Income Tax Appellate Tribunal - Cochin
Wealth Tax Officer vs Banerji Memorial Club on 31 January, 2001
Equivalent citations: [2002]83ITD1(COCH)
ORDER
K.P.T. Thangal, J.M.
1. These appeals are directed against the consolidated order of the CWT(A) dt. 31st Dec., 1993, for the asst. yrs. 1983-84 to 1987-88. The common ground raised for all the years in question reads as under:
"The learned CWT(A) erred in cancelling the assessment, holding that the assessee is AOP and, therefore, its assets are not chargeable to wealth-tax in view of the decision of the Kerala High Court in the case of Sreemulam Club (Kerala Law Journal parts 7 & 8 p. 334), dt. 30th April, 1991. The CWT(A) ought to have upheld the assessment following the decision of the Supreme Court in Trustees of Govardhandas Govindram Family Chanty Trust v. CIT (1973) 88 ITR 47 (SC) and the decision of Tribunal Cochin in the assessee's own case for the asst. yr. 1978-79 in WTA No. 76/Coch/85, dt. 9th June, 1988."
2. The issue raised in these appeals is whether the assessee-club is assessable to wealth-tax under the WT Act, 1957 for the asst. yrs. 1983-84 to 1987-88. The assessee-club is a society registered under Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, XII of 1955, as No. 115 of 1976. Rule 2 of the rules of the club, giving aims and objects of the club, reads as under;
"2. The objects of the club are of a social character, to promote sports and games, to do charity, to afford to the members free scope and facility for mingling with one another, for the healthy cultivation of personal intercourse and interchange of thoughts, for recreation and amusements and in general, for the promotion of social amenities. Promotion of social, charitable, cultural and athletic activities among the public shall be vital part of its objects."
Rule 3 states that the club shall consist of unlimited number of members. Rule 4 classifies members into nine classes, like life members, resident members, non-resident members, etc. Rules 6, 8, 9 and 10, read as under:
"6. Any member who offers a donation of Rs. 40,000 or more to the club shall on acceptance of the donation by the Executive Committee become a life member.
8. Life members shall be entitled to all privileges and shall be subject to all the obligations as resident-members except the liability to pay the general subscription.
9. Every member residing within the revenue district of Thrissur shall be a resident-member.
10. Every member residing beyond the above limit shall be a non-resident member."
Rules 20 and 21 read as under :
"20. Every resident-member shall pay an admission fee of Rs. 25,000 and a monthly general subscription of Rs. 50. Members' children admitted shall pay half rate, (general body 1993 June).
21. Every non-resident member shall pay Rs. 25,000 and general subscription of Rs. 150 for each calendar year or part thereof in advance. A non-resident member attending the club for more than 7 days in a month shall pay Rs. 10 extra towards the subscription for each month."
Sub-rule (a) of Rule 28 reads as under :
"Temporary members shall be entitled to all the rights and privileges of resident-member, except the right to participate in a meeting and shall be subject to all the duties and obligations imposed on members by the rules and bye-laws of the club."
Rule 40 reads as under :
"The properties of the club shall vest in the executive committee as its trustees."
Section 24 of the Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, read as follows :
"If upon dissolution of any society, there shall remain after the satisfaction of all its debts and liabilities any property, whatsoever, the same shall not be paid to or distributed among the members of the said society, or any of them but shall be given to the Government upon such terms and conditions as may be mutually agreed upon or to some other society which has for its objects, the furtherance of aims similar, as near as may be, to the objects of the dissolved society to be determined by the votes of not less than three-fifths of the members present personally, or by proxy, at the time of the dissolution, or in default thereof by such Court as aforesaid."
3. The AO issued a notice under Section 17 and brought the wealth of the assessee-club to tax for the assessment years in question. The CWT(A) held that the assessee-club is not liable to wealth-tax in view of the decision of the jurisdictional High Court in the case of CWT v. Mulam Club (1991) 191 ITR 370 (Ken). He also observed that to bring an AOP to charge under wealth-tax, the ingredients of Section 21AA of the WT Act, inserted by Finance Act, 1981, w.e.f. 1st April, 1981, are to be satisfied, and in the present case the AO had not invoked the provisions of Section 21AA, and accordingly, following the said decision of the jurisdictional High Court, he cancelled the impugned assessments.
