The Hindu Business Line : Chambers of service

The Service Tax Department keeps an eagle eye on service providers who have not registered and are not paying taxes. And the latest on its watch list are the chambers of commerce. Apparently, the Department has sought details of the services they offer and the subscription charged. It has also sought copies of their latest balance-sheet, organisational structure and Articles of Association.

Clarifying, the Department has informed the chambers that they would come under the banner club or association for the purposes of this levy. The chambers are protesting, and pleading that they are charitable organisations whose services should not attract the levy.

The Department is of the opinion that chambers are premier bodies of persons providing services for a subscription and do not fall under any exclusion definition. Thus, they have to pay service tax on the subscription amount collected from the members.

Recognition issue

In the past, the chambers of commerce have argued that they have been recognised as charitable institutions, as the Income-Tax Department felt that organisations such as FICCI were set up for the promotion, protection and development of trade, commerce and industry. The thrust of their argument has been that an organisation cannot be tax-exempt under one law and be denied exemption under another in the same country. Unfortunately, the service tax laws at present do not consider other laws to grant/negate an exemption.

The moot point to consider here is whether a chamber of commerce can be termed a club; although the name per se conveys an impression of members listening to a lecture, as against playing a game of cards in a club. The common factor here is `members'. Some may argue that when the government had gone into minute details to exempt survey and map-making services rendered by local development authorities, it could do the same for chambers of commerce to. But as it has not done so, the services would be taxable.

Taking and giving

It is common perception that charity means an act of giving. In the case of chambers of commerce though, they appear to be taking and giving. However, the Supreme Court, in a case, held that "the receipts for the various facilities extended by the clubs to their members... as part of the usual privileges, advantages and conveniences, attached to the membership of the club, cannot be held to be a trading activity. The surplus — excess of receipts over the expenditure — as a result of mutual arrangement, cannot be said to be income for the purpose of this Act (Income-Tax Act)."

In another case, the Calcutta High Court held that, "What is paid by the members for their accommodation cannot be treated as rent and that income cannot be regarded as income from house property under the Income-Tax Act."

The chambers of commerce could probably take solace in the fact that a time-tested legislation such as the I-T Act has exempted services and, therefore, a relatively new legislation should follow suit.

In the Saturday Club 2005 180 (ELT 18) case, it was held that the principle of mutuality would apply to decide whether any association is liable to pay service tax or not. In case the element of commerciality is proved in the services provided by the chamber of commerce, then the service tax liability will arise. Rather than erect barriers for a few services, the concept of a well-thought-out negative list would do well to simplify things.

(The author is a Hyderabad-based chartered accountant.)

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