TMI Blog1982 (2) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... No fees are payable by honorary members. Temporary members have also to pay fees. The affairs of the club are looked after by a managing committee consisting of a president and fourteen members elected annually at the annual general meeting. There are also trustees of the club and the number of trustees cannot be less than 3. The trustee; are elected and can be removed by a vote of majority of not less than two-thirds of the members present at the general meeting of the members of the club and the vote is to be taken by ballot. So far as the property of the club is concerned, it vests in the trustees and cl. 34(d) of the rules of the club reads as follows : " The property and effects of the club of whatever description shall vest in and shall, when necessary, be transferred to the trustees for the time being who shall in any legal proceedings be deemed sufficiently to represent the club and its members. Under the direction of the managing committee, the trustees for the time being shall act in legal proceedings, effect insurances, invest money, execute mortgages and all deeds to be entered into on behalf of the club, sign any debentures, the issue and form of which may be direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and alternatively the trustees formed a group of persons who could be assessed in accordance with the decision of this court in Abhay L. Khatau v. CWT [1965] 57 ITR 202. The Tribunal, however, did not think it necessary to decide the contention as to whether s. 21 (1) of the Act applied to the case of the club on the footing that the trustees of the club came within the meaning of the word " trustees " under s. 21. The Tribunal, however, took the view that the club, which is a group of individuals, is assessable in the status of an individual for wealth-tax. The Tribunal also took the view that the club belonged to the members for the time being on its list of members and those members could deal with the club as they liked. The club was thus identified with its members at a given point of time and the club could not be said to have an existence apart from its members. The view taken by the Tribunal shows that, according to it, " in assessing the club, therefore, it is the members who are assessed and unquestionably the members form a group of individuals". The Tribunal placed reliance on certain observations of the Supreme Court in CIT v. Sodra Devi [1957] 32 ITR 615. The Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Gujarat High Court in Orient Club v. WTO [1980] 123 ITR 395 which was a case of a members' club and in which the question of the liability of members of a club under the Act was considered and the Division Bench of the Gujarat High Court has held that a members' club is an association of persons and an association of persons is not an assessable entity covered by the word individual under s. 3 of the Act. In order to decide whether the assessee-club has been rightly held to be liable to wealth-tax under the Act, it is necessary to first refer to certain provisions of the Act. Section 3 of the Act is the charging section and it reads as follows : "Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in Schedule I." Section 3 thus refers to the taxable units or taxable entities contemplated by the Act. The three taxable units are, an individual, an HUF and a company. Net wea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jects of such institution, association or body, declare by general or special order to be a company; Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1975, or on or after that date) as may be specified in the declaration. " Under s. 3 of the Act, a company is treated as a taxable unit and having regard to the extended meaning of the word " company", an institution, association or body could be subjected to wealth-tax provided, of course, the Board, which means the Central Board of Direct Taxes, declares it by a general or special order to be a company for the purposes of the Act. The Parliament has, therefore, thought it fit to include an institution, association or body, which is bound to consist of more than one individual, within the definition of a company in the event of a general or special order being issued by the CBDT. It is also necessary to make a reference to certain clauses in s. 4(1) where the legislature has brought out a distinction between an association of persons and an individual. In s. 4(1) it is provided as follows : "In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as the value of the interest of that partner or member in the firm or association. The provisions of s. 4(1)(b) read with r. 2 will indicate that though the Act and the Rules contemplate that the interest of a partner in partnership firm and of a member of an association of persons is to be included in the net wealth of that " individual ", i.e., the partner or the member of the association of persons, as the case may be, an association of persons as such is not treated as a taxable unit under the Act; it is the partner or a member of an association of persons as an individual who alone is treated as a taxable unit. Reading the provisions of ss. 3 and 4 and the definition of "company" in s. 2(h) of the Act, the position which emerges appears to be that while a firm or association of persons is not treated as taxable unit and the member of an association of persons or a partner in the case of a partnership firm is individually taxable as a taxable unit, some institutions, associations or bodies which may be included within the definition of "company" by virtue of a general or special order to be made by the CBDT, could be treated as a taxable unit only when they fall w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions in the rules in whom the property and assets of the club are vested in trust for the members for the time being and who are given power to invest the funds of the club, sometimes at their own discretion and sometimes according to, the directions of the committee. In a non-proprietary club, the members for the time being are jointly entitled to all the property and funds and it is only on dissolution that the individual interest of the members becomes capable of realisation. " On the dissolution of a members' club, the property and assets are sold and realised, and after the discharge of the debts and liabilities of the club the surplus is divisible equally amongst the members for the time being, other than the honorary members, subject to any provisions in the rules to the contrary. " (See Halsbury's Laws of England, 4th Edn., Vol. 6, Paras. 