Commissioner of Wealth Tax vs Trivandrum Club

K.P. Balanarayana Marar, J.—A common question arises in these references at the instance of the revenue. The question is:

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law and in fact in holding that the assessee-club should be assessed in the status of association of persons and since an association of persons is not an entity chargeable to wealth-tax, the assessee-club is not chargeable to wealth-tax?

The respondent is a members'' club by name Trivandrum Club, Thiruvananthapuram. The WTO treated the club as an individual and subjected it to wealth-tax for the assessment years 1970-71 to 1979-80. On appeal, the Commissioner (Appeals) held that the assessee is an AOP and not taxable under the Wealth-tax Act, 1957 (''the Act''). In consequence, the assessment was cancelled. On further appeal, the Tribunal upheld the order of the Commissioner (Appeals). While considering the assessments for the years 1970-71 to 1978-79 in Wealth-tax Appeal Nos. 43 to 51 (Coch.) of 1984, the appellate authority has followed their order in the case of Sreemulam Club [WT Appeal Nos. 293 to 296 (Coch.) of 1983, dated 20-5-1986], where it was held that the club cannot be assessed as an individual since it is only an AOP which is not an assessable entity for the purpose of wealth-tax. The same view was adopted by the Tribunal for the year 1979-80. It was thereafter at the instance of the revenue that the question aforesaid was referred to this Court for a decision.

The question referred to us is covered by the decision in Commissioner of Wealth-tax Vs. Mulam Club, . In that decision, we held that the assets of an AOP are not chargeable u/s 3 of the Act, before the insertion of section 21AA. That section was introduced by the Finance Act, 1981 and is not applicable up to and inclusive of the assessment year 1980-81. In these references we are concerned with the assessment years up to 1979-80. Section 21AA cannot, therefore, be resorted to by the revenue for assessing the wealth-tax for the years under dispute in these references.

In the abovementioned decision, we held that there is no provision in the Act which makes an AOP an individual before the introduction of section 21AA. In that view, we held that the respondent in that case, Sree mulam Club, is an AOP and not an individual for the purpose of wealth-tax and, hence, not an assessable entity as an individual.

The respondent is a members'' club, an AOP. That is not an assessable entity under the Act.

The learned counsel for the revenue would point out that the assessee-club is a trust and as per rule 3(iii)(a) of the Wealth-tax Rules, 1957 and bye-laws of the club all the properties of the club vest in the trustees. Relying on the decision in Trustees of Gordhandas Govindram Family Charity Trust Vs. Commissioner of Income Tax, Bombay, , it was contended that a club is an individual and as such, liable to be taxed u/s 3. As observed by the Bombay High Court in Orient Club Vs. Commissioner of Wealth-tax, Bombay City-II, , merely because co-trustees have been treated as a single unit, it does not necessarily follow that an AOP formed by the members of a club must also be treated as an individual. The Bombay High Court stated that in an unincorporated members'' club, there are usually trustees appointed in pursuance of the provisions in the rules in whom the property and assets of the club are vested in trust for the members for the time being and who are given power to invest the funds of the club, sometimes at their own discretion and sometimes according to the directions of the Committee. In a non-proprietary club like the respondent, the members for the time being are jointly entitled to all the properties and funds. The individual interest of members can be ascertained only at the time of dissolution. The description of the club as a trust and the vesting of the properties in the members of the club as trustees is, therefore, of no significance. Following that decision, we hold that the respondent herein is an AOP and not an individual and as such, not assessable under the Act. The Tribunal was, therefore, justified in holding that the respondent is not an individual, but an AOP and as such, not assessable to wealth-tax. The question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the revenue.