipt of any payment towards the value of such taxable service whichever is earlier, shall issue an invoice, a bill or as the case may be, a challan signed by such person or a person authorised by him in respect of such taxable service provided or to be provided and such invoice, bill or as the case may be, challan shall be serially numbered.
Contents of an Invoice
Rule 4A states that the invoice shall contain the following particulars —
(i) the name, address and the registration number of such person;
(ii) the name and address of the person receiving taxable service;
(iii) description, classification and value of taxable service provided or to be provided; and
(iv) the service tax payable thereon.
For Banking Companies
In the case of a banking company or a financial institution including a NBFC or any other body corporate, or commercial concern, providing service to a customer, in relation to banking and other financial services, an invoice, a bill or as the case may be, challan shall include any document by whatever name called, whether or not serially numbered and whether or not containing address of the person receiving taxable service but containing other information in such documents as required under this law.
Goods Transport Agency
In the case of provider of taxable service is a Goods Transport Agency, providing service to a customer, in relation to transport of goods by road in a goods carriage, an invoice, a bill or as the case may be, a challan shall include any document by whatever name called, which shall contain the details of the consignment note, number and date, gross weight of the consignment and also contain other information as required under this law.
Continuous Services
Where any payment towards the value of taxable service is not received, and such taxable service is provided continuously, for successive periods of time and the value of such taxable service is determined or payable periodically, an invoice, a bill or as the case may be, a challan shall be issued by a person providing such taxable service, not later than fourteen days, from the last day of the said period.
Input Service Distributor
Every input service distributor distributing credit of taxable services, shall in respect of credit distributed, issue an invoice, a bill, as the case may be, a challan signed by such person or a person authorised by him, for each of the recipient of the credit distributed, and such invoice, bill or as the case may be, challan shall be serially numbered and shall contain the following namely —
(i) the name, address and registration number of the person providing input services, and the serial number and date of invoice, bill or as the case may be
(ii) the name and address of the said input service distributor
(iii) the name and address of the recipient of the credit distributed
(iv) the amount of the credit distributed
In case the input service distributor is an office of a banking company, or a financial institution including a NBFC or any other body corporate or commercial concern, providing service to a customer, in relation to banking and other financial services an invoice, a bill or as the case may be, challan shall include any document whatever name called whether or not serially numbered, but containing other information in such document as required under this law.
Consignment Note
Rule 4B of Service Tax Rules state that any Goods Transport Agency which provides service in relation to transport of goods by road in a goods carriage shall issue a consignment note to the customer. Where any taxable service in relation to transport of goods by road in a goods carriage is wholly exempted, the Goods Transport Agency shall not be required to issue the consignment note.
Consignment note means a document issued by Goods Transport Agency, against the receipt of goods for the purpose of transport of goods by road in a goods carriage which is serially numbered and contains the name of the consignor and consignee, registration number of the goods carriage in which the goods are transported, details of the goods transported, details of the place of origin and destination, person liable for paying service tax, whether consignor, consignee or the Goods Transport Agency.
TR-6 Challan
Rule 6(2) of Service Tax Rules states that the assessee shall deposit service tax in Form TR-6 or in any other manner prescribed by CBEC. TR-6 Challan has since been replaced by GAR 7 challan which is now mandatory for use for electronic payments.
Returns
Rule 7 of Service Tax Rules states that every assessee shall submit a half yearly return in Form ST-3 or ST-3A, as the case may be, in triplicate along with a copy of the Form TR-6 for the months covered in the half yearly return.
Registration
Rule 4 of Service Tax Rules states that every person liable for paying the service tax shall make an application in Form ST-1 for registration within a period of 30 days and the Registration certificate will be in Form ST-2.
Form of Appeal
An appeal to Commissioner of Appeals shall be in Form ST-4 and to the Appellate Tribunal in Form ST-5 in quadruplicate, and shall be accompanied by a copy of the order appealed against.
Cenvat Documents
An assessee desirous of taking Cenvat credit, is permitted to use the following documents —
(a) Invoice of input service provider issued on or after 10.9.2004;
(b) Invoice of input service distributor;
(c) Invoice of Manufacturer/Importer or his agent;
(d) A challan evidencing payment of service tax by the person liable to pay service tax.
Records
Freedom has been given to the assessees to maintain their own set of records but such record should, however show the required particulars for taxation purposes.
