1997 (10) TMI 2 - SC - Wealth-tax

Club not liable for wealth-tax 1970-78 since Section 21AA wasn't in force and members' interests were known

Commissioner of Wealth-Tax Versus Ellis Bridge Gymkhana And Others

SC held the club was not liable to wealth-tax for assessment years 1970-71 to 1977-78 because Section 21AA was not in force then and there was no finding ... Liability of the Club to wealth-tax - term 'individual' under Section 3 - Applicability of Section 21AA - Whether, the Appellate Tribunal has been right in law in holding that the assessee is not liable to wealth-tax under the Wealth-tax Act, 1957, for the assessment years in question ? - HELD THAT:- It is not the case of the Revenue before us that the members of the club were unknown or that their interest in the assets of the club was indeterminate. In fact, no argument was advanced on this aspect of the matter in any of the cases that have come up 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 the members were unknown or their interest in the assets of the club were indeterminate. The Central Board of Direct Taxes clearly recognised that the charge of wealth-tax was on individuals and Hindu undivided families and not on any other body of individuals or association of persons. Section 21AA has been introduced to prevent evasion of tax. In a normal case, in the assessment of an individual, his wealth from every source will be added up and computed in accordance with the provisions of the Wealth-tax Act to arrive at the net wealth which has to be taxed. So, if an individual has any interest in a firm or any other non-corporate body, then his interest in those bodies or associations will be added up in his wealth. It is only where such addition is not possible because the shares of the individual in a body holding property is unknown or indeterminate, resort will be taken to section 21AA and an association of individuals will be taxed as an association of persons. In the instant case, we are concerned with the 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 members' interest in the club was indeterminate or unknown. Appeal is dismissed. Issues Involved:1. Liability of the assessee (a club) to wealth-tax under the Wealth-tax Act, 1957.2. Interpretation of the term 'individual' under Section 3 of the Wealth-tax Act.3. Applicability of Section 21AA of the Wealth-tax Act.4. Comparison with other tax statutes like the Income-tax Act, 1961, and Gift-tax Act, 1958.5. Judicial precedents and conflicting High Court judgments.Detailed Analysis:1. Liability of the Assessee to Wealth-Tax:The primary issue was whether the assessee, a club, was liable to wealth-tax for the assessment years 1970-71 to 1977-78. The Wealth-tax Officer rejected the club's claim of non-liability, but the Appellate Assistant Commissioner and the Tribunal upheld the club's position, referencing the Gujarat High Court's earlier decision in Orient Club v. WTO [1980] 123 ITR 395. The High Court also ruled in favor of the assessee, confirming that the club was not liable to wealth-tax.2. Interpretation of the Term 'Individual':The Revenue contended that the term 'individual' in Section 3 of the Wealth-tax Act should be interpreted broadly to include an association of persons like clubs. However, the judgment emphasized that the rule of construction for a charging section requires clear words to bring a person within its ambit. The term 'individual' in the Wealth-tax Act does not include associations of persons, unlike the Income-tax Act, 1922, and the Income-tax Act, 1961, which explicitly mention associations of persons as taxable units.3. Applicability of Section 21AA:Section 21AA, inserted by the Finance Act, 1981, provides for the assessment of associations of persons in certain special cases where the individual shares of members are indeterminate or unknown. The judgment clarified that Section 21AA does not apply to the assessment years in question (1970-71 to 1977-78) as it was not in force during that period. Moreover, it was not the Revenue's case that the members' interests in the club were indeterminate or unknown.4. Comparison with Other Tax Statutes:The judgment highlighted that the charging section of the Wealth-tax Act differs from other tax statutes like the Income-tax Act, 1961, and the Gift-tax Act, 1958, which include associations of persons as taxable units. This deliberate exclusion in the Wealth-tax Act indicates the Legislature's intent not to tax associations of persons or bodies of individuals.5. Judicial Precedents and Conflicting High Court Judgments:The judgment reviewed various High Court decisions. The Gujarat High Court in Orient Club v. WTO [1980] 123 ITR 395, the Bombay High Court in Orient Club v. CWT [1982] 136 ITR 697, and the Kerala High Court in CWT v. Mulam Club [1991] 191 ITR 370 held that unincorporated clubs, being associations of persons, could not be taxed as individuals under the Wealth-tax Act. Conversely, the Madras High Court in Coimbatore Club v. WTO [1985] 153 ITR 172 held that the term 'individual' could include a plurality of individuals forming a single collective unit. The Supreme Court found the Madras High Court's view erroneous, emphasizing the legislative intent to exclude associations of persons from the charge of wealth-tax.Conclusion:The appeal was dismissed, affirming the High Court's decision that the assessee (the club) was not liable to wealth-tax for the assessment years in question. The judgment underscored the strict interpretation of the charging section and the legislative intent to exclude associations of persons from the Wealth-tax Act. The Supreme Court also dismissed related appeals and special leave petitions, maintaining consistency with its decision in C. A. No. 650 of 1988.