2000 (5) TMI 159 - AT - Wealth-tax

Summary

Issues Involved:
1. Application of Section 21AA of the Wealth Tax (WT) Act, 1957.
2. Determination of members' shares in the association's wealth.
3. Taxation status of the association as "Trade Association" or "Association of Persons (AOP)".
4. Rate of wealth tax applicable to the association.

Detailed Analysis:

1. Application of Section 21AA of the WT Act, 1957:
The primary issue was whether the Wealth Tax Officer (WTO) was justified in taxing the wealth of the appellant association under Section 21AA of the WT Act, 1957. The WTO concluded that the interest of the members in the association's assets was indeterminate and variable, thus falling within the provisions of Section 21AA. This section stipulates that if the individual shares of the members in the income or assets of an association are indeterminate or unknown, the wealth-tax shall be levied upon such association.

2. Determination of Members' Shares:
The appellant contended that the shares of the members were determinate and known, as specified in Article 60 of the association's constitution, which states that upon winding up, the assets would be equally distributed among the ordinary members. The appellant relied on various judgments, including the Supreme Court's decision in CWT vs. Ellis Bridge Gymkhana and the Gujarat High Court's ruling in Padmavati Jaykrishna Trust vs. CWT, to argue that the shares were determinate and known.

3. Taxation Status of the Association:
The appellant argued that the association was a "Trade Association" and not subject to wealth-tax. The WTO, however, treated the association as an AOP and assessed it under Section 21AA. The appellant's representative cited Board Circular No. 320, which states that wealth-tax is leviable only on Individuals, Hindu Undivided Families (HUF), and Companies, not on Trade Associations.

4. Rate of Wealth Tax Applicable:
The appellant argued that even if the association were assessable as an AOP, it should be taxed at the ordinary rate applicable to AOPs with all available statutory deductions, not at the maximum marginal rate specified in Section 21AA. The appellant's representative pointed out that the shares of the members were determinate, and thus, Section 21AA should not apply.

Judgment Summary:

The tribunal considered the rival contentions and reviewed the legislative intent behind the WT Act, 1957. It noted that the legislature had excluded AOPs from the ambit of the WT Act but brought them under tax through Section 21AA effective from 1st April 1981. The tribunal emphasized that for Section 21AA to apply, two conditions must be met: (1) the assets must be held by an AOP, and (2) the individual shares of its members must be indeterminate or unknown.

The tribunal found that the shares of the members in the appellant association were determinate and known, as specified in Article 60 of the association's constitution. It relied on the Supreme Court's judgment in CWT vs. Trustees of Nizam's Family Trust, which held that shares are determinate if they can be ascertained on the relevant valuation date.

The tribunal concluded that since the shares of the members were determinate and known, Section 21AA was not applicable. Consequently, the appeals were allowed, and the orders of the WTO and CWT(A) were set aside.

Conclusion:
In conclusion, the tribunal held that the shares of the members in the appellant association were determinate and known, and therefore, Section 21AA of the WT Act, 1957, was not applicable. The appeals were allowed, and the association was not subject to wealth-tax under Section 21AA.