4. Before us, the learned Departmental Representative pleaded that the assessee-club should have been regarded as an AOP, in view of the decision of the Supreme Court in Trustees of Govardhandas Govindram Family Chanty Trust (supra) cited in the grounds taken by the Revenue before us. He also contended that the CWT(A) erred in relying on the decision of the jurisdictional High Court in the case of Mulam Club (supra), for the simple reason that the Hon'ble Kerala High Court was concerned in that decision with asst. yrs. 1970-71 to 1978-79 when the provisions of Section 21AA, which roped in an AOP as a taxable entity for wealth-tax purposes were not on the statute book. Pointed reference is also made to the following observations of the Hon'ble Kerala High Court at p. 380 of the report in the said judgment :
"It is thus clear that the assets of an AOP are not chargeable under Section 3 before the insertion of Section 21AA in the Act. In the circumstances, we agree with the view expressed by the High Courts of Bombay, Calcutta and Gujarat that an AOP is not an individual for the purpose of wealth-tax and hence not an assessable entity as an individual. There is no other provision in the WT Act which makes an AOP an "individual" before the introduction of Section 21AA. With respect, we disagree with the view of the Madras High Court for the reasons mentioned by us earlier.
In the view that we have taken, we hold that the respondent-club is an AOP and not an individual for the purpose of the WT Act and hence not an assessable entity as an individual for the asst. yrs. 1970-71 to 1978-79. The question referred to us is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue."
In the light of the above observations of the Hon'ble Kerala High Court, it is pleaded that it is clear that after the introduction of Section 21AA in the statute, an AOP clearly became taxable for wealth-tax purposes. It is asserted that as admittedly the assessee-club is an AOP, it became taxable for wealth-tax purposes for the years in question by virtue of the provisions of Section 21AA, if not by virtue of Section 3 of the WT Act.
5. The learned counsel for the assessee submitted that the issue now stands -covered by the decision of the Tribunal in WTA Nos. 21, 22 & 23 /Coch/93, dt. 31st Oct., 2000. He submitted that the assessee was not liable to wealth-tax under Section 3 of the WT Act and Section 21AA did not make any difference to this position, as AOP is not included in Section 3. As far as members of the assessee-club are concerned, they had no rights over the assets of the club at any point of time either during the continuance or on dissolution of the club, and so the assessee is not hit by the provisions of Section 21AA.
6. We are of the view that the assessee deserves to succeed. In the case of Mulam Club (supra), the jurisdictional High Court referred to Daly's Club Law and explained the characteristics of a club. It is observed that a "club" means :
"Essentially an association of individuals in a way that involves to some degree the factors of free choice (which connotes a power of exclusion), permanence, corporate identity and the pursuit as a common aim of some joint interest other than the acquisition of gain (or some mutual advantage directly connected with the acquisition of gain, such as those provided by membership of a professional society or trade union). It is the last-named qualification that distinguishes clubs from business or professional partnerships, and from trade unions and the like. Nevertheless, the mere fact that the acquisition of gain may be incidental to the true activities of an association does not appear to prevent the association from having the character of a club."
The jurisdictional High Court observed that a club, therefore, is a voluntary AOP joining together in accordance with the rules and bye-laws of the club for enjoyment of one another's company and other facilities or for some other purposes. In other words, from these remarks of the jurisdictional High Court, it appears that the members of a club do not have any share in the property of the club. What they have is only a right to enjoy the assets of the club. It is also to be noted that under the Societies Registration Act, the assets of the club on its dissolution go to some other society with same objects. So, it appears that the members do not have any share in the properties of the club during the lifetime of the club or on its dissolution. The jurisdictional High Court further referred to the decision of the Hon'ble Bombay High Court in the case of Orient Club v. CWT (1982) 136 ITR 697 (Bom), which, in its turn, referred to the judgment of the apex Court in the case of WTO v. C.K. Mammed Kayi (1981) 129 1TR 307 (SC), which held that a Mappilla Marumakkathayam Tarwad is an individual within the meaning of Section 3 of the WT Act, but distinguished the said decision of the apex Court in the following terms :
"If the decision in CWT v. C.K. Mammed Kayi's case (1981) 129 1TR 307 (SC) is carefully read, it is difficult to spell out a general proposition from that decision that the word 'individual' in Section 3 of the WT Act includes all groups of individuals. The decision, in our view, appears to be an authority for the limited proposition that the term 'individual1 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 Section 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."