STORY-OF-THE-WEEK
TANSEN THE SINGER
Here is an anecdote from the life of the famous Emperor Akbar who was very fond of music. Musicians and artisans were given a lot of encouragement at Akbar’s court. The great singer Tansen was his court singer. One day Akbar said, “Tansen, you sing so beautifully. I am sure that there is no one in the world who can sing better than you.” Tansen replied humbly, “Badshah Salamat (your royal highness), I beg to differ. There is one person who sings more sweetly than me.”
Akbar said, “That is impossible. Who is he?” Tansen said, “Oh Badshah! He is my Guru Shri Haridas. If you want to hear him sing, you shall have to come with me to Vrindavan.”
So it was settled. Akbar went to Vrindavan along with Tansen. They reached there in the late evening. Tansen said, “Maharaj, my Guru should be resting now. Let us also sleep. We shall go to see him in the morning.”
In the wee hours of the morning, Akbar woke up to the sound of someone singing. He listened intently. The singer was singing a devotional song, to wake up the baby Krishna sleeping in His cradle. So sweet were the notes and so heavily were they drenched in love and devotion that the voice was divine and sweet beyond words. Akbar was totally immersed in the sweet nectarine words and intoxicating music. Tansen woke up to find Akbar totally overwhelmed by the sweetness of the song that he was unconsciously an audience to. Tansen whispered into the ear of the Emperor, “My Lord that is my Guru Haridas.”
Akbar slowly opened his tear-filled eyes and asked, “You too sing in my court Tansen; but what is this? Yah Allah! What sweetness! I have never experienced this before! What is the difference?” Tansen said, “Badshah Salamat there is only one difference. But it is a great big difference.”“What is that?”“My Lord, I sing for the Badshah of Delhi. My Guru Haridas sings for the Badshah of the Universe!”
What an enormous difference! Anything and everything that is done with love and devotion for God becomes sweet and beautiful. Bhagawan Baba tells us that, devotion is not a uniform to be worn on special occasions. Devotion is a way of life!
SANJAY TANDONCOMPETENT-CHANDIGARH
Here is an anecdote from the life of the famous Emperor Akbar who was very fond of music. Musicians and artisans were given a lot of encouragement at Akbar’s court. The great singer Tansen was his court singer. One day Akbar said, “Tansen, you sing so beautifully. I am sure that there is no one in the world who can sing better than you.” Tansen replied humbly, “Badshah Salamat (your royal highness), I beg to differ. There is one person who sings more sweetly than me.”
Akbar said, “That is impossible. Who is he?” Tansen said, “Oh Badshah! He is my Guru Shri Haridas. If you want to hear him sing, you shall have to come with me to Vrindavan.”
So it was settled. Akbar went to Vrindavan along with Tansen. They reached there in the late evening. Tansen said, “Maharaj, my Guru should be resting now. Let us also sleep. We shall go to see him in the morning.”
In the wee hours of the morning, Akbar woke up to the sound of someone singing. He listened intently. The singer was singing a devotional song, to wake up the baby Krishna sleeping in His cradle. So sweet were the notes and so heavily were they drenched in love and devotion that the voice was divine and sweet beyond words. Akbar was totally immersed in the sweet nectarine words and intoxicating music. Tansen woke up to find Akbar totally overwhelmed by the sweetness of the song that he was unconsciously an audience to. Tansen whispered into the ear of the Emperor, “My Lord that is my Guru Haridas.”
Akbar slowly opened his tear-filled eyes and asked, “You too sing in my court Tansen; but what is this? Yah Allah! What sweetness! I have never experienced this before! What is the difference?” Tansen said, “Badshah Salamat there is only one difference. But it is a great big difference.”“What is that?”“My Lord, I sing for the Badshah of Delhi. My Guru Haridas sings for the Badshah of the Universe!”
What an enormous difference! Anything and everything that is done with love and devotion for God becomes sweet and beautiful. Bhagawan Baba tells us that, devotion is not a uniform to be worn on special occasions. Devotion is a way of life!
SANJAY TANDONCOMPETENT-CHANDIGARH
Sunday, September 7, 2008
THE LAST JOURNEY
A rich old man was very ill and was on his ‘death-bed’. His four sons stood around him. The eldest son said, “Father has only a few breaths left now. Soon he will die. Let us arrange for a beautiful open-jeep carriage to take the body to the funeral ground. One of you go and talk to the flower girl to deliver fifty garlands of fresh balsam flowers so that we can decorate the arthi nicely. Also order a set of new clothes for him. Our father has lived like a king. So, he must go too, like a King.”
