By TIOL News Service

NEW DELHI, SEPT 06, 2016 : THE applicant intends to establish a club with luxurious amenities such as restaurant, swimming pool and gymnasium as also to do all incidental activities necessary for the attainment of the objects of the club.

They raise the following question before the Authority for Advance Rulings –

Whether the money/contribution received by company against shares and deposit from the prospective members for raising funds which can be used for achieving the sole object of the company i.e. establishing a luxurious club, is taxable as service as per the provisions of the Finance Act, 1994?

The applicant contends that for a transaction to be covered under the definition of service it needs to satisfy all the requirements mandated in section 65B(44) of FA, 1994, otherwise it cannot be termed as service; that in the light of the facts of the present case, there is no activity, since receiving an amount against the issuance of shares by a company cannot be said to be against an activity; that if there is no activity then the very first condition remains unsatisfied and, hence, it cannot be connoted as service. Furthermore, the word Securities falls under the definition of 'goods', as per Section 65B of the Finance Act, 1994 read with Section 2(h) of the Securities Contract (Regulation) Act, 1956and issuance of shares and getting money from the same cannot be service in any circumstance.

The AR relied on the decision in M/s Emerald Leisures Ltd., Mumbai - 2015-TIOL-07-ARA-ST wherein it is held –

(a) The relationship between the applicant and members of the club should be considered as provision of "service" and accordingly, the Membership fee, Annual fee and other charges received from members from time to time be liable for Service Tax.

(b) Refundable security deposit and interest there-on should not be subjected to Service Tax as per provisions of the Finance Act, 1994.

After considering the submissions made and relying on the decision cited, the AAR observed that members of the club, in lieu of shares, would get services which include provision of a facility provided by the club such as restaurant, swimming pool and gymnasium as also all incidental activities necessary for the attainment of said objects of the club and, therefore, the plea taken by the applicant cannot be accepted.

The Authority ruledas below -

++ The money/contribution received by company against shares from the prospective members for raising funds which can be used for achieving the sole object of the company i.e. establishing a luxurious club, is taxable as service as per the provisions of the Finance Act, 1994.

++ However, refundable deposit from the prospective members is not taxable as service as per the provisions of the Finance Act, 1994.

(See 2016-TIOL-27-ARA-ST)