9911796707
TMI Blog1983 (5) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him, or (b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than 12 months on the valuation date; and the said Act has defined " assessee " as a person by whom wealth-tax or any other sum of money is payable under the said Act, and includes, (i) every person in respect of whom any proceeding, under the said Act, has been taken for the determination of wealth-tax payable by him or by any other person or the amount of refund due to him or such other person; (ii) every person who is deemed to be an assessee under the said Act; and (iii) every person who is deemed to be an assessee in default under the said Act. " Assets ", under the said Act, includes property of every description, movable or immovable, but does not include (1) in relation to the assessment year commencing on the 1st day of April, 1969, or any earlier assessment year : (i) agricultural land and growing crops, grass or standing trees on such land; and (ii) any building owned or occupied by a cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns contained in the said Act, there shall be charged for every assessment year commencing on and from the 1St day of April, 1957, a tax which is referred to as wealth-tax, in respect of the net wealth on the corresponding valuation date of every individual, HUF and company at the rate or rates specified in Sch. I. " Company ", under the said Act, means a company formed and registered under the Companies Act, 1956, and includes: (i) a company formed and registered under any law relating to companies formerly in force in any part of India and also includes those companies or corporations as mentioned in cls. (ii) and (iii) of the said s. 2(h). Section 4 of the said Act makes provisions for inclusion of certain assets in the net wealth. Clause (b) of s. 4(1) lays down that where the assessee is a partner in a firm or a member of an association of persons not being a co-operative housing society, the value of his interest in the firm or association determined in the prescribed manner. Section 14 of the said Act postulates the filing of a return of wealth and sub-s. (2) thereunder specifies that if the WTO is of the opinion that any person is assessable under the said Act, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and preference over stand members elected after March 31, 1975, as regards all boxes in the upper tier of the club. But they would not be entitled to any other rights or privileges of club members. The rules as produced also showed how admission of members, viz., club members and stand members, is to be effected. The said rule further provided for entrance fees, subscription and also cessation of membership. The said rule further makes provisions for management of the said club in r. 31. It has been categorically stated that the affairs of the said club should be managed by five club members, who shall be called stewards. The stewards shall be elected in the manner following the first annual general meeting, and shall hold office from the 1St April next following the election till 31st March in the following year. The manner of, the election of the stewards has also been indicated. That apart, it has been indicated in r. 33 that stewards shall have control over the funds and of all the property of the club; they shall have the entire management of, and control over, the Calcutta Race Course, stands and enclosures, and they may make such regulation in respect thereof as they thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that year, whether by reason of under-assessment or assessment at too low a rate or otherwise; or (b) has, in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or failure as is referred to in cl. (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under-assessment or assessment at too low a rate or otherwise; he may, in cases falling under cl. (a) at any time within eight years and in cases falling under cl. (b) at any time within four years of the end of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under subs. (2) of s. 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that sub-section. (2) Nothing contained in this section limiting the time within which any proceeding for assessment or reassessment may be commenced shall apply to an assessment or reassessment to be made on such person in consequence of or to give effect to any finding or direction contained in an ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts and contentions, the said club, through their letter of March 2, 1977, filed the returns under the said Act, for the relevant assessment years, under protest. It was the specific claim and contention of the said club, all throughout and before this court now, that an " association of persons " is not an entity chargeable under the said Act, and s. 3 imposes a charge upon specified classes (of assessees) and the said club not being included in any one of the classes, had no liability in the instant case. It was claimed that under the I.T. Act, 1961, a charge is imposed upon the income of every person which includes, an individual, an HUF, a company, a firm, an "association of persons " or a body of individuals whether incorporated or not, a local authority and every artificial juridical person not falling within any of the classes as mentioned above which was not the case under the said Act, which imposes a charge only upon the net wealth of an individual, an HUF and a company. As such, it was also and specifically or categorically claimed, that an " association of persons " would not be an entity, liable to be charged under the said Act. It was further claimed that it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons ", the Board