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2012 (2) TMI 106 - HC - Wealth-taxWealth Tax - taxability of net wealth of AOP charge u/s 21AA of Wealth Tax Act, 1957 inserted w.e.f. 01.04.89 - A.Y. 1988-89, 1989-1990 Held that - S.21AA only ropes in an AOP for being assessed under the Wealth Tax Act but subject to the rider that it s members should have the income or assets or both of the association on the date of its formation or at any time thereafter. Since in present case, second condition is not satisfied the assessee cannot be considered as falling within the ambit of S.21AA of the Act. Further, Circular No. 508 dated 29.06.1981 effects that company or a cooperative society or a society registered under the Societies Registration Act are outside the preview and ambit of Section 21AA. Cancellation of assessment by Tribunal is upheld for both the A.Y.s Decided against the Revenue.
Issues Involved:
1. Applicability of Section 21AA or Section 21A of the Wealth Tax Act, 1957. 2. Justification of the Income Tax Appellate Tribunal's decision regarding the Assessee's liability to wealth tax under Section 21AA. 3. Liability of the respondent/assessee to pay wealth tax on its net wealth under Section 21AA. Detailed Analysis: 1. Applicability of Section 21AA or Section 21A of the Wealth Tax Act, 1957: The court examined whether Section 21AA or Section 21A of the Wealth Tax Act, 1957, was applicable to the facts of the case. Section 21AA, as amended w.e.f. 01.04.1989, applies to associations of persons where individual shares of members in the income or assets are indeterminate or unknown. The court noted that for the assessment year 1988-89, the amendments were not applicable, whereas for 1989-90, the amendments were applicable. The court stated that the term "association of persons" includes a society, whether registered or not, as per the Black's Law Dictionary and previous judgments like Swami Satichitanand and Ors. vs. Additional Income Tax Officer (1964) 53 ITR 533 (Ker). However, the court emphasized that the individual shares of the members must be indeterminate or unknown for Section 21AA to apply. 2. Justification of the Income Tax Appellate Tribunal's Decision: The Income Tax Appellate Tribunal (ITAT) held that the Assessee was not liable to wealth tax under Section 21AA. The tribunal noted that members do not have a share in the income or assets of the association at any time. Hence, the society is not chargeable with wealth tax. The tribunal relied on the decision of the Andhra Pradesh High Court in Commissioner of Wealth Tax vs. George Club (1991) 191 ITR 368, which held that members of a club registered under the Societies Registration Act do not hold shares in the income or assets of the club. The court agreed with the tribunal's view, stating that the assets of a society registered under the Societies Registration Act, 1860, belong to the society itself, and members do not have any right in the income or assets. Therefore, their shares are nil or zero, making Section 21AA inapplicable. 3. Liability to Pay Wealth Tax on Net Wealth: The court considered whether the respondent/assessee is liable to pay wealth tax on its net wealth under Section 21AA. The court referred to the CBDT Circular No. 508 dated 29.06.1989, which explained that Section 21AA was introduced to counter tax avoidance through associations of persons with indeterminate member shares. The court noted that the Assessing Officer had not examined whether the individual shares were indeterminate or unknown. The court also discussed the conflicting views of the Karnataka High Court in Commissioner of Wealth Tax vs. Chikmagalur Club (2007) 290 ITR 522, which held that members of an association are owners of the assets, making their shares indeterminate or unknown. However, the court preferred the view of the Andhra Pradesh High Court and the Supreme Court in Ellis Bridge Gymkhana (1998) 229 ITR 1 (SC), which held that the term "individual" in the Wealth Tax Act does not include an association of persons. For the assessment year 1989-90, the court noted that the amendment w.e.f. 01.04.1989 excluded societies registered under the Societies Registration Act, 1860, from the ambit of Section 21AA. The court rejected the Revenue's interpretation that this exclusion did not apply to societies, citing Circular No. 550 dated 01.01.1990, which clarified that societies were excluded from Section 21AA. The court concluded that the respondent/assessee was not liable to pay wealth tax under Section 21AA for the assessment years in question. The questions of law were answered in the affirmative and against the Revenue, with no order as to costs.
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