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TMI Blog1992 (12) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'AOP' and further holding that the wealth of the assessee is not taxable in the status of 'AOP' and he erred in not following the decision of the Supreme Court in the case of Banarsi Dass v. WTO [1965] 56 ITR 224 before coming to the conclusion that the assessee club is not an assessable entity under the Wealth-tax Act. It was also urged that the CWT(A) erred in ignoring the provisions of section 21AA effective from 1-4-1989. For all these reasons it was prayed that the orders of the CWT(A) be vacated and that of the Assessing Officer be restored. 3. The assessee filed nil returns of wealth claiming that it is not liable to wealth-tax in view of the judgment of the Gujarat High Court in the case of Orient Club v. WTO [1980] 123 ITR 395 because the club is not liable under the Wealth-tax Act as it is not an individual and therefore not an assessable entity under the Wealth-tax Act. On the other hand, it is contended that the assessee club is an 'AOP' as held by the Bombay High Court in the case of Willingdon Sports Club v. C.B. Patil, Third Addl. WTO [1982] 137 ITR 83 and thus not an assessable entity under the Wealth-tax Act. The Wealth-tax Officer was of the view that the term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the said ground taken by the revenue namely the CWT(A) erred in not considering the judgment of the Supreme Court in the case of Banarsi Dass was not correct. He also submitted that the Tribunal while rendering its order for the assessment year 1981-82 on 4-10-1988 was aware of the provisions of section 21AA inserted by the Finance Act, 1981 with effect from 1-4-1981 and therefore, the Tribunal is deemed to have considered such provision before rendering its decision. 7. We have duly considered the submission of the parties and the orders of the authorities. After careful consideration, we have arrived at a conclusion that the decisions of the CWT(A) are in accordance with law and in tune with the judgment of the jurisdictional High Court of Bombay contained in the case of Orient Club, wherein it has been held that the Association of Persons is not an individual for the purpose of Wealth Tax and therefore, it is not an assessable entity. It also held that there are no provisions in the Wealth-tax Act which make an Association of Persons as an individual. At page 706 of the judgment, it was held that the charging section section 3 of the Wealth-tax Act did not contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to Wealth-tax, it was held by the Bombay High Court that the properties were held under trust for public purposes of a charitable nature and therefore, the trust was exempt under section 5(1)(i) of the Wealth-tax Act, 1957. Following the earlier judgments of the Court in the cases of Orient Club and Willingdon Sports Club Bombay H.C. Held that the trust did not fall in any of the categories set out in section 3 of the W.T. Act and therefore not assessable to Wealth-tax. 10. In this connection, it is relevant to point out that the Gujarat High Court has taken earlier a similar decision in the case of Orient Club which was also an unregistered members' club and the Gujarat High Court held that it is not an individual and therefore, not assessable entity as individual. The Gujarat High Court considered the relevant provisions of Wealth-tax Act to come to the conclusion and in fact this judgment of the Gujarat High Court and the reasoning given in the said judgment was fully adopted by the Bombay High Court in the judgments cited. 11. The Calcutta High Court in the case of Royal Calcutta Turf Club v. WTO [1984] 148 ITR 790, which is an unincorporated club held that the Association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of members' holding shares either in the income or in the assets or both of the club came to sharp focus in the light of the provisions in section 21AA. The Andhra Pradesh High Court came to the conclusion that no individual member holds a share in the case of such club. Neither does he have a share in the income nor in the assets of the club. Section 14 of the Societies Registration Act provides that upon dissolution of a society registered under the said Act if any assets remained after satisfying all its debts and liabilities, the same shall not be paid to or distributed among the members of the society or any of them, but shall be given to some other society. Relying on this provision, it was concluded that a member of the club has no share in the income or in the assets of the club. The Andhra Pradesh High Court referred to its earlier judgment in the case of Deccan Wine & General Stores v. CIT [1977] 106 ITR 111 wherein the distinguishing features of Association of Persons vis-a-vis body of individuals were highlighted. It was held that for constitution an Association of Persons, the association must be engaged in the income producing activity which is not applicable in that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 370. The Kerala High Court noted the difference between the definition of "person" contained in section 2(31) of the Income Tax Act and the persons who are taxable under section 3 of the Wealth Tax Act. According to the Kerala High Court a members' club is a voluntary association of persons joining together in accordance with rules and bye-laws of the club for enjoyment of one another's company and other facilities or for some other purposes. The High Court considered section 2(h) as amended with effect from 1-4-1975 of the Wealth Tax Act, but held that it is not applicable unless the CBDT has declared AOP as company for the assessment year 1975-76 or later years, which is not the case there. The High Court agreed with the interpretation of the Supreme Court in the case of C.K. Mammed Kayi , but yet observed that, that judgment is of no assistance to the revenue. It is pertinent to point out that the Kerala High Court has followed the three judgments of the Bombay High Court, Gujarat High Court and also Calcutta High Court cited supra, but dissented from the judgment of the Madras High Court in the case of Coimbatore Club and State Bank of India Officers Association v. CWT [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such association or BOI, but such shares are indeterminate or unknown. In other words, the right to share of profits or income is a pre-requisite, though they are indeterminate or unknown which, in such eventuality, would attract levy of maximum marginal levy of tax to avoid creation of multiple association of persons for purpose of tax avoidance. 19. Similarly, under section 21AA of the Wealth Tax Act, 1957 which is similar to section 167A/167B of the Income-tax Act, 1961 holding of assets chargeable to tax under the Wealth Tax Act by an AOP in which the individual shares of the members of the association in the income or assets or both are indeterminate or unknown on the date of its formation or at any time thereafter tax is levied at the maximum marginal rate applicable to an individual who is a citizen and resident of India. This section also presupposes that the member of the association other than a company or a co-operative society or a society registered under the Societies Registration Act is entitled to a share in income or the assets or both of the association on the date of its formation or at any time thereafter. 20. The Bombay High Court in the case of Orient Clu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mischief of the aforesaid provisions of law. Nonetheless, the members do associate themselves to form members' club but not with the intention of earning of profit or income or sharing it with other members. The members of a club come to own wealth as an incidence of membership when they join the club, though the object of joining the club is not the acquisition of wealth. It is an incidence of membership that if and when the club is dissolved and if they continue to be members on the date of dissolution, the property of the club will be distributed among the members for the time being. Thus the members are not vested with any share of right in the wealth of the club which is incidental to the membership and which would materialise in the event of distribution talking place at the time of dissolution. 23. In fact the Bombay High Court did consider in the case of Orient Club the ratio of the Supreme Court in the case of Banarsi Dass and C.K. Mammed Kayi and Sodra Devi and observed that they are not helpful to the revenue. Therefore, there is no force in the contention of the learned departmental representative as the aforesaid judgments were duly considered by the Bombay H.C. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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