In view of the above decision of the Bombay High Court in the case of Orient Club (supra) and a similar decision of the Hon'ble Gujarat High Court in the case of the same name, i.e., Orient Club v. WTO (1980) 123 ITR 395 (Guj), the jurisdictional High Court held that the assessee-club is an AOP, but not an individual, for the purposes of WT Act within the meaning of Section 3 of the WT Act, and also that before the insertion of Section 21AA in the WT Act an AOP was not a taxable entity for wealth-tax purposes.
7. The only question that remains now for consideration is whether the provisions of Section 21AA makes any difference to the assessability of the assessee-club for wealth-tax purposes, and whether the remarks of the jurisdictional High Court in the case of Mulam Club (supra), on which the learned Departmental Representative relied, and which we have extracted herein-above, is an authority for the proposition that subsequent to the insertion of Section 21AA in the WT Act an AOP like the assessee-club becomes a taxable entity for wealth-tax purposes. We are of the view that the said remarks of the jurisdictional High Court in the case of Mulam Club (supra) regarding the insertion of Section 21AA are not an authority for such a proposition. The jurisdictional High Court was not called upon in the said judgment relating to Mulam Club to consider the assessability of a members club for wealth-tax purposes in the light of the provisions of Section 21AA. The observations which we have extracted hereinabove, and on which the learned Departmental Representative relied, are more of the nature of an obiter. They only state that before the insertion of Section 21AA. an AOP was not a taxable entity for wealth-tax purposes. The question was never posed before the Hon'ble Kerala High Court as to whether after the insertion of Section 21AA a members club becomes a taxable entity. It is settled law that the import and scope of a judgment has to be ascertained from the question posed for answer by the High Court. As the question posed for answer by the Hon'ble Kerala High Court in the said decision did not refer at all to the provisions of Section 21AA, we are of the view that the above observations of the Hon'ble Kerala High Court are not of much assistance to the Revenue in the present appeals.
8. Even when Section 21AA was inserted in the WT Act making an AOP liable to tax under specified circumstances, there was no corresponding amendment of Section 3 of the WT Act, which is the charging section, including the AOP as an assessable entity along with individual, HUF and company, which are so included. So, the question to be considered is whether the provisions of Section 21AA rope in within its ambit every AOP, BOI or group of persons, or only certain types of group of persons which can be categorised as individual. In the case of Orient Club v. CWT (supra), the Hon'ble Bombay High Court observed at p. 712 of the report that it is a well-known canon of construction of the taxing statute that unless a subject falls well within the four corners of the statute, the subject cannot be taxed. The Court further observed that it is on this principle that the meaning of the word "individual" will have to be determined when it is used in Section 3 to indicate a taxable unit or an entity. The Hon'ble High Court went on to consider the scope of the term "individual" in the light of the decision of the apex Court in the case of Mammed Kayi (supra) and observed that from this decision of the apex Court it is difficult to spell out a general proposition that the word "individual" in Section 3 of the WT Act includes all groups of individuals, even though it includes certain groups of individuals like Marumakkathayam Tarwad or Mappilla Marumakkathayam Tarwads. So, it appears to us that Section 21AA does not extend the scope of the term "individual" used in Section 3, but makes some specific provisions about the AOP, which are already included in the term "individual". In this view of the matter we find that the decision of the apex Court in the case of Trustees of Govaidhandas Govindram Family Chanty Trust v. CIT (supra) cited by the Revenue in the grounds before us in distinguishable. It held that joint trustees can be brought to tax under the status of 'individual. The relevant remarks are as under :
"In Suhashini Kaiuri v. WTO (1962) 46 ITR 953 (Cel), the Calcutta High Court opined that joint trustees could be assessed as individuals under the Act. A similar view was taken by the Bombay High Court in Abhay L Khatau v. CWT (1965) 57 ITR 202 (Bom). We are in agreement with that view. We, accordingly, agree with the High Court and hold that the trustees of the trust, with which we are concerned in these appeals, constitute an assessable unit under the provisions of the Act."
It may be observed that the trustees in the case considered by the apex Court were trustees of a family trust. It may also be observed that the apex Court cautiously restricted its decision to the trustees of the trust "with which we are concerned in these appeals", and not to all trustees. In the decisions of the Hon'ble Calcutta High Court in the case of Suhashini Kami v. WTO (1962) 46 ITR 953 (Cal) and of the Hon'ble Bombay High Court in the case of Abhay L. Khatau v. CWT (1965) 57 ITR 202 (Bom), which are approved by the apex Court, the respective Courts were considering trustees of family trust only and not trustees of a members club, like the present assessee. So, it appears to us that even after the insertion of Section 21AA, a members club like the assessee cannot be brought within the wealth-tax net.
9. At any rate, the only decision considering the scope of Section 21AA brought to our notice is that of the Hon'ble Andhra Pradesh High Court in the case of CWT v. George Club (1991) 191 JTR 368 (AP). The headnote of this decision reads as under:
"A club registered under the Societies Registration Act, 1860, is not engaged in an income-producing activity and, therefore, is not an AOP. Even assuming it is an AOP, it does not fall within the provisions of Section 21AA of the WT Act, 1957. No individual member holds a share in such a club. Neither does he have a share in the income, nor in the assets. Section 14 of the Societies Registration Act, 1860, says that, upon the dissolution of a society registered under the said Act, if any assets remain after 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. The Board's Circular No. 320, dt. 11th Jan., 1982 [(1982) 134 TTR (St) 166], clarifies that members of such clubs do not have any share in the income or assets of such association.
Held accordingly, that the assessee, a club registered under the Societies Registration Act, 1860, was not liable to wealth-tax. No question of law arose from the order of the Tribunal."
The jurisdictional High Court in its decision in the case of Mulam Club (supra) noticed this decision, but, to our mind, did not disapprove of it. Its remarks in this context were as under:
"In the decision in CWT v. George Club (1991) 191 ITR 368 (AP) the Andhra Pradesh High Court was considering the scope of Section 21AA. That section was introduced by the Finance Act of 1981 and is applicable for the asst. yr. 1981-82. In these references, we are concerned only with the assessment upto the asst. yr. 1978-79. That decision is, therefore, of no help to decide the question referred to us."
The jurisdictional High Court was not really called upon, as we have already mentioned, to consider the scope of Section 21AA, in the case of Mulam Club (supra); So, we see no reason for not extending the benefit of this decision of the Hon'ble Andhra Pradesh High Court to the assessee-club.
10. We may also mention that Section 21AA has been amended by Finance Act, 1989, w.e.f. 1st April, 1989, by making the section not applicable to a "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". The relevant portion of Circular No. 550, dt. 1st Jan., 1990 of CBDT explaining the provisions of Finance Act, 1989, which may be seen at pp. 114 to 135 of (1990) 182 ITR (St) at 134 reads as under:
"31.1. Under the existing provisions of Section 21AA of the WT Act, in the case of an AOP including a society registered under the Societies Registration Act, 1860, wealth-tax is payable either at the normal rates or at the rate of three per cent, whichever is more beneficial to the Revenue. Under Section 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 AOP at the maximum marginal rate. As a measure of rationalisation, the Finance Act has excluded societies registered under the Societies Registration Act, 1860 from the purview of Section 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. (Section 29 of the Finance Act, 1989)."
It may be observed that the amendment excluding the societies registered under the Societies Registration Act and similar enactments from the scope of Section 21AA is described in the above clarificatory note as a measure of rationalisation. The circular does not explain the rationalisation sought to be achieved. We are inclined to regard the amendment as of a clarificatory nature and as applicable for all the years commencing from the inception of Section 21AA.
11. We have considered the issue posed in the present appeals even in our consolidated order dt. 31st Oct., 2000 in the assessee's own case in WTA Nos. 21 to 23/Coch/93 for the asst. yrs. 1980-81 to 1982-83. In this order we held that the members of the assessee-club have 'nil' shares in the property of the club and so the shares are determinate and not indeterminate and so Section 21AA has no application. We may clarify that the assessee-club has no share capital at all and its receipts are only by way of subscriptions and donations. As there is no share capital, there is no dividend distribution either. We have already extracted hereinabove Section 24 of Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, 1955, in terms of which, on dissolution, the assets of the assessee-club pass on to Government or to another society with similar objects. As the members have no shares in the assessee-club, it appears to us that there is no question of their shares being indeterminate to attract the liability under the provisions of Section 21AA. In the circumstances, we see no reason for departing from our order dt. 31st Oct., 2000, for the asst. yrs. 1980-81 to 1982-83.
12. For the foregoing reasons, we hold that the assessee-club is not taxable to wealth-tax for the years in question. We accordingly uphold the orders of the CWT(A) and dismiss these appeals.
13. We are not going into the question of valuation of the properties of the assessee-club, as this issue was not considered by the CWT(A) and no arguments were advanced before us on this question. At this stage we do not find it necessary to go into this issue at all.
14. In the result, the appeals are dismissed.