The second son said, “Why to order the flowers? They shall rot in this heat anyways. The carriage shall cost us dear. Why don’t we just ask for the ambulance from the ‘Jeevan Hospital’, down the road? It shall not cost as much as the jeep carriage. And, do we really need the new clothes? He is going to be dead anyways. He won’t even know.”
The third son was even thriftier. He said, “Of what use is the ambulance from Jeevan Hospital? We can request for an ambulance from the Government Hospital or from the Red Cross Society. Surely that should be more economical. After all what does it matter to a dead man, whether his last journey is in a fancy carriage or in an ordinary ambulance?”
The youngest son was craftier still. He said, “Why bother with the ambulance and the flowers? The funeral ground is just behind our house anyway. We are four of us; we can put him on a cot and carry him on our shoulders. It’s only a short distance from our house to the crematorium.”
The old man happened to be listening to this conversation between his sons. The very sons for whose sake he had toiled all his life! For them he had scrimped and scraped for years to give them a good life. He wanted to leave behind enough wealth to make them comfortable for a long, long time. What was this they were saying? His sons! His dearly beloved sons! His own flesh and blood!
With a surge of energy he sprang up from the bed and said, “If one of you will kindly bring my shoes, I’ll just go by myself. I don’t need a carriage, an ambulance or a cot. I think my shoes are enough for me to walk out of here. I don’t need help from anyone of you.”
SANJAY TANDON
The second son said, “Why to order the flowers? They shall rot in this heat anyways. The carriage shall cost us dear. Why don’t we just ask for the ambulance from the ‘Jeevan Hospital’, down the road? It shall not cost as much as the jeep carriage. And, do we really need the new clothes? He is going to be dead anyways. He won’t even know.”
The third son was even thriftier. He said, “Of what use is the ambulance from Jeevan Hospital? We can request for an ambulance from the Government Hospital or from the Red Cross Society. Surely that should be more economical. After all what does it matter to a dead man, whether his last journey is in a fancy carriage or in an ordinary ambulance?”
The youngest son was craftier still. He said, “Why bother with the ambulance and the flowers? The funeral ground is just behind our house anyway. We are four of us; we can put him on a cot and carry him on our shoulders. It’s only a short distance from our house to the crematorium.”
The old man happened to be listening to this conversation between his sons. The very sons for whose sake he had toiled all his life! For them he had scrimped and scraped for years to give them a good life. He wanted to leave behind enough wealth to make them comfortable for a long, long time. What was this they were saying? His sons! His dearly beloved sons! His own flesh and blood!
With a surge of energy he sprang up from the bed and said, “If one of you will kindly bring my shoes, I’ll just go by myself. I don’t need a carriage, an ambulance or a cot. I think my shoes are enough for me to walk out of here. I don’t need help from anyone of you.”
SANJAY TANDON
Friday, September 5, 2008
face value
Term of the Day - face value
The nominal dollar amount assigned to a security by the issuer. For an equity security, face value is usually a very small amount that bears no relationship to its market price, except for preferred stock, in which case face value is used to calculate dividend payments. For a debt security, face value is the amount repaid to the investor when the bond matures (usually, corporate bonds have a face value of $1000, municipal bonds $5000, and federal bonds $10,000). In the secondary market, a bond's price fluctuates with interest rates. If interest rates are higher than the coupon rate on a bond, the bond will be sold below face value (at a "discount"). If interest rates have fallen, the price will be sold above face value. here also called par or par value.
The nominal dollar amount assigned to a security by the issuer. For an equity security, face value is usually a very small amount that bears no relationship to its market price, except for preferred stock, in which case face value is used to calculate dividend payments. For a debt security, face value is the amount repaid to the investor when the bond matures (usually, corporate bonds have a face value of $1000, municipal bonds $5000, and federal bonds $10,000). In the secondary market, a bond's price fluctuates with interest rates. If interest rates are higher than the coupon rate on a bond, the bond will be sold below face value (at a "discount"). If interest rates have fallen, the price will be sold above face value. here also called par or par value.
franchise
Term of the Day - franchise
A form of business organization in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee.