209, 217, 220, 232, 247, 256 and 261). A members' club is thus voluntary association resulting from persons coming together in accordance with the rules and bye-laws of the club for enjoying certain facilities or for certain purposes and, as pointed out in Daly's Club Law, 7th Edn., p. 1, club is " an association of individuals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546. The observations made therein indicate what an association of persons will generally mean. The Supreme Court referred with approval to the observations of the Calcutta High Court in In re B. N. Elias [1935] 3 ITR 408 in which Derbyshire C.J. had pointed out that the word " associate " means, according to the Oxford Dictionary, " to join in common purpose, or to join in an action ". Having referred to this definition, the Supreme Court pointed out that an association of persons must be one in which two or more persons join in a common purpose or common action. The further observations, that in the context of the taxing provision in the I.T. Act, the association must be one the object of which is to produce income, profits or gains, would not be relevant for our purpose. Referring to the observations in the same case by another judge of the Calcutta High Court, Costello J., the following observations were quoted with approval (p. 551 of 39 ITR): " It may well be that the intention of the Legislature was to hit combinations of individuals who were engaged together in some joint enterprise but did not in law constitute partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifying a " body of individuals " and an "association of persons " as separate taxable entities. The definition of a " person " in the I.T. Act, 1961, clearly brings out this difference. Section 2(31) of the I.T. Act, 1961, which defines a person, provides that it includes " (i) an individual, (ii) a Hindu undivided family, (iii) a company, (iv) a firm, (v) an association of persons or a body of individuals, whether incorporated or not ........." The difference between the two concepts, viz., an " association of persons " and a " body of individuals " is, therefore, well recognised for the purpose of taxation. Therefore, when s. 4 of the Act refers to an association of persons it cannot be equated with or treated as a " body of individuals ". The further argument that a " body of individuals " should be treated as an " individual " for the purpose of s. 3 really does not then survive. It is no doubt true, there is the authority of the decisions of the Supreme Court for the proposition that an " individual " may also mean " body of individuals " but merely on that account to hold that wherever in a statute " individual " is mentioned, it must be construed as including a " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass case [1965] 56 ITR 224 (SC) appears to be the first case in which the Constitutional validity of the W.T. Act was put in issue on the ground that Parliament was incompetent to enact a legislation in respect of wealth-tax on HUFs, which was a group of individuals. Entry 86 in List I of Sch. VII reads " taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies ", which refers only to individuals and companies. The contention before the Supreme Court was that the word " individuals " used in entry 86 cannot take in HUFs and that the taxes which Parliament can levy can be levied only on individuals and not on groups of individuals and on companies. The contention of the revenue in that case was that the word " individuals " used in entry 86 was wide enough to take within its sweep groups of individuals and, as such, HUFs fell within the scope of the area covered by entry 86. Repelling the challenge, the Supreme Court held that it was not easy to understand why the word " individuals " could not take in its sweep groups of individuals like HUFs. The Supreme Court found it impossible to assume that while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the judgment in Banarsi Dass' case, a reference, has been made to an earlier decision of the Supreme Court in CIT v. Sodra Devi [1957] 32 ITR 615 in which the Supreme Court was really dealing with the meaning of the words " any individual " and " such individual " occurring in s. 16(3) of the Indian I.T. Act, 1922. In that context, while referring to the general meaning which could be given to the word " individual ", the Supreme Court has observed as follows (p. 620 of 32 ITR): "Whereas, the word 'individual' is narrower in its connotation being one of the units for the purposes of taxation than the word 'assessee', the Word 'individual' has not been defined in the Act and there is authority for the proposition that the word I individual does not mean only human being but is wide enough to include a group of persons forming unit. It has been held that the word 'individual' includes a corporation created by a statute, e.g., a university or a bar council, or the trustees of a baronetcy trust incorporated by a Baronetcy Act." Now it is difficult for us to see how these observations can be of any relevance in so far as the construction of the scheme of the W.T. Act is concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rant for suggesting that the two terms " individual " and " Hindu undivided family " bad been used in antithesis to each other because, s. 3 being a charging provision, it was merely concerned with specifying different assessable units for the purposes of assessment of wealth and the imposition of the levy. If the decision in Mammed Kayi's case [1981] 129 ITR 307 (SC) is carefully read, it is difficult to spell out a general proposition from that decision that the word " individual " in s. 3 of the W.T. Act includes all groups of individuals. The decision, in our view, appears to be an authority for the limited proposition that " the term 'individual' in section 3 includes group of individuals like Marumakkathayam tarwad ". This is also clear from the concluding portion of the judgment which reads as follows (p. 314) : " For all these reasons we hold that the term 'individual' in s. 3 of the Act includes within its ambit Mappilla Marumakkathayam tarwads and they are well within the purview of the taxing provisions of the enactment." Earlier, the Supreme Court has also observed that the specific mention of an HUF in s. 3 does not result in the exclusion of group of individuals w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e word " individuals " in entry 86, List 1, includes undivided families also, as an undivided family is only a collection of individuals and Parliament has power to impose wealth-tax on undivided families under entry 86. The particular observation on which reliance was placed, where the Division Bench of the Mysore High Court observed as follows, is (p. 379): "There is no doubt that the preponderance of judicial opinion is in favour of the view that the word 'individual' includes a 'group of individuals' knit together either by agreement or by an involuntary association brought about by their more birth. " Though these observations refer to an " individual " as including persons knit together by an agreement, they will have to be considered in the light of the fact that s. 4 specifically referring to an " association of persons " is contra-distinguished from an " individual " which is treated as a taxable unit, and they cannot be of any assistance to the revenue for the contention that the members of the club should be treated as a body of individuals and, therefore, they were a taxable unit liable to be taxed as an individual ". We have already referred to two decisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
