Income-tax Reference Nos. 129 to 133 and 161 to 164 of 1988. Case: Commissioner of Wealth Tax Vs Mulam Club. High Court of Kerala (India)
| Case Number | Income-tax Reference Nos. 129 to 133 and 161 to 164 of 1988 |
| Counsel | For Appellant: P.K.R. Menon and N.R.K. Nair, Advs. and For Respondents: P. Balachandran, Adv. |
| Judges | K.S. Paripoornan and K.P. Balanarayana Marar, JJ. |
| Issue | Wealth Tax Act, 1957 - Sections 2, 3, 4, 21AA; Income Tax Act, 1961 - Section 2(31) |
| Citation | 1991 (99) CTR 124 (Ker), ILR 1991 (2) Kerala 731, 1991(191) ITR 370 (Ker), 1991 (58) TAXMAN 63(Ker) |
| Judgement Date | March 13, 1991 |
| Court | High Court of Kerala (India) |
Judgment:
K.P. Balanarayana Marar, J.
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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 justified in finding that the assessee-club cannot be assessed in the status of an 'individual' and that since an 'association of persons' is not an assessable entity for the purpose of wealth-tax, it cannot be charged to wealth-tax?"
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The respondent is a members' club by name Sri Mulam Club, Thiruvananthapuram. The Wealth-tax Officer treated the club as an individual and subjected it to wealth-tax for the assessment years 1970-71 to 1978-79. On appeal, the Appellate Assistant Commissioner cancelled the assessment. On further appeal, the Income Tax Appellate Tribunal, upheld the order of the Appellate Assistant Commissioner holding that the members' club, being an association of persons, is not an individual and hence is not an assessable entity for the purpose of wealth-tax. It is, thereafter, at the instance of the Revenue that the question aforesaid was referred to this court for decision.
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It is urged by learned counsel for the Revenue that the expression "individual" in Section 3 of the Wealth-tax Act is wide enough to include an association of persons and the respondent-club being an association can be subjected to payment of wealth-tax. On the other hand, it is contended by learned counsel for the respondent that an association of persons is not an assessable entity and the word "individual" cannot be construed so as to include a body of individuals. In order to appreciate the rival contentions, it is appropriate to refer to Section 3 of the Wealth-tax Act (for short "the Act"). The section reads:
"Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in Schedule I."
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The section imposes a charge for every year commencing on and after 1st day of April, 1957, of tax in respect of net wealth on the corresponding valuation date of every individual, Hindu undivided family and company. The contention of the Revenue is that members of a club formed a body of individuals and a body of individuals can be treated as an individual which is taxable under Section 3 of the Act. The Act does not contain any definition of person, but Section 2(31) of the Income Tax Act defines a "person". By that definition, "person" includes -
"(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not..."
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The difference between the definition of a person contained in Section 2(31) of the Income Tax Act and the persons who are taxable under Section 3 of the Act has to be noted. An association of persons or a body of individuals, whether incorporated or not, comes within the definition of persons for the purpose of the Income Tax Act, whereas only three categories of persons are contemplated under Section 3 of the Wealth-tax Act, viz., an individual, Hindu undivided family and a company. In order to enable, the Revenue to subject the respondent to tax under the Act, the respondent has to be shown either as an individual or as a company.
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"Company" as defined in Section 2(h) of the Act shall have the same meaning assigned to it as in Clause (17) of Section 2 of the Income Tax Act. This definition has been substituted by the Direct Tax Laws (Amendment) Act, 1987, for the following:
"(h) 'company' means a company formed and registered under the Companies Act, 1966 (1 of 1956), and includes -
(i)...
(ii)...
(iii) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which the Board may, having regard to the nature and objects of such institution, association or body, declare by general or special order to be a company:
Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1975, or on or after that date) as may be specified in the declaration:..."
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The above clause was substituted by the Finance Act, 1975 (25 of 1975), with effect from April 1, 1975. The assessment year commencing from April 1, 1975, is also included in the assessment years under consideration in these references. For those years, an association or body can be subjected to wealth-tax provided the Board declares by general or special order that the association or body is a company. The Board referred to in this clause means the Central Board of Direct Taxes. The Revenue has not brought to our notice any order declaring the respondent-club as a company. The respondent cannot, therefore, be considered as a company for the purpose of Section 3 of the Act.
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The only question that falls for consideration is whether the respondent is an individual, That the respondent is a members' club, an unregistered association of persons, is not disputed. What a club is has been explained in Daly's Club Law, Seventh Edition, page 1. It is pointed out that the word "club" means:
"Essentially an association of individuals in a way that involves to some degree the factors of...
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