A form of business organization in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee.
Quote of the Day
Deciding on an investment philosophy is kind of like picking a spouse. Do you want someone who is volatile and romantic and emotional, or do you want someone who is steady and trustworthy and down to earth. If you want a successful investment career, you'd better bind yourself to a style you can live with. - Ralph Wanger
Club liable to pay service tax ?
WHETHER MEMBERS CLUB PROVIDING FACILITES TO ITS MEMBERS IS LIABLE TO PAY SERVICE TAX?
The Commissioner of Service Tax, New Delhi filed an appeal against the order of Commissioner (Appeals) setting aside the demand of service tax from Delhi Gymkhana Club Limited for the use of the club by its members as Mandap Keeper, after following the decisions of Hon'ble High Court, Kolkatta: (2008) 40 TAXCOM (Del) 636)
Saturday Club Ltd., V. Asst. Commissioner, Service Tax Cell, Calcutta 2005 -TMI - 206 - HIGH COURT CALCUTTA;
Dalhousie Institute V. Asst. Commissioner, Service Tax Cell, Calcutta 2005 -TMI - 204 - HIGH COURT CALCUTTA
The contention of the Revenue is that the respondent is a company limited by guarantee and registered under the Companies Act, 1956 and accordingly is a separate person altogether in the eye of the law. The members of the club when using the facility of the club are acting as clients of the club.
The tribunal considered the arguments and analyzed the case laws which were relied by the respondents.
In 'Saturday Club Ltd., V. Asst. Commissioner of Service Tax Cell, Calcutta (Supra) the applicant filed a writ petition before Calcutta High Court praying inter alia declaration that the petitioner club is not a mandap keeper with in the meaning of Chapter V of the Finance Act, 1994 and is not liable to pay service tax. It was contended by the applicant that:
The petitioner club is members' club but not a proprietary club;
· It is not supposed to pay service tax for using the space as mandap keeper as per requirement of the members;
· The question of giving service tax for using the club premises as mandap cannot be held to be a service or different from its usual services to the members so that service tax can be imposed.
The Calcutta High Court analyzed various judgments relied on by the applicant. In 'Harbour Division - II, Madras V. Young Men's Indian Association, Madras and others' the Supreme Court held that if a members' club even though a distinct legal entity acts as only agent for its members in the matter of supply of various preparations and articles to them no sale would be involved as the element of transfer would be completely absent. Members are joint owners of the properties. Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club. To show the difference of characteristics between the 'members' club' and 'proprietary club' the court held that where every member is a shareholder and every shareholder is a member, then the same would be called as 'members' club'. In the members' club what is essential that the holding of the property by the agent or trustee must be holding for and on behalf of and not a holding antagonistic to the members of the club. If a 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.
In 'Commissioner of Income Tax V. Darjeeling Club Ltd., 1985 (153) ITR 676 a Division Bench of Calcutta High Court held that there is a long line of decisions in which it has been held that supplies made by a club to its members or the facilities afforded by a club to its members for a price will not amount business activity of the club, even though there may be surplus of revenue over expenditure and the surplus could not be taxed as a business profit of the sales were confined to the members of the club only.
In this case the revenue contended that providing 'mandap' by a 'club' as a mandap keeper cannot be the usual course of business activities under the objects of the Memorandum of Association of the club. The club authorities are using the space as against the consideration and thereby making profit out of it which cannot be called as usual privilege to the members.
The Court held that it is true to say that there is a clear distinction between the 'member's club' and 'proprietary club'. No argument has put forward by the Department 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 its members, is supposed to pay the same. There should be principally existence of two sides/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 transactions in between themselves cannot be recorded as service. The Court, therefore, did not find it precedent to say that members' club is liable to pay service tax in allowing its members to use its space as 'mandap'.
In 'Dalhousie Institute V. Asst. Commissioner, Service Tax cell, Calcutta (Supra) the Court observed that all the members of the club jointly own all the immoveable properties as per the definition of the term 'mandap'. The members of the club are allowed exclusively to participate in the services rendered by the club and the club fund, no third party is allowed to participate in the same. Service tax is recoverable from such 'mandap keeper' who is having different and separate legal and physical entity and, let out mandap with commercial and trading object. Hence the members have formed the club to serve themselves mutually and for this purpose the members are paying for such uses and any amount of receipt and expenditure of the club is enjoyed and/or participated and/or incurred by the members alone, not by third party. In this case the facility of the use of the premises to the members by its club cannot be termed to be letting out nor can the members of the club using the facility of any portion of the premises for any functions be termed to be a client.