shall have regard to the law for the time being in force, relating to the manner in which accounts are to be settled between the members of such association on dissolution. In view of the above, it was finally claimed that no tax could be charged upon an " association of persons " in respect of its net wealth under the provisions of the said Act, and that too when such " association of persons " is not an entity which is chargeable to net wealth under the provisions of the said Act. It was stated that it is only the individual, who is the member of such an association, which would be chargeable, if at all, under the provisions of the said Act. Such being the position, it was claimed on behalf of the said club that the respondent, WTO, had no jurisdiction, competence or authority to initiate the proceedings under s. 17 of the said Act against the said club which was nothing but an " association of persons " and was not chargeable to wealth-tax under the said Act. It was also claimed that the said respondent No. 1 could have no material on which he could have reason to believe that the said club was chargeable to tax under the provisions of the said Act, or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons ". In short, the deponent has claimed that the notices under ss. 17 and 14(2) of the said Act as impeached, were issued lawfully, validly, bona fide, and in proper use of jurisdiction, authority and competence. It has been denied that the deponent had no materials on which, he could have reasons to believe that the said club was chargeable to wealth-tax under the provisions of the said Act, or that their net wealth under the said Act, had escaped assessment. In fact, it was claimed that there were due and necessary information in the possession of the deponent, in consequence whereof, he could entertain the necessary belief that the net wealth chargeable to tax of the said club had escaped assessment for the assessment years in question. In any event, the deponent has denied that he had assumed jurisdiction under s. 17 of the said Act, for assessing the net wealth of the said club for the relevant years as an " association of persons " and that such action on his part was illegal, invalid and without authority and jurisdiction, as claimed. He has further stated that the assumption of jurisdiction by him was not mere pretence or a cloak for a roving and fishing enquiry, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be not maintainable, misconceived and premature. The reply to the above affidavit-in-opposition was, dated April 21, 1980, and the same was filed through Major Pol Raj Kumar Jakob, the secretary of the said club. Such reply was an usual one, denying the material allegations and repeating and reiterating the statements as made earlier in the petition. It has further been stated that the fact of assets appearing in the balance-sheet of the said club, exceeding the maximum non-taxable limit prescribed under the said Act, would have no relevance whatsoever, in view of the specific contentions raised by the said club, that they, being an " association of persons ", would not be an assessable entity at all under the said Act. Dr. Pal appearing in support of the rule, after placing the different definitions under the said Act, as mentioned hereinbefore, claimed that net wealth, which is defined in s. 2(m) of the said Act, is charged on such wealth of the assessee and the same means the amount by which the aggregate value of all the assets, wherever located, belonging to the assessee on the valuation date, exceeds the aggregate value of all its debts and certain assets are required by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividuals. In respect of members belonging to a firm and an association of persons, he stated that s. 4(1)(b) levies a charge of wealth-tax by including in the net wealth of each member, the value of his interest in the firm or association and the Act does not similarly provide for a charge in respect of the assets held by a member in a " body of individuals ". He, of course, stated that s. 3 of the said Act does not restrict the description of the individual as assessable to tax. In the case of Jogendra Nath Naskar v. CIT [1969] 74 ITR 33 (SC), it has been observed that there is no reason why the word " individual " should be restricted to human beings alone and not to juristic entities. In that case, it was observed that under the Indian I.T. Act of 1922, a Hindu deity would come within the word " individual and can be treated as a unit of assessment under s. 3 of that Act. It was the specific submission of Dr. Pal, that the trustees of a club, here, in this case, the stewards of the said club, are to be regarded as a body of individuals, and, therefore, if at all, they would be assessable as " individual ". In any event, he claimed that since the notices, in the instant case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at issue as in this case were specifically in issue and it has been observed that reading the provisions of ss. 3 and 4 and the definition of " company " in s. 2(h) of the Act, the position which emerges is that while a firm or association of persons is not treated as a taxable unit, and the member of an association of persons or a partner in the case of a partnership firm is individually taxable as a taxable unit, some institutions, associations or bodies which may be included within the definition of " company " by virtue of a general or special order to be made by the CBDT, could be treated as taxable units. An unincorporated members' club is a society of persons each of whom contributes to the funds out of which the expenses of conducting the society are paid. The contribution is generally made by means of entrance