TMI Blog2012 (2) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... he Wealth Tax Act, 1957 ( Act‟, for short) relate to assessment years 1988-89 and 1989-90. By order dated 26.02.2007 the following substantial question of law were admitted for consideration: (i) Whether the provisions of Section 21AA of the Wealth Tax Act, 1957 or Section 21A of the Act are applicable to the facts and circumstances of the case? (ii) In the event it is held that Section 21AA of the Wealth Tax Act, 1957 is applicable to the facts of the case, whether the Income Tax Appellate Tribunal was justified in holding that the Assessee was not liable to wealth tax? 2. The third substantial question of law for our consideration is: Whether or not the respondent/assessee is liable to pay wealth tax on its net wealth or is it to be examined in view of Section 21AA of the Act? 3. Section 21AA of the Act was amended w.e.f. 01.04.1989 and after its amendment, the said provision was as under:- 21AA. Assessment when assets are held by certain associations of persons. (1) Where assets chargeable to tax under this Act are held by an association of persons, other than a company or co-operative society, or society registered under the Societies Registration Act, 1860 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly. Explanation.--Omitted by Finance Act, 1992, wef 1-4-1993. (The amendment to the subsection 1 inserted w.e.f. 01.04.1989 has been underlined for the sake of convenience.) 4. For the assessment year 1988-89, the insertions made in Section 21AA w.e.f. 01.04.1989 will not be applicable, whereas for the next assessment year i.e. 1989-90, the insertions were made w.e.f. 01.04.1989 will be applicable. 5. The contention raised by the learned counsel for the Revenue is that a society is an association of persons and to this extent, he is right. The term association of persons‟ includes a society or an association, whether it is registered or not. The Black‟s Law Dictionary defines the term society‟ as an association or company of persons (generally unincorporated) united together by mutual consent, in order to deliberate, determine and act jointly for some common purpose. Way back in 1963 in Swami Satichitanand and Ors. versus Additional Income Tax Officer (1964) 53 ITR 533 (Ker), it was held that tax imposed on a society, though it has been styled as an association of persons‟ is still a tax on the society and not on its members. 6. However, this is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leviable upon and recoverable from an individual who is a citizen of India and is resident in India at the rates specified in Part I of Schedule I or at rate of 3 per cent, whichever course is more beneficial to the revenue. 7. The next question which arises for our consideration is whether the individual shares of the members of the respondent society or income and assets of the respondent/assessee were indeterminate or unknown on the date of its formation or any time thereafter. The Assessing Officer, in the present case, has not examined and dealt with the said aspect in the assessment order. However, both the assessment orders record that there was mis-appropriation of the trust‟s funds. The Assessing Officer did not specifically invoke Sections 21A or 21AA of the Act. It is also apparent that the departmental representative who argued the matter had neither referred to the Sections 21A/21AA nor did he rely upon the same at the time of arguments. 8 The first Appellate Authority, i.e. Commissioner of Wealth Tax (Appeals), in its order dated 10.02.2005, again did not specifically invoke or refer to any provisions of the Act. He dealt with other aspects with regard t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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. In this view of the matter, it is difficult to say that a member of a club has a share either in the income or assets of the club. We may also refer in this behalf to the decision of this court in Deccan Wine and General v. CIT (1977) 106 ITR 111, where this court set out the distinguishing features of an association of persons vis- -vis a body of individuals. It was held that, for constituting an association of persons, the association must be engaged in an income producing activity. It is difficult to say that a club is engaged in an income-producing activity. In this behalf, the Tribunal referred to the Board s Circular No.320 dated January 11,1982 [See(1982) 134 ITR (St) 166], no doubt issued under section 167A of the 1961 Act, clarifying that members of such clubs do not have any share in the income or assets of such association. Since there is no definition of association of persons under the 1957 Act, we must understand the said expression I the same sense in which it is used in the 1961 Act. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or both of the association on the date of its formation or any time thereafter are indeterminate or unknown can be subjected to wealth-tax. In the present case, the assessee is a club registered under the provisions of the Karnataka Societies Registration Act and had declared nil wealth and had claimed that it is not susceptible to the provisions of the Wealth-tax Act, since it is only an association of persons providing recreation facilities to its members. This claim, in our view, is rightly rejected by both the assessing authority as well as by the first appellate authority on the ground that the assessee is an association of persons and the members are the owners of the assets and the individual shares of the members as the owners of the assets and the individual shares of the members in the income or assets or both of the association on the date of formation or any time thereafter are indeterminate or unknown and accordingly, has subjected the assessee to wealth-tax. The findings and the conclusion reached both by the assessing authority and the first appellate authority are in consonance with the observations made by the apex court in the case of Ellis Bridge Gymkhana case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndividuals will be taxed as association of persons. 34. In the instant case, we are concerned with Assessment Years 1970-71 to 1977-78. Section 21AA was not in force during the relevant assessment period. There was no way that a club could be assessed as an association of persons in these assessment years. It is not even the case of the Revenue that individual member's interest in the club was indeterminate or unknown. 14. The Supreme Court in Ellis Bridge Gymkhana (supra) has made reference to Section 21AA introduced w.e.f. 01.04.1981 by Finance Act, 1981 and held that the said provision were inserted to bring to tax the net wealth of the association of persons where the individual shares of the members were unknown or indeterminate. The Supreme Court held:- Moreover, the Wealth Tax Assessment of an individual will involve computation of "net wealth". All the assets belonging to an individual will have to be included. If an individual is a partner of a firm or member of an association of persons, the value of his share in these entities will have to be included in his individual assessment. We have already examined the scheme of the Wealth Tax Act and also the object behind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of a society under the Societies Registration Act, 1860. Thus a society registered under the Societies Registration Act, 1860 stood excluded by insertion made w. e. f. 01.04.1989 17. Learned counsel for the revenue had drawn our attention to circular no. 550 dated 01.01.1990, wherein in paragraphs 31.1 and 31.2 it has been observed as under:- 31.1 Under the existing provisions of s. 21AA of the WT Act, in the case of an association of persons including a society registered under the Societies Registration Act, 1860, wealth-tax is payable either at the normal rates on at the rate of three per cent, whichever is more beneficial to the Revenue. Under s. 167B of the IT Act, a society registered under the Societies Registration Act, 1860, has been excluded from the purview of that section which provides for taxation of association of persons at the maximum marginal rate. As a measure of rationalization, the Finance Act has excluded societies registered under the Societies Registration Act, 1860, from the purview of S. 21AA of the WT Act, 1957. 31.2 This amendment will come into force w.e.f. 1st April, 1989, and will, accordingly, apply in relation to the asst. yr. 1989-90 and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s indeterminate. In fact, no argument was advanced on this aspect of the matter in any of the cases that have come for hearing along with this case. In fact, a list of members of the club should be readily available. In any event, there is no finding of fact that particulars of members were unknown or their interest in the assets of the club were indeterminate. 19. Learned counsel for the Revenue had submitted that a society registered under the Societies Registration Act, 1860, is an individual and it is a separate juristic entity. He has relied upon the CIT Vs. Salem District Urban Bank Ltd. (1940) 8 ITR 269 (Mad.). Thus a registered society is an individual and its net wealth was always taxable. 20. This judgment was relied upon by the Madras High Court in the case of George Club (supra) was not affirmed and stands overruled by the Supreme Court in the case of Ellis Bridge Gymkhana (supra). It is noticed that in the case of Bombay High Court in Orient Club versus Commissioner of Wealth Tax (1982) 136 ITR 697, approved by the Supreme Court in Ellis Bridge Gymkhana (supra), the club in question was registered under the Societies Registration Act. The view of the Bombay High C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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