The Delhi tribunal in the case after considering the findings of the Calcutta High Court, upheld the order of Commissioner (Appeals).
The Commissioner of Service Tax, New Delhi filed an appeal against the order of Commissioner (Appeals) setting aside the demand of service tax from Delhi Gymkhana Club Limited for the use of the club by its members as Mandap Keeper, after following the decisions of Hon'ble High Court, Kolkatta: (2008) 40 TAXCOM (Del) 636)
Saturday Club Ltd., V. Asst. Commissioner, Service Tax Cell, Calcutta 2005 -TMI - 206 - HIGH COURT CALCUTTA;
Dalhousie Institute V. Asst. Commissioner, Service Tax Cell, Calcutta 2005 -TMI - 204 - HIGH COURT CALCUTTA
The contention of the Revenue is that the respondent is a company limited by guarantee and registered under the Companies Act, 1956 and accordingly is a separate person altogether in the eye of the law. The members of the club when using the facility of the club are acting as clients of the club.
The tribunal considered the arguments and analyzed the case laws which were relied by the respondents.
In 'Saturday Club Ltd., V. Asst. Commissioner of Service Tax Cell, Calcutta (Supra) the applicant filed a writ petition before Calcutta High Court praying inter alia declaration that the petitioner club is not a mandap keeper with in the meaning of Chapter V of the Finance Act, 1994 and is not liable to pay service tax. It was contended by the applicant that:
The petitioner club is members' club but not a proprietary club;
· It is not supposed to pay service tax for using the space as mandap keeper as per requirement of the members;
· The question of giving service tax for using the club premises as mandap cannot be held to be a service or different from its usual services to the members so that service tax can be imposed.
The Calcutta High Court analyzed various judgments relied on by the applicant. In 'Harbour Division - II, Madras V. Young Men's Indian Association, Madras and others' the Supreme Court held that if a members' club even though a distinct legal entity acts as only agent for its members in the matter of supply of various preparations and articles to them no sale would be involved as the element of transfer would be completely absent. Members are joint owners of the properties. Proprietary clubs stand on a different footing. The members are not owners of or interested in the property of the club. To show the difference of characteristics between the 'members' club' and 'proprietary club' the court held that where every member is a shareholder and every shareholder is a member, then the same would be called as 'members' club'. In the members' club what is essential that the holding of the property by the agent or trustee must be holding for and on behalf of and not a holding antagonistic to the members of the club. If a 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.
In 'Commissioner of Income Tax V. Darjeeling Club Ltd., 1985 (153) ITR 676 a Division Bench of Calcutta High Court held that there is a long line of decisions in which it has been held that supplies made by a club to its members or the facilities afforded by a club to its members for a price will not amount business activity of the club, even though there may be surplus of revenue over expenditure and the surplus could not be taxed as a business profit of the sales were confined to the members of the club only.
In this case the revenue contended that providing 'mandap' by a 'club' as a mandap keeper cannot be the usual course of business activities under the objects of the Memorandum of Association of the club. The club authorities are using the space as against the consideration and thereby making profit out of it which cannot be called as usual privilege to the members.
The Court held that it is true to say that there is a clear distinction between the 'member's club' and 'proprietary club'. No argument has put forward by the Department 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 its members, is supposed to pay the same. There should be principally existence of two sides/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 transactions in between themselves cannot be recorded as service. The Court, therefore, did not find it precedent to say that members' club is liable to pay service tax in allowing its members to use its space as 'mandap'.
In 'Dalhousie Institute V. Asst. Commissioner, Service Tax cell, Calcutta (Supra) the Court observed that all the members of the club jointly own all the immoveable properties as per the definition of the term 'mandap'. The members of the club are allowed exclusively to participate in the services rendered by the club and the club fund, no third party is allowed to participate in the same. Service tax is recoverable from such 'mandap keeper' who is having different and separate legal and physical entity and, let out mandap with commercial and trading object. Hence the members have formed the club to serve themselves mutually and for this purpose the members are paying for such uses and any amount of receipt and expenditure of the club is enjoyed and/or participated and/or incurred by the members alone, not by third party. In this case the facility of the use of the premises to the members by its club cannot be termed to be letting out nor can the members of the club using the facility of any portion of the premises for any functions be termed to be a client.