fees or subscriptions or both. The society is not a partnership because the members are not associated with a view to share profits. It is not recognised as having any legal existence apart from the members of which it is composed. Every club is governed by rules which generally specify the purposes for which it is instituted and make provision as to the admission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealth, but since the tax under the W.T. Act is charged on the net wealth, an association of persons relevant for the purpose of the W.T. Act must be an association of persons which owns wealth though such an association may not have expressly come into being with the object of owning wealth. Having regard to the manner in which an unincorporated members' club comes into being and the manner in which the membership of the club is acquired, such a club is an association of persons. The members of such a club come to own wealth as an incidence of membership when they join the club though the object of joining the club is not the acquisition of wealth, nor is their activity directed at acquisition of wealth. It is an incidence of membership that if and when the club is dissolved and if they continue to be members on the date of dissolution, the property of the club will be distributed amongst the members for the time being. It has also been observed in that case that " body of individuals " is a recognised concept in taxation and is of very wide amplitude and the concept is entirely different from the concept of an " association of persons " which is of a restricted nature. The history ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the statute, the subject cannot be taxed. After this, Dr. Pal also made a reference to another determination of the Bombay High Court in the case of Willingdon Sports Club v. C. B. Patil, 3rd Addl. WTO [1982] 137 ITR 83, where, following the earlier decision in Orient Club v. CWT [1982] 136 ITR 697 (Bom), it has been observed that in an unincorporated members' club, the property of the club vests in the members for the time being, even if the properties of such a club are vested in the trustee it would not make the trustee the owner of the properties and an unincorporated members' club is, therefore, an association of persons and an association of persons is not treated as a taxable unit under the said Act. As such, a club is not an " individual " as contemplated by the charging provision in s. 3 of the said Act, and an unincorporated members' club is not liable to wealth-tax under s. 3 of the said Act. Relying on the ratio of the above determinations, which, according to Dr. Pal, have duly laid down the law, on interpretation of the different provisions of the said Act, that an unincorporated members' club would not be liable to wealth-tax under the said Act, which submis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e indications in ss. 5 and 21 of the said Act, that such body of individuals, viz., trustees of a trust, are intended to be covered by the said Act. That apart, while on this point, a further reference was made to the case of Orient Club v. WTO [1980] 123 ITR 395 (Guj), the relevant findings whereof have been indicated hereinbefore. From those determinations or on the basis of them read and considered along with the determinations in the case of CIT v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) and those made in CIT v. Kul" Valley Transport Co. P. Ltd. [1970] 77 ITR 518 (SC), it was contended by Dr. Pal that the said club or the stewards of the same, had no liability in the matter and none of them could be treated or considered to be an assessee under the said Act. Mr. Bhattacharjee, who assisted Mr. Sengupta, claimed and submitted, that " individuals " in s. 3 of the said Act, may include " association of persons " and, since, at the time when the notices under s. 17 were issued and so also the notice under s. 14(2), the Gujarat and Bombay High Court judgments, as mentioned above, were not available, steps in this case were taken on the basis of the law as was in force at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t scope at the time of considering the validity of the concerned legislation. In that case, it has also been observed that the word " individual " in entry 86, List I of Sch. VII, would include groups of individuals like an HUF. A reference was also made by Mr. Bhattacharjee to the decision of the Bombay High Court in the case of Abhay L. Khatau v. CWT [1965] 57 ITR 202, where also, like the determinations in Suhashini Karuri's case [1962] 46 ITR 953 (Cal), the meaning of the word " individual" in the context of a body of trustees, was in issue. Then, Mr. Bhattacharjee relied on the case of V. Venugopala Ravi Varma Rajah v. Union of India [1969] 74 ITR 49 (SC), in which case, the provisions of the Expenditure-tax Act were challenged on the ground of discrimination between the HUF and the Muslim Mappilla families of Kerala, both of whom were governed by Marumakkattayam law, but, because of the HUF being specifically mentioned in that Act, it was contended that the incidence of expenditure-tax was heavier in their case than in the case of a Mappilla family, which was not family of Hindus. It was pointed out, in that case, that under the charging section of the Expenditure-tax Act, ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of games, racing sport; and (5) establishment of schools, institutions for training of jockeys and riders, both professional and amateur. The club filed a " nil " return under the W.T. Act, 1957, and claimed exemption from tax on the ground that the members do not have any interest in the assets held by the club and as the properties were held by the club only for