TaxTMI 
TaxTMI 
2012 (2) TMI 106
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....w 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 (21 of 1860), or under any law corresponding to that Act in force in any part of India, and 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, the wealth-tax shall be levied upon and recovered from such association in the like manner and to the same extent as it would be leviable upon and recoverable from an individual who is a citizen of India and resident in India for the purposes of this Act, (2) Where any business or profession carried on by an association of persons referred to in sub-section (1) has been discontinued or where such association of persons is dissolved, the Assessing Officer shall make an assessme....
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....enerally 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 not the end of the matter. In view of the stipulation in of Section 21AA of the Act, we have to examine whether the individual shares of the members of the association of persons in the income or assets or both, on the date of its formation or at any time thereafter were indeterminate or unknown. In case, the shares were indeterminate or unknown, the association of persons shall be liable to pay wealth tax. The purpose and object behind Section 21AA stands explained in CBDT Circular No.508 dated 29.06.1989. The first three paragraphs of the said circular read as under:- "21.1 Under the WT Act, 1957 individuals, and HUFs are taxable entitles but an association of person is not charged to wealth-tax on its net wealth. Where an individual or a HUF is a member....
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....ions 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 to mis-management of the affairs of the trust/society‟s funds and its activities. 9. The Income Tax Appellate Tribunal („tribunal‟, for short), in the impugned order dated 13.01.2006, has referred the Section 21AA and has, inter alia held as under:- "In the light of the above it is clear that members do not have a share in the income or assets of the association either on the date of its formation or at any time thereafter. Inview of the above the society is not chargeable with Wealth Tax. We may also point out that the charge of Wealth Tax u/s 3 of the Wealth Tax Act is only of individuals/HUFs and company. S.21AA only ropes in an AOP for being assessed under the Wealth Tax Act but subject to the rider that it's members should have ....
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....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 so, the principle of the Board's circular applies with equal force in the case of an association of persons under this Act." 11. In accordance with the above view taken by Andhra Pradesh High Court, it can be said that the assets of society, registered under the Societies Registration Act, 1860, belong to the society/association itself and the members of the society/association do not have any right in the income or assets of the association. Shares of the members in the income or assets is not, therefore, indeterminate or unknown because they are nil or zero. Thus, in case of a society registered under the Societies Registration Act, 1860, wealth tax is not payable under Section 21AA as an association of person. 12. The Karnataka High Cou....
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....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 [1998] 229 ITR 1, though the said decision was not available, when they passed their orders of assessments and its confirmation by the first appellate authority in the appeals filed by the assessee. In our opinion, the contrary view expressed by the Tribunal cannot be accepted for the assessment years 1981-82 to 1983-84. Accordingly, we answer the question of law referred to us for our opinion that the assessee is not exigible to wealth-tax for the assessment year 1980-81 and is exigible for Wealth-tax Act for and from the assessment years 1981-82 to 1983-84." 13. Karnataka High Court has referred to the decision of the Supreme Court in the case of CWT Vs. Ellis Bridge Gymkhana (1998) 229 ITR 1 (SC). In the said case, the Supreme Court examine....
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....e 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 the insertion of Section 21AA. All these will go to show, the legislature deliberately excluded a firm or an association of persons from the charge of wealth tax and the word "individual" in the charging section cannot be stretched to include entities which had been deliberately left out of the charge." 15. It is not clear from the judgment whether the club in question was an association/society registered under the Societies Registration Act, 1860 or any other enactment. The Supreme Court had referred to a judgment of the Kerala High Court in Commission of Wealth Tax versus Mullam Club (1991) 191 ITR 370 (Ker.) which in turn refers to several decisions of the High Court of Bombay, Calcutta and Gujarat and one decision of the Madras High Court in t....
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....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 subsequent years. 18. It is not possible to accept the said interpretation. In fact, this circular is contrary to the earlier circular No.508 dated 29.06.1981. When we examine a somewhat similar provision i.e. Section 167B of the Income Tax Act, 1961, it becomes clear that the intention of the legislature was not to include within its ambit a society registered under the Societies Registration Act, 1860, but to exclude it. Further, the interpretation placed by the Revenue cannot be accepted as it would lead to further anomalies. As noticed above by the Finance Act, 1983, wealth tax was partly re-imposed on some companies w.e.f. 01.04.1983. In case the plea of the Revenue is accepted, they would be a conflict between Section 21AA an....