TMI Blog2003 (4) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... n net wealth of the assessee was taxed at the maximum marginal rate by applying the provisions of section 21A of the WT Act. The said assessment was carried in appeal before the first appellate authority by the assessee. The then CWT(A) vide orders dated 12-2-1993 took the view that the Assessing Officer erred in invoking the provisions of section 21A of the WT Act and in this manner he set aside the assessment for all the assessment years under consideration, with a direction to the Assessing Officer to consider the applicability of section 21AA of the WT Act to the facts of the assessee's case. Consequently, the Assessing Officer invoking the provisions of section 21AA completed the assessment by bringing to tax the net wealth of the assessee at the rate of 5%. The assessee being aggrieved with the aforesaid carried the matter in appeal before the CWT(A), who held that the assessee being a charitable trust was entitled to the exemption under sections 11 12 of the IT Act and, therefore, was entitled to the exemption under section 5(1) of the WT Act, 1957. The CWT(A) relied upon the order of the Tribunal in ITA 2754/Bang./1991, dated 11-3-1993 in the assessee's own case, in comin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see no longer remains eligible for exemption under section 5(1)(i) of the Act. On this issue, the department succeeds. 6A. This leaves us to address the issues raised by the respondent assessee its cross objections. The first ground preferred by the assessee in relation to the reopening has not been pressed before us, and is hence dismissed as not pressed. The short point of controversy before us relates to as to whether the assessee-society can be understood as AOP for the purpose of section 21AA so as to bring it within the ambit of the Wealth-tax as envisaged in the said section. 7. The stand of the assessee is that it cannot be termed as an AOP as understood for the purposes of section 21AA of the WT Act, on the reason hat the aspect of having constituted an AOP for the purpose of owning, holding or acquiring of wealth was missing. It is submitted that the essential ingredients required to be recognised as an AOP, as laid down by the various courts, were missing in the instant case. Reliance was placed in the decision of the Supreme Court in CIT v. Indira Balkrishna [1960] 39 ITR 546; CWT v. Vasudeva V. Dempo [1981] 131 ITR 291 (Bom.): CWT v. George Club [1991] 191 ITR 368 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsons as if no such discontinuance or dissolution had taken place and all the provisions of this Act, including the provisions relating to the levy of penalty or any other sum chargeable under any provisions of this Act, so far as may be, shall apply to such assessment. (3) Without prejudice to the generality of the provisions of sub-section (2), if the Assessing Officer or the DC (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act in respect of any such association of persons as is referred to in sub-section (1) is satisfied that the association of persons was guilty of any of the acts specified in section 18 or section 18A, he may impose or direct the imposition of a penalty in accordance with the provisions of the said sections. (4) Every person who was at the time of such discontinuance or dissolution of member of the association of persons, and the legal representative of any such person who is deceased shall be jointly and severally liable for the amount of tax, penalty or other sum payable, and all the provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum. (5) Where such di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of persons within the meaning of the Wealth-tax Act, 1957. Secondly, even if it is held to be an association of persons, can it be said that "the individual shares of the members of the said association in the income or assets or both of the said association on the date of its formation or at any time thereafter are indeterminate or unknown" so as to fall within the ambit of section 21AA of the WT Act, 1957. 13. Therefore, we proceed to address ourselves to the first issue before us. Undoubtedly, the WT Act does not provide any definition of the term 'AOP'. It would be relevant to refer to the celebrated decision of the Hon'ble Supreme Court in the case of Indira Balkrishna, to understand the meaning of AOP. According to the Apex Court, the word AOP as used in IT Act would mean an association in which two or more persons join for a common purpose with an object of producing incomes, profits or gains. The following extract of the judgment is worthy of notice: "Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded as the object for the purposes of marriage. Hence, the High Court held that no AOP for the purposes of wealth-tax could have come into existence as a result of the marriage of husband and his wife. 15. Now coming back to the facts of the instant case. The aim and objects of the association as extracted above are primarily to give financial assistance to the bereaved family in case of a death of the employee of the BEL and to any member who has been regular in subscribing to the fund for a continuous period of not less than 7 years, in the event of termination of his services by BEL or on grounds of superannuation, medical disability or other grounds. The funds for the association consists of subscription from the employee members at Rs. 10 per month, interest on deposits, donations or some temporary loans that may be arranged by the managing committee. The moot question is as whether with such objects and ability to raise funds, could it be said that the assessee was an AOP coming together or associating together, in a concerted way, for the purposes of owning, holding or acquiring wealth? The answer, in our view, is no. While it may be possible to say that the assessee-asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said section. The aforesaid is clear from a reading of sub-sections (1) to (5) of section 21AA. 17. A reference may be made to the decision of the Hon'ble AP High Court in George Clubs case in this regard, wherein the Hon'ble High Court was dealing with the exigibility to WT of a club which was registered under the Societies Registration Act, 1860. According to the High Court, the club-society was not engaged in any income producing activity and, therefore, was not an AOP. Further, according to the Hon'ble court, even assuming that it was to be understood as an AOP, it could not fall within section 21AA of the Act as no individual member could hold a share in the assets or income of such a club. The Hon'ble court noticed that having regard to section 14 of the Societies Registration Act, 1860, which deals with dissolution, the assets remaining after satisfying its debts and liabilities on the dissolution of the society under the said Act, were not liable to be paid or distributed among the members of the society or to anyone of them, but were to be given over to some other society. According to the Hon'ble High Court, in this view of the matter, it could not be said that any mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up of the club, no amount or property shall be paid or distributed among the members of the club. Any amount or property remaining after satisfaction of debts and liabilities of the club shall be transferred to some other institution having similar objects. It is, therefore, clear that no individual member of the assessee-club has a share in the income or assets of the club. Sub-section (4) of section 21AA makes every member of the association of persons jointly and severally liable for the amount of tax, penalty or other sum payable on the discontinuance or dissolution of the association of persons. From the wording of the rules governing the assessee-club, it is clear that no such liability can be fastened on its members as they do not have a share in its income or assets. If that be so, the assessee-club would not come within the net of section 21AA(1) so as to be assessed under the Wealth-tax Act, 1957." Therefore, even if it is assumed that the assessee was an association of persons, yet it does not fall within the purview of section 21AA because its members do not have a share in the income or assets of the association on the date of its formation or any time thereafter. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the assessee that the objectives and purposes of the assessee are not with motives of tax avoidance at all and it has been set up with the objects as can be deciphered from its Rules and Regulations. 21. The learned DR while appreciating that the assessee-society was not created with the object of tax avoidance, nevertheless, canvassed that the rigors of section 21AA are applicable inasmuch as that the members had come together with a common purpose and in a voluntary manner. 22. We are in agreement with the stand of the assessee that the coming together of the association of persons in the instant case for the purposes, which we have already discussed earlier, cannot be said to be with an objective of tax avoidance. Although, the tests of associating for common purpose and voluntarily are fulfilled in the instant case, but the third test, namely, presence of an objective of earning income or owning, holding or acquiring wealth is also equally relevant to consider as to whether there exists an AOP for the purposes of section 21AA of the WT Act. The third test, in our view, is not fulfilled by the assessee before us. Therefore, in the absence of the third leg of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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