whether Bangalore Club is liable to pay wealth tax under the Wealth Tax Act.?


Bangalore Club is not registered as a society, a trust or a company. The assessing officer, without further ado, “after a careful perusal” of the rules of the Club, came to the conclusion that the rights of the members are not restricted only to user or possession, but definitely as persons to whom the assets of the Club belong. After referring to Section 167A, inserted into the Income Tax Act, 1961, and after referring to Rule 35 of the Club Rules, the assessing officer concluded that the number of members and the date of dissolution are all uncertain and variable and therefore indeterminate, as a result of which the Club was liable to be taxed under the Wealth Tax Act.- Tribunal – It was then held, on a reading of Rule 35, that since members are entitled to equal shares in the assets of the Club on winding-up after paying all debts and liabilities, the shares so fixed are determinate also making it clear that Section 21AA would have no application to the facts of the present case. As a result, the Appellate Tribunal allowed the appeal and set aside the orders of the Assessing Officer and the CIT (Appeals). – High court set aside the order of tribunal – Apex court held that.It will be noticed that only three types of persons can be assessed to wealth tax under Section 3 i.e. individuals, Hindu undivided families and companies.It is clear that if Section 3(1) alone were to be looked at, the Bangalore Club neither being an individual, nor a HUF, nor a company cannot possibly be brought into the wealth tax net under this provision – It can be seen that for the first time from 1st April, 1981, an association of persons other than a company or cooperative society has been brought into the tax net so far as wealth tax is concerned with the rider that the individual shares of the members of such association in the income or assets or both on the date of its formation or at any time thereafter must be indeterminate or unknown. It is only then that the section gets attracted..- It is well-settled that when Parliament used the expression “association of persons” in Section 21AA of the Wealth Tax Act, it must be presumed to know that this expression had been the subject matter of comment in a cognate allied legislation, namely, the Income Tax Act, as referring to persons banding together for a common purpose, being a business purpose in the context of a taxation statute in order to earn income or profits. -in order to be an association of persons attracting Section 21AA of the Wealth Tax Act, it is necessary that persons band together with some business or commercial object in view in order to make income or profits. The presumption gets strengthened by the language of Sec. 21AA (2), which speaks of a business or profession carried on by an association of persons which then gets discontinued or dissolved. The thrust of the provision therefore, is to rope in associations of persons whose common object is a business or professional object, namely, to earn income or profits. Bangalore Club being a social club whose objects have been referred to by the Appellate Tribunal in this case make it clear that persons who are banded together do not band together for any business purpose or commercial purpose in order to make income or profits-For the purposes of income tax, the Bangalore Club could perhaps be treated to be a ‘body of individuals’ which is a wider expression than ‘association of persons’ in which such body of individuals may have no common object at all but would include a combination of individuals who had nothing more than a unity of interest. This distinction has been made by the Andhra Pradesh High Court in Deccan Wine and General Stores v. CIT 106 ITR 111 at pages 116, 117. Quite apart from this, to be taxed as an association of persons under the Income Tax Act is to be taxed as an association of persons per se. We have already seen that Section 21AA does not enlarge the field of tax payers but only plugs evasion as the association of persons must be formed with members who have indeterminate shares in its income or assets. For all these reasons, we cannot accede to Shri Banerjee’s argument that being taxed as an association of persons under the Income Tax Act, the Bangalore Club must be regarded to be an ‘association of persons’ for the purpose of a tax evasion provision in the Wealth Tax Act as opposed to a charging provision in the Income Tax Act.- in the facts of the present case is the list of members on the date of liquidation as per Rule 35 cited hereinabove. Given that as on that particular date, there would be a fixed list of members belonging to the various classes mentioned in the rules, it is clear that, applying the ratio of Trustees of H.E.H. Nizam’s Family (supra), such list of members not being a fluctuating body, but a fixed body as on the date of liquidation would again make the members ‘determinate’ as a result of which, Sec. 21AA would have no application..- For all these reasons, the impugned judgment and the review judgment are set aside. The appeals are allowed with no order as to costs.