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Issues involved: Interpretation of section 21AA of the Wealth-tax Act, 1957 in relation to liability of a club registered under the Societies Registration Act for wealth tax assessment.
Summary: The High Court of Andhra Pradesh considered the issue of whether a club registered under the Societies Registration Act is liable for wealth tax assessment under section 21AA of the Wealth-tax Act, 1957. The key question was whether the individual shares of the members of the club in its income or assets are indeterminate or unknown as per the provisions of section 21AA. The court analyzed the nature of a club as an association of persons and the rights of its members in the income and assets of the club. It was observed that under the Societies Registration Act, upon dissolution of a society, the assets are not distributed among the members but are given to another society. Therefore, it was concluded that individual members of a club do not hold shares in the income or assets of the club. Furthermore, the court referred to a previous decision and a Board's Circular to support the interpretation that members of clubs do not have any share in the income or assets of the association. The court emphasized that for an association to be considered as an association of persons, it must be engaged in an income-producing activity, which may not apply to clubs. The court also highlighted that under section 21AA(4), upon discontinuation or dissolution of an association of persons, the members are jointly and severally liable for tax payments, which does not align with the situation of clubs where members do not have a share in the income or assets. In conclusion, the High Court dismissed the wealth-tax case, ruling that a club registered under the Societies Registration Act is not liable for wealth tax assessment under section 21AA of the Wealth-tax Act, 1957.
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