The Delhi tribunal in the case after considering the findings of the Calcutta High Court, upheld the order of Commissioner (Appeals).
Monday, September 1, 2008
Liquidity Ratio
Term of the Day - liquidity ratio
Total dollar value of cash and marketable securities divided by
current liabilities. For a bank this is the cash held by the bank as a proportion of deposits in the bank. The liquidity ratio measures the extent to which a corporation or other entity can quickly liquidate assets and cover short-term liabilities, and therefore is of interest to short-term
creditors. also called cash asset ratio or cash ratio.
Total dollar value of cash and marketable securities divided by
current liabilities. For a bank this is the cash held by the bank as a proportion of deposits in the bank. The liquidity ratio measures the extent to which a corporation or other entity can quickly liquidate assets and cover short-term liabilities, and therefore is of interest to short-term
creditors. also called cash asset ratio or cash ratio.
Quote of the Day
I know of nothing more despicable and pathetic than a man who devotes all the hours of the waking day to the making of money for money's sake. - John D. Rockefeller
Section 269SS and 269T
Applicability of provisions of Section 269SS and 269T on receipts and repayments of deposits between Firm and Partners
August 31, 2008
The assesseee, being the partnership firm, had claimed that
"in view of the fact that partners and firm are not independent of each other and the firm is not juristic person, these transactions cannot be considered as intra person but were only for the purpose of carrying on partner's own business."
But the AO did not accept this explanation and rejected the plea of the assessee.
The Assessing Officer considering it to be intra party transactions of deposit otherwise then by way of cheque or bank draft inviting the provisions of Section 266SS and 267T and considering these payments and repayments were in violation of Sections 269SS and 269T imposed penalty under Sections 271D and 271E respectively for receiving the deposit in cash and payment in cash.
Assessee has challenged the action of the AO. ITAT held that the provisions of Section 269SS and 269T are applicable to the transactions between firm and partners but waived the penalty on the ground of bonafide belief.
Honorable, high Court of Rajasthan confirmed the order of ITAT.
For full text of judgment - visit
MY BABY GIRL
STORY-OF-THE-WEEK
MY BABY GIRL
A beautiful baby girl was born to Radhika. The labour room attendants were extremely busy. Twenty one children were born in the hospital on that day. The doctors and nurses were heavily overworked.Radhika held the baby girl in her arms and caressed her soft hair. She whispered sweet nothings into her little ears. She breast fed her every two hours. The little baby would let out a little whimper and Radhika would attend to her in a jiffy. She changed her diapers and snuggled her close to herself to warm her, on this cold December night. On the third day, just before Radhika was to be discharged from hospital and sent home, she heard a commotion in the corridor of the ward. A woman was shouting, and some others were trying to quieten her.A few minutes later, a team of doctors walked into Radhika’s room. They looked tense. The senior doctor said, “Radhika, we need to do a DNA test for your baby girl and you. We need to take the samples.” Radhika was a little unnerved, “Why? What is it for?” “Err; it seems there has been a mix up. A lady has alleged that the baby girl that she had given birth to has been given to you and your baby has been given to her!”The words fell on her ears like a bombshell. She fainted. When she came back to consciousness, she could not speak a word. The DNA tests confirmed that the babies had indeed been exchanged. The doctor took the baby girl away and brought the other baby girl to her. Radhika held the new baby in her arms and cried endlessly. How much love she had showered upon the other child! All of a sudden she was told that the child did not belong to her! In a minute the child was whisked away from her arms. What a sea change her emotions had undergone. She did not love that child any more. Gone were the attachment and the affection. The realization took only an instant!This happening sets us thinking. We too, need to realize the truth about our worldly relationships. Our parents and our children are surely a part of our flesh and blood but we need to realize that the attachment is only up to the flesh and blood. Sooner or later children grow up and lead their lives independent of their parents. This is the way of the world. Each one of us came into this world alone and shall go alone too. Undue attachments tie us down. The sooner one realizes that we just need to do our duty and not get unduly entangled with emotions; the sooner one is able to free oneself from worldly attachments.
SANJAY TANDON
COMPETENT-CHANDIGARH
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