M/S BANGALORE CLUB versus THE COMMISSIONER OF WEALTH TAX & ANR. on 8 September 2020

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SUPREME COURT REPORTS

[2020] 13 S.C.R.

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M/S BANGALORE CLUB

v.

THE COMMISSIONER OF WEALTH TAX & ANR.

(Civil Appeal Nos. 3964-71 of 2007)

BSEPTEMBER 08, 2020

[R. F. NARIMAN, NAVIN SINHA ANDINDIRA BANERJEE, JJ.]

Wealth Tax Act, 1957 – ss.3, 21AA – Liability of BangaloreClub to pay wealth tax – Assessing Officer held that Club was liableCto be taxed under 1957 Act – Appeal dismissed by CIT (Appeals) –Appellate Tribunal set aside the orders of the Assessing Officer andCIT (Appeals) – High Court decided in favour of revenue – ReviewPetition dismissed – Held: s.21AA was introduced in order to preventtax evasion – It was enacted not to rope in association of personsDper se as “one more taxable person” to whom the Act would apply– Bangalore Club is an association of persons and not the creation,by a person who is otherwise assessable, of one among a largenumber of associations of persons without defining the shares ofthe members so as to escape tax liability – In order to be anassociation of persons attracting s.21AA it is necessary that personsEband together with some business or commercial object in view inorder to make income or profits – Bangalore Club is a social club –Persons who are banded together do not band together for anybusiness purpose or commercial purpose in order to make incomeor profits – s.21AA does not get attracted to the facts of the presentFcase –Impugned judgment and review judgment set aside –IncomeTax Act, 1961 – s.2(31), 167A.

Allowing the appeals, the Court

HELD: 1.1 Section 3 is the charging section in the WealthTax Act. Only three types of persons can be assessed to wealthGtax under Section 3 i.e. individuals, Hindu undivided families andcompanies. If Section 3(1) alone were to be looked at, theBangalore Club neither being an individual, nor a HUF, nor acompany cannot possibly be brought into the wealth tax net under H

this provision. By the Finance Bill of 1981, Section 21AA wasintroduced into the Wealth Tax Act. Section 21AA was enactedw.e.f 1st April, 1981.For the first time from 1st April, 1981, anassociation of persons other than a company or cooperative societyhas been brought into the tax net so far as wealth tax is concernedwith the rider that the individual shares of the members of suchassociation in the income or assets or both on the date of itsformation or at any time thereafter must be indeterminate orunknown. It is only then that the section gets attracted. [Paras9-13][497-C, E-F; 499-H; 500-A-B]

1.2 When Parliament used the expression “association ofpersons” in Section 21AA of the Wealth Tax Act, it must bepresumed to know that this expression had been the subjectmatter of comment in a cognate allied legislation, namely, theIncome Tax Act, as referring to persons banding together for acommon purpose, being a business purpose in the context of ataxation statute in order to earn income or profits. In order to bean association of persons attracting Section 21AA of the WealthTax Act, it is necessary that persons band together with somebusiness or commercial object in view in order to make incomeor profits. The presumption gets strengthened by the languageof Sec. 21AA (2), which speaks of a business or profession carriedon by an association of persons which then gets discontinued ordissolved. The thrust of the provision therefore, is to rope inassociations of persons whose common object is a business orprofessional object, namely, to earn income or profits. BangaloreClub being a social club whose objects have been referred to bythe Appellate Tribunal in this case make it clear that personswho are banded together do not band together for any businesspurpose or commercial purpose in order to make income orprofits. A perusal of judgment in Ellis Bridge Gymkhana wouldshow that Section 21AA has been introduced in order to preventtax evasion. The reason why it was enacted was not to rope inassociation of persons per se as “one more taxable person” towhom the Act would apply. The object was to rope in certainassessees who have resorted to the creation of a large number AB

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Aof association of persons without specifically defining the sharesof the members of such associations of persons so as to evadetax. In construing Section 21AA, it is important to have regardto this object. [Paras 19, 24 & 26][502-E-F; 506-A-D; 508-G-H]

Cricket Club of India Ltd v. Bombay Labour UnionB[1969] 1 SCR 600 – relied on.

1.3 The Bangalore Club is an association of persons andnot the creation, by a person who is otherwise assessable, of oneamong a large number of associations of persons without definingthe shares of the members so as to escape tax liability. SectionC21AA of the Wealth Tax Act does not get attracted to the facts ofthe present case. The Section was not introduced to add onemore category to the category of taxable persons – that couldhave been done by amending the charging section i.e. Section3(1) of the Wealth Tax Act. The judgment in CWT v. ChikmagalurClub not being correctly decided, is overruled. Equally, the HighDCourt judgment which rests solely upon the decision inChikmagalur Club’s case has no legs to stand. Sub-section (2)begins with the words “any business or profession carried on”by an association of persons. No business or profession is carriedon by a social members club. Further, the association of personsEmentioned in sub-section (1) must be persons who have bandedtogether for a business objective – to earn profits – and if thisitself is not the case, then sub-section (2) cannot possibly apply.Insofar as Rule 35 is concerned, again what is clear is that onliquidation, any surplus assets remaining after all debts andliabilities of the club has been discharged, shall be divided equallyFamongst all categories of members of the club. This would showthat “at any time thereafter” within the meaning of Section 21AA(1), the members’ shares are determinate in that on liquidationeach member of whatsoever category gets an equal share. UnderRule 35 the members of the Bangalore Club are entitled toGreceive surplus assets in the circumstances stated in Rule 35-equally on liquidation. However, the result remains the same –viz., that even if it be held that the Bangalore Club is an association of persons, the members’ shares being determinate do not attractSection 21AA. [Paras 28, 30-32][509-E-F; 511-A-B, C-D, E-G;512-B-C]

CWT v. ChikmagalurClub 197 ITR Karnataka 609 –overruled.

