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TMI Blog2001 (1) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... ssable to wealth-tax under the W.T. Act, 1957 for the assessment years 1983-84 to 1987-88. The assessee-club is a society registered under Travancore-Cochin Literary, Scientific and Charitable Societies Registration Act, XII of 1955 as No. 115 of 1976. Rule 2 of the Rules of the Club, giving aims and objects of the club, reads as under: "2. The objects of the club are of a social character, to promote supports and games, to do charity, to afford to the members free scope and facility for mingling with one another, for the healthy cultivation of personal intercourse and interchange of thoughts for recreation and amusements and in general, for the promotion of social amenities. Promotion of social, charitable, cultural and athletic activities among the public shall be vital part of its objects." Rule 3 states that the Club shall be consisted of unlimited number of members. Rule 4 classifies members into nine classes, like life members, resident members, non-resident members, etc. Rules 6, 8, 9 and 10, read as under: "6. Any member who offers a donation of Rs. 40,000 or more to the club shall on acceptance of the donation by the Executive Committee become a life member. 8. Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also observed that to bring an Association of Persons to charge under wealth-tax, the ingredients of section 21AA of the Wealth-tax Act, inserted by Finance Act, 1981 with effect from 1-4-1981 are to be satisfied, and in the present case the Assessing Officer had not invoked the provisions of section 21AA, and accordingly, following the said decision of the jurisdictional High Court, he cancelled the impugned assessments. 4. Before us, the learned Departmental Representative pleaded that the assessee-club should have been regarded as an Association of Persons, in view of the decision of the Supreme Court in Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 cited in the grounds taken by the Revenue before us. He also contended that the CWT (Appeals) erred in relying on the decision of the jurisdictional High Court in the case of Sri Mulam Club, for the simple reason that the Hon'ble Kerala High Court was concerned in that decision with assessment years 1970-71 to 1978-79 when the provisions of section 21AA, which roped in an Association of Persons as a taxable entity for wealth-tax purposes were not on the statute book. Pointed reference is also made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained the characteristics of a club. It is observed that a "club" means: "Essentially an association of individuals in a way that involves to some degree the factors of free choice (which connotes a power of exclusion), permanence, corporate identity and the pursuit as a common aim of some joint interest other than the acquisition of gain (or some mutual advantage directly connected with the acquisition of gain, such as those provided by membership of a professional society or trade union). It is the last-named qualification that distinguishes clubs from business or professional partnerships, and from trade unions and the like. Nevertheless, the mere fact that the acquisition of gain may be incidental to the true activities of an association does not appear to prevent the association from having the character of a club." The jurisdictional High Court observed that a club, therefore, 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. In other words, from these remarks of the jurisdictional High Court, it appears that the members of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arks of the jurisdictional High Court in the case of Sri Mulam Club, on which the learned Departmental Representative relied, and which we have extracted hereinabove, is an authority for the proposition that subsequent to the insertion of section 21AA in the Wealth-tax Act an Association of Persons like the assessee-club becomes a taxable entity for Wealth-tax purposes. We are of the view that the said remarks of the jurisdictional High Court in the case of Sri Mulam Club regarding the insertion of section 21AA are not an authority for such a proposition. The jurisdictional High Court was not called upon in the said judgment relating to Mulam Club to consider the assessability of a Members club for wealth-tax purposes in the light of the provisions of section 21AA. The observations which we have extracted hereinabove, and on which the ld. departmental representative relied, are more of the nature of an obiter. They only state that before the insertion of section 21AA, an Association of Persons was not a taxable entity for wealth-tax purposes. The question was never posed before the Hon'ble Kerala High Court as to whether after the insertion of section 21AA a Members club becomes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue in the grounds before us is distinguishable. It held that joint trustees can be brought to tax under the status of 'individual'. The relevant remarks are as under: "In Suhashini Karuri v. Wealth-tax Officer [1962] 46 ITR 953 the Calcutta High Court opined that joint trustees could be assessed as individuals under the Act. A similar view was taken by the Bombay High Court in Abhay L. Khatau v. CWT [1965] 57 ITR 202. We are in agreement with that view. We, accordingly, agree with the High Court and hold that the trustees of the trust, with which we are concerned in these appeals, constitute an assessable unit under the provisions of the Act." It may be observed that the Trustees in the case considered by the Apex Court were Trustees of a Family trust. It may also be observed that the Apex Court cautiously restricted its decision to the trustees of the trust "with which we are concerned in these appeals", and not to all trustees. In the decisions of the Hon'ble Calcutta High Court in the case of Suhashini Karuri v. WTO [1962] 46 ITR 953 and of the Hon'ble Bombay High Court in the case of Abhay L. Khatau v. CWT [1965] 57 ITR 202, which are approved by the Apex Court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending the benefit of this decision of the Hon'ble A.P. High Court to the assessee-club. 10. We may also mention that section 21AA has been amended by Finance Act, 1989 with effect from 1-4-1989 by making the section not applicable to a "society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India". The relevant portion of circular No. 550 dated 1-1-1990 of C.B.D.T. explaining the provisions of Finance Act, 1989, reads as under: "31.1 Under the existing provisions of section 21AA of the Wealth-tax Act, in the case of an association of persons including a society registered under the Societies Registration Act, 1860, wealth-tax is payable either at the normal rates or at the rate of three per cent, whichever is more beneficial to the Revenue. Under section 167B of the Income-tax Act, a society registered under the Societies Registration Act, 1860, has been excluded from the purview of that section which provides for taxation of association of persons at the maximum marginal rate. As a measure of rationalisation, the Finance Act has excluded societies registered under the Societies Registratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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