COMMISSIONER OF WEALTH TAX VS TRIVANDRUM CLUB, 1995 PTD-KERALA-HIGH-COURT-INDIA 1317 (1991)

Wealth tax---

---- Members club---Not an individual but an association of persons---Not an assessable entity---Not liable to wealth tax---Indian Wealth Tax Act, 1957, Ss.2(c)(h), 3, 21-AA---Indian Wealth Tax Rules, 1957, R.2.

A members' club is not an individual but an association of persons and has no juristic personality and hence is not an assessable entity. Therefore, a members' club is not liable to wealth tax for period prior to 1980-81.

Orient Club v. CWT (1982) 136 ITR 697 (Bom.) and CWT v. Mulam Club (1991) 191 ITR 370 (Ker.). fol.

Trustees of Gordhandas Govindram Family. Charity Trust v. CIT (1973) 88 ITR 47 (SC) ref.

[The Supreme Court has dismissed the special leave petition filed by the Department against this judgment].

P.K.R. Menon for Commissioner.

K. Prabhakaran for Assessee.

JUDGMENT

K. P. BALANARAYANA MARAR, J.--- A common question arises in these references at the instance of the Revenue. The question is:--

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law and in fact in holding that the assessable should be assessed in the status of association of persons and since ah association of persons is not an entity chargeable to wealth tax, the assessee-club is not chargeable to wealth tax?"

The respondent is a members' club by name Trivandrum Club, Thiruvananthapuram. The Wealth Tax Officer treated the club as an individual and subjected it to wealth tax for the assessment years 1970- 71 to 1979-80. On appeal, the Commissioner of Wealth tax (Appeals) held that the assessee is an association of persons and not taxable under the Wealth Tax Act. In consequent: ice, the assessment was cancelled. On further appeal the Income-tax Appellate Tribunal upheld the order of the Commissioner of Wealth Tax (Appeals). While. considering the assessments for the years 1970-71 to 1978-79 m Wealth tax Appeals Nos.43 to 51/Cock.) of 1984, the appellate authority has followed their order in the case of Sreemulam Club in Wealth Tax Appeals Nos.293 to 296/(Coch.) of 1983, dated May 20, 1986, where it was held that the club cannot be assessed as an individual since it is only an association of persons which is not an assessable entity for the purpose of wealth tax. The same view was adopted by the Tribunal for the year 1979-80. It was thereafter at the instance of the Revenue that the question aforesaid was referred to this Court for a decision.

The question referred to us is covered by the decision in Income-tax References Nos.129 to 133 of 1988 rendered on March 13, 1991 (CWT v. Mulam Club (1990) 191 ITR 370. In that decision, we held that the assets of an association of persons are not chargeable under section 3 of the Wealth Tax Act, 1957, before the insertion of section 21-AA. That section was introduced by the Finance Act of 1981 and is not applicable up to and inclusive of the assessment year 1980-81. In these references we are concerned with the assessment year 1979-80. Section 21AA cannot therefore, be resorted to by the Revenue for assessing the wealth tax for the years under dispute in these references. In the abovementioned decision, we held that there is no provision in the Wealth tax Act which makes an association of persons an individual before the introduction of section 21AA. In that view, we held that the respondent in that case, Sreemulam Club is an association of persons and not an individual for the purpose of wealth tax and hence not an assessable entity as an individual.

The respondent is a members' club, an association of persons. That is not an assessable entity under the Wealth Tax Act.

Learned counsel for the Revenue would point out that the assessable is a trust and as per Rule 3(iii)(a) of the Rules and bye-laws of the club all the properties of the club vest in the trustees. Relying on the decision in Trustees of Gordhandas Goivindram Family Charity Trust v. CIT (1973) 88 ITR 47 (SC), it was contended that a club is an individual and as such liable to be taxed under section 3 of the Wealth Tax Act. As observed by the Bombay High Court in Orient Club v. CWT .(1982) 136 ITR 697, merely because co trustees have been treated as a single unit, it does not necessarily follow that an association of persons formed by the members of a club must also be treated as an individual. The Bombay High Court stated that in an unincorporated members' club, there are usually trustees appointed in pursuance of 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 like the respondent, the members for the time being are jointly entitled to all the properties and funds. The individual interest of members can be ascertained only at the time of dissolution. The description of the club as a trust and the vesting of the properties in the members of the club as trustees is, therefore, of no significance.

Following that decision, we hold that the respondent herein is an association of persons and not an individual and as such not assessable under the Wealth Tax Act. The Appellate Tribunal was, therefore; justified in holding that the respondent is not an individual, but an association of persons and as such not assessable to wealth tax. The question referred to .us is answered in the affirmative, i.e., in favour of the assessed and against the Revenue.

A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal Cochin Bench.

M.BA./966/T.F??????????????????????????????????????????????????????????????????????? Reference answered.