2002 (8) TMI 104 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee-club is liable to wealth-tax for the assessment years 1980-81 to 1983-84.
2. Whether the penalty imposed for the belated filing of wealth-tax returns for the assessment years 1981-82 and 1982-83 is justified.

Issue-wise Detailed Analysis:

1. Liability to Wealth-tax:

The primary issue was whether the assessee-club, registered under the Karnataka Societies Registration Act, is liable to wealth-tax for the assessment years 1980-81 to 1983-84. The assessee-club filed returns declaring "nil" wealth, claiming it was an association of persons (AOP) and not liable for wealth-tax. The Wealth-tax Officer assessed the wealth of the assessee in the status of an individual and charged wealth-tax.

The first appellate authority allowed the appeal for the assessment year 1980-81 but dismissed the appeals for 1981-82 to 1983-84, citing the insertion of Section 21AA by the Finance Act, 1981, effective from April 1, 1981. This section provides that if the shares of the members of an AOP are indeterminate or unknown, wealth-tax shall be levied on the AOP as an individual.

The Income-tax Appellate Tribunal (ITAT) allowed the assessee's appeals, relying on the Karnataka High Court's decision in CWT v. Bowring Institute [1992] 194 ITR 287, which held that the assessee could not be treated as an entity assessable to wealth-tax.

However, the High Court noted that the issue was settled by the Supreme Court in CWT v. Ellis Bridge Gymkhana [1998] 229 ITR 1, which held that a club is not assessable to wealth-tax for the assessment years 1970-71 to 1977-78 as an AOP. The Supreme Court also noted that Section 21AA, effective from April 1, 1981, provides for the assessment of AOPs where individual shares are indeterminate or unknown.

The High Court concluded that for the assessment year 1980-81, the assessee is not liable to wealth-tax. However, for the assessment years 1981-82 to 1983-84, the assessee is liable to wealth-tax under Section 21AA, as the individual shares of the members were indeterminate or unknown.

2. Penalty for Belated Filing of Returns:

The second issue was whether the penalty imposed for the belated filing of wealth-tax returns for the assessment years 1981-82 and 1982-83 was justified. The assessee-club filed the returns late, claiming a bona fide belief that it was not liable to wealth-tax, based on previous High Court decisions and ITAT orders in its favor.

The Wealth-tax Officer imposed penalties under Section 18(1)(a) of the Wealth-tax Act for the delayed filing. However, the first appellate authority and the ITAT accepted the assessee's explanation, finding it reasonable and sufficient.

The High Court noted that Section 18(1)(a) allows for the imposition of penalties for delayed filing unless there is reasonable cause. The assessee's belief that it was not liable to wealth-tax, based on previous favorable decisions, was considered a reasonable cause.

The High Court held that the penalty for the belated filing of returns could not be sustained, as the assessee had a bona fide belief that it was not liable to wealth-tax. The Tribunal's decision to cancel the penalty was upheld, as the assessee had reasonable cause for the delay.

Conclusion:

The High Court concluded that the assessee-club is not liable to wealth-tax for the assessment year 1980-81 but is liable for the assessment years 1981-82 to 1983-84 under Section 21AA. The penalty for the belated filing of returns for the assessment years 1981-82 and 1982-83 was not justified, and the Tribunal's decision to cancel the penalty was upheld.