discharging a legal obligation for a public purpose of a charitable nature, the club is not liable for wealth-tax. The WTO rejected the plea and assessed the club to wealth-tax. The AAC, following the decision of the High Court in regard to the liability of the club to pay general tax to the Hyderabad Corporation under the Hyderabad Municipal Corporation Act, 1955, held that the club is not liable for tax under the W.T. Act. The appeal preferred by the Department was dismissed by the Appellate Tribunal and on a reference at the instance of the Revenue, it has been held that in order to attract exemption under s. 5(1)(i) of the W.T. Act, the assets must be held, firstly, in trust or other legal obligation and, secondly, for a public purpose of a charitable nature. Unless both these ingredients are satisfied, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property " on behalf of " others. It was thus contended that the trustees cannot be assessed to tax under the said Act. Such contentions were not, of course, accepted by the Supreme Court. In that case, of course, it was not contended that the trustees did not come within the scope of the charging provisions under s. 3 of the said Act, and the case proceeded on the footing that the trustees can be assessed to wealth-tax in respect of the trust property, of which they were trustees. Finally, Mr. Bhattacharjee made categorical reference to the determination in the case of ITO v. Textile Mills Agents P. Ltd. [1981] 130 ITR 733 (Cal), which was a determination, dated March 18, 1974, and has been made an appendix, to the case of Jiyajeerao Cotton Mills Ltd. v. ITO [1981] 130 ITR 710 (Cal), which was decision dated August 16, 1979. It appeared that, in the latter case, the appellant derived profits from three industries one of which qualified for special rebate under Para. F of Pt. 1 of Sch. I to the Finance Act, 1965, for the assessment year 1966-67. In granting the special rebate, the ITO computed the profits and gains attributable to that industry without deducting development rebate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g all allowable deductions and rebates including the development rebate, but without allowing the special rebate under Para. F of Pt. I of Sch. I to the Finance Act, 1965. However, the course of the Cambay Ekctric Supply's case [1978] 113 ITR 84 (SC), up to the High Court clearly showed that there was a debate on the question of interpretation of s. 80E. The Supreme Court decision related to the subsequent assessment year 1967-68. The fact that the Supreme Court had resolved the conflict did not obliterate the conflict in views existing prior to the decision. The ITO had no jurisdiction to rectify and the notice issued under s. 154 had to be quashed. In the earlier case, the learned judges observed and on which reliance was placed, that in order to determine whether the ITO had jurisdiction to issue the impugned notice, we must consider the facts as they were on the date when the impugned notice was issued. In that view of the matter and the state of law, Mr. Bhattacharjee claimed the actions as taken, on the basis of the law as existing prior to the determination of the Gujarat and Bombay High Courts, must succeed, as actions as impeached now were duly taken on the basis of the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the section. Such belief, of course, should be the belief of an honest and reasonable man, based upon reasonable grounds and the officer concerned may act under the section on direct or circumstantial evidence, but not on mere suspicion, gossip or rumour. It should be remembered that the words used are " reason to believe " and not " reason to suspect " and as such, powers under the section are wide but not plenary. Such being the position, it was claimed by Mr. Bhattacharjee that steps in the instant case were taken on due exercise of power. In terms of sub-s. (1)(b), the WTO must receive information subsequent to the assessment and in consequence of such information, he should have reason to believe that wealth has escaped assessment. The word " information ", in terms of the observations of the Supreme Court in the case of CIT v. A. Raman and Co. [1968] 67 ITR 11, to which reference was also made by Mr. Bhattacharjee, means " instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment ". Any " information " justifying action under cl. (b) is not limited to factual information but inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, established to hold horse races and has all throughout been treated as an " association of persons " by the I.T. authorities and is deemed to be composed of members, who are admitted to such membership according to the rules of the said club. That apart, claims in the Hyderabad Race Club's case [1978] 115 ITR 453 (AP), were different. It should be noted that, in this case, the said club has claimed that they cannot be deemed or considered to be an assessee and treated as assessable as such, and on the basis of such specific and categorical claims, the determinations in the case of CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204 (Cal), to which reference was also made by Mr. Bhattacharjee, would be distinguishable. In the said case, it has also not been determined that an unincorporated club, like the said club, is liable to be assessed under s. 3 of the said Act, and there the specific question was not whether the Assam Oil Co. Ltd. was an assessee which incidentally was the specific issue in this case. On the submissions as made at the Bar, the provisions of the said Act, and the decisions as referred to hereinbefore, the said club, which is an unincorporated members' club and a ..... 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