CIT v. Indira Balkrishna (1960) 39 ITR 546 – reliedon.

1.4 The definition of “person” in Section 2(31) of the IncomeTax Act would take in both an association of persons and a bodyof individuals. For the purposes of income tax, the BangaloreClub could perhaps be treated to be a ‘body of individuals’ whichis a wider expression than ‘association of persons’ in which suchbody of individuals may have no common object at all but wouldinclude a combination of individuals who had nothing more than aunity of interest. To be taxed as an association of persons underthe Income Tax Act is to be taxed as an association of personsper se. Section 21AA does not enlarge the field of tax payers butonly plugs evasion as the association of persons must be formedwith members who have indeterminate shares in its income orassets. [Para 33][512-D-F]

1.5 What has to be seen in the facts of the present case isthe list of members on the date of liquidation as per Rule 35.Given that as on that particular date, there would be a fixed list ofmembers belonging to the various classes mentioned in the rules,it is clear that, applying the ratio of Trustees of H.E.H. Nizam’sFamily, such list of members not being a fluctuating body, but afixed body as on the date of liquidation would again make themembers ‘determinate’ as a result of which, Sec. 21AA wouldhave no application. The impugned judgment and the reviewjudgment are set aside. [Paras 35, 36][515-G-H; 516-A-B]

CWT v. Trustees of H.E.H. Nizam’s Family 108 ITR 555(1977); P. Vajravelu Mudaliar v. Special DeputyCollector for Land Acquisition [1965] 1 SCR 614; SakalDeep Sahai Srivastava v. Union of India (1974) 1 SCC338 : [1974] 2 SCR 485; Shree Bhagwati Steel Rolling A

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AMills v. CCE (2016) 3 SCC 643 : [2015] 12 SCR 332;Diwan Bros. v. Central Bank of India (1976) 3 SCC800 : [1976] Suppl. SCR 664 – relied on.

CWT v. Ellis Bridge Gymkhana (1998) 1 SCC 384 :[1997] 4 Suppl. SCR 626; Bangalore Club v. CITB(2013) 5 SCC 509 : [ 2013] 1 SCR 267; G.Murugesan& Brothers v. CIT 88 ITR 432 (1973); Meera and Co.v. CIT (1997) 4 SCC 677 : [1997] 2 SCR 991; RamanlalBhailal Patel v. State of Gujarat (2008) 5 SCC 449 :[2008] 2 SCR 468; State of W.B. v. Bela Banerjee [1954]SCR 558; State of West Bengal v. Calcutta Club LimitedC(2019) 13 SCALE 474; K P Varghese v. ITO [1982] 1SCR 629 – referred to.

CWT v. Rama Varma Club 226 ITR 898; CWT v. GeorgeClub 191 ITR 368 – distinguished.

Deccan Wine and General Stores v. CIT106 ITR 111 –Dreferred to.

Barras v. Aberdeen Steam Trawling and FishingCompany 1933 AC 402 – referred to.

Case Law Reference

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CIVIL APPELLATE JURISDICTION : Civil appeal nos. 3964-3971 of 2007.

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From the Judgment and Order dated 23.01.2007 of the High Courtof Karnataka at Bangalore in Wealth Tax Appeal Nos. 31, 32, 33, 34, 35,36 and 37 of 2002.

Vikramjit Banerjee, ASG, Nikhil Nayyar, K. Radhakrishnan, Sr.Advs., Gautam Narayan, Ms. Asmita Singh, Divyanshu Rai, AdithyaNair, Ms. Gargi Khanna, Ms. Niranjana Singh, Mrs. Anil Katiyar, Advs.for the appearing parties.

The judgment of the Court was delivered by

R. F. NARIMAN, J.

1. In the year of grace 1868, a group of British officers bandedtogether to start the Bangalore Club.In the year of grace 1899, one Lt.W.L.S. Churchill was put up on the Club’s list of defaulters, whichnumbered 17, for an amount of Rs.13/- being for an unpaid bill of theClub. The “Bill” never became an “Act”. Till date, this amount remainsunpaid.Lt. W.L.S. Churchill went on to become Sir Winston LeonardSpencer Churchill, Prime Minister of Great Britain. And the BangaloreClub continues its mundane existence, the only excitement being whenthe tax collector knocks at the door to extract his pound of flesh.

2. Fast forward now from British India to free India and we cometo assessment years 1981-82 and 1984-85 upto 1990-91. The questionfor determination in these appeals is whether Bangalore Club is liable topay wealth tax under the Wealