Wealth tax---

---- Members' club---Club providing facilities for games like tennis, badminton, etc.---In return for paying membership fee, members get access to facilities offered by club---No member of club entitled to any portion of property or income of club---Income or property to be applied solely towards promotion of objects of club---On dissolution of the club any income or property remaining after satisfaction of debts and liabilities of club to be transferred to institution having similar objects---Club not' liable to be assessed as individual under S.3---Section 21-AA also not applicable to club---Indian Wealth Tax Act, 1957, Ss.3 & 21-AA.

The assessee, a members' club, provided facilities for games such as tennis, badminton, billiards. cards, chess, pingpong, etc. For the assessment years 1975-76 to 1983-84, the Wealth Tax Officer held that the assessee-club fell within the meaning of "individual" in section 3 of the Wealth Tax Act, 1957. The Commissioner (Appeals) had held that the club was an association of persons and hence not a taxable entity under section 3 and set aside the assessments for the assessment years 1979-80 to 1983-84. This was followed by the Deputy Commissioner (Appeals) who cancelled the assessments for the assessment years 1975-76 to 1978-79. The Revenue contended before the Tribunal that the assessee-club was an association of persons which had been formed for the purpose of making gain or profit or for acquiring properties and by virtue of the provisions contained under section 21-AA of the Wealth Tax Act, 1957, inserted by the Finance Act, 1981, with effect from April 1, 1981, the assessments for the years 1981-82 to 1983-84 had to be sustained. The Tribunal rejected the contention of the Revenue and held that the assessee was only an association of persons and it did not fall within the ambit of section 3 and, therefore, was not liable to be assessed as an individual to wealth tax for any of the assessment years. On a reference the question arose whether the introduction of section 21-AA in the Act had made any change in the legal position, thereby making the assessee-club liable for being assessed under the Act:

Held, (i) that a close reading of subsection (1) of section 21-AA of the Act shows that it is not all associations of persons which would come within the purview of section 21-AA; it must be an association where individual members have a share in the income or assets or both of the association on the date of its formation or at any time thereafter, even though indeterminate or unknown.

(ii) That rule 31 of the assessee-club clearly showed that no member of the club was entitled to any portion of the income or property of the club which were to be applied solely towards promotion of the object, of the club. Even after the dissolution or winding up of the club, no amount or property was to be paid or distributed among the members of the club. Any amount or property remaining after satisfaction of debts and liabilities of the club had to be transferred to some other institution having similar objects. It was, therefore, clear that no individual member of the assessee-club had a share. in the income or assets of the club. Subsection (4) of section 21-AA make$ 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 was clear that no such liability could be fastened on its members as they did not have a share in its income or assets. Therefore, the assessee-club would not come within the net of section 21-AA(1) so as to be assessed under the Act.

(iii) That in return for the members paying the membership fee, they got access to the facilities offered by the club and not any share in the income or assets of the club. Therefore, even by applying the provisions of section 21-AA, the assessee-club was not liable to be assessed under the Act.

CWT v. George Club (1991) 191 ITR 368 (AP) fol.

Bombay Cricket Association v. B.R. Sonkar, First WTO (1987) 166 ITR 356 (Bom.); Coimbatore Club v. WTO (1985) 153 ITR 172 (Mad.); CWT v. Mulam Club (1991) 191 ITR 370 (Ker.); CWT v: Trivandrum Club (1995) 211 ITR 448 (Ker.); Orient Club v. CWT (1982) 136 ITR 697 (Bom.); Orient Club v. WTO (1980) 123 ITR 395 (Guj.); Royal Calcutta Turf Club v. WTO (1984) 148 ITR 790 (Cal.); State Bank of India Officers' Association v. CWT (1986) 158 ITR 23 (Mad.) and Willingdon Sports Club v. C.B. Patil (1982) 137 ITR 83 (Bom.) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

P. Balachandran for the Assessee

JUDGMENT

Mrs.K.K. USHA, J. ---These references are at the instance of the Revenue under section 27(1) of the Wealth Tax Act, 1957. They relate to the assessment years 1981-82 to 1983-84. The common question referred by the Income-tax Appellate Tribunal, Cochin Bench, for the opinion of this Court is as follows:-

"Whether, on the facts and in the circumstances of the case and for the reasons stated in paragraph 12 of its order, the Tribunal is right in holding that the provisions of section 21-AA of the Wealth Tax Act which is sought to be invoked by the Revenue for the assessment years 1981-82 to 1983-84 would not be applicable to the facts of the present case and is not the above approach, finding and decision wrong and based on irrelevant and unwarranted. facts, circumstances and considerations (highlighted in paragraph 12 of its order)?"

The facts in brief are as follows: The assessee---Rama Verma Club---was founded as early as in the year 1897, in the former native State of Cochin during the regime of Raja Rama Varma (1895 to 1914). It was the first recreation club in Cochin. Located in the very heart of the present city of Cochin facing the Durbar Hall ground, the club provides facilities for games, such as, tennis, badminton, billiards, cards, chess, ping-gong, etc.

The assessee is a members' club. It is not registered under any statute. For the assessment years 1975-76 to 1983-84, the Wealth Tax Officer passed assessment orders holding that the assessee-club would fall within the meaning of "individual" in section 3 of the Wealth Tax Act, therefore, be chargeable to wealth tax. In coming to the above conclusion, the assessing authority followed a decision of the Madras High Court in Coimbatore Club v. WTO (1985) 153 ITR 172. On appeal by the assessee, the Commissioner of Wealth Tax (Appeals) held that the assessee-club is an association of persons and, therefore, not a taxable entity coming within the ambit of section 3 of the Wealth Tax Act: The first appellate authority followed a decision of the Bombay High Court in Orient Club v. CWT (1982) 136 ITR 697 (Bom.). He had also relied on a decision of the Appellate Tribunal, Cochin Bench, is the case of Sreemulam Club. The order, dated July 29, 1988, passed by the Commissioner of Wealth tax (Appeals) setting aside the assessments for the assessment years 1979-80 to 1983-84 was followed by the Deputy Commissioner (Appeals), who cancelled the assessments for the years 1975-76 to 1978-79 by a common order, dated September 8, 1988. The Revenue challenged these orders before the Income-tax Appellate Tribunal, Cochin Bench. Apart from the main contention that the assessee-club should be treated as an "individual" for the purpose of wealth tax assessments for the assessment years 1981-82 to 1983?84, reliance was also made on the provisions contained under section 21-AA of the Wealth Tax Act.

It was contended that the assessee-club is an association of persons which has been formed for the purpose of making gain or profit or for acquiring properties and by virtue of the provisions contained under section 21-AA incorporated by the Finance Act, 1981, with effect from April 1, 1981, the assessments for the years 1981-82 to 1983-84 are to be sustained. The Tribunal rejected the contentions raised by the Revenue and upheld the orders passed by the first appellate authority. Relying on the decisions of the High Courts of Gujarat, Bombay and Calcutta as also the decisions of the Appellate Tribunal, Cochin Bench, itself in the case of Sreemulam Club and Trivandrum Club, it was held that the assessee is only an association of persons and it does not fall within the ambit of section 3 of the Wealth Tax Act and, therefore, not liable to wealth tax for any of the above assessment years.

The question whether a members' club like the assessee liable to be taxed under the Wealth Tax Act, 1957, treating it as an "individual" under section 3 before the introduction of section 21-AA has been finally answered by this Court in CWT v. Mulam Club (1991) 191 ITR 370. This Court took the view that a members' club which is a voluntary association of persons 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, is not liable to be assessed as an "individual" under section 3 of the Wealth Tax Act, 1957. While coming to the above conclusion, this Court followed the decisions of the High Courts of Bombay, Gujarat and Calcutta in Orient Club v. CWT (1982) 136 ITR 697 (Bom.), Willingdon Sports Club v. C.B. Patil (1982) 137 ITR 83 (Bom.), Bombay Cricket Association v. B.R. Sonkar, First WTO (1987) 166 1TR 356 (Bom), Orient Club v. WTO (1980) 123 ITR 395 (Guj) and Royal Calcutta Turf Club v. WTO (1984) 148 ITR 790 (Cal.). Two decisions of the Madras High Court in Coimbatore Club v. WTO (1985) 153 ITR 172 (Mad.) and State Bank of India Officers' Association v. CWT (1986) 158 ITR 23 (Mad.) were dissented from.

The decision of this Court in CWT v. Trivandrum Club (1995) 211 ITR 448 following the decision in CWT v. Mulam Club (19911 191 ITR 370 (Ker.), was taken in appeal by the Revenue before the Supreme Court. The special leave petition was dismissed upholding the view taken by this Court (See 1994) 207 ITR (St.) 35).

??????????? Then, the only question to be considered in these references is whether introduction of section 21-AA has made any change in the legal position, thereby making the assessee-club liable for being assessed under the Wealth Tax Act, 1957. The relevant portion of section 21-AA reads as follows:??????

"21-AA. Assessment when assets are held by certain association of persons.---(1) Where assets chargeable to tax under this Act are held by an association of persons, other than a company or cooperative society or society registered under the Societies Registration .Act, 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 and at the maximum marginal rate." (Emphasis supplied herein underlining)

It is true that section 21-AA has been introduced with the specific purpose of roping in associations of persons for being assessed under the Wealth Tax Act. But, a close reading of subsection (1) section 21-AA would show that it is not all associations of persons which would come under the purview of section 21-AA; it must be an association where individual members have a share in the income or a sets of both of the association on the date of its formation or at any time thereafter even though, indeterminate or unknown. After perusing the rules and bye-laws of the assessee-chub as amended up to June 14, 1986, the Tribunal has found that it is a social club open to the public by membership. It was formed for the purpose of providing various facilities and amenities for sports, fine arts and other cultural activities and entertainments for its members. Specific reference was made by the Tribunal to rules 31 and 32 which contain provisions dealing with funds of the club and dissolution of the club. They read as follows:

"31. The income and property of the club whenever and, howsoever, derived, shall be applied solely towards the promotion of the objects of the club as stated and no portion shall be paid or transferred, directly or indirectly by way of dividend, bonus or otherwise howsoever, by way of profit to the members of the club. Provided, however, that nothing therein shall prevent the payment, in good faith of remuneration to any officer or servant of the club or to any person, in return for any service actually rendered to the club.

32. The club shall not be dissolved, except by vote of a majority of three-fourths of the members eligible to vote, and at a meeting called for the purpose, subject to the terms of convenience held by the club. If upon winding up or dissolution of the club there shall remain, after satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the members of the club, but shall be given or transferred to some other institution having objects similar to the objects of the club to be determined by the majority of the members of the club present at the time of dissolution and eligible to vote and in default thereof by such judge of the High Court as may have or acquire jurisdiction' in the matter. "

The provisions under rule 31 would clearly show that no member of the club is entitled to any portion of the income or property of the club which are to be applied solely towards promotion of the objects of the club. Even after the dissolution or winding 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. Subsection (4) of section 21-AA 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 21-AA(1) so as to be assessed under the Wealth Tax Act, 1957. We are fortified in our above view by a decision of the Andhra Pradesh High Court in CWT v. George Club (1991) 191 ITR 368. In the above decision, reference is made to Board's Circular No.320, dated January 11, 1982 (see (1982) 134 ITR (St.) 166), issued under section 167-A of the Income Tax Act, 1961, clarifying that members of such club do not have any share in the income or assets of such association. Their Lordships of the Andhra Pradesh High Court took the view that since there is no definition of association of persons under the Wealth Tax Act, the expression should have the same meaning as given under the Income Tax Act, 1961, and, therefore, the Board's circular should apply with equal force in the case of associations of persons under the Wealth Tax Act also.

We are of the view that even by applying the provisions contained under section 21-AA of the Wealth Tax Act, the assessee-club is not liable to be assessed under the Wealth Tax Act. In return for their paying the membership fee, they get access to the facilities offered by the club and not any share in the income or assets of the club. The Tribunal was, therefore, right in holding that the provisions of section 21-AA of the Wealth Tax Act would not be applicable to the facts of the present case.

We, therefore, answer the question referred in the affirmative, in favour of the assessee and against the Revenue.

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

M.B.A./1698/FC ??????????????????????????????????????????????????????????????????????????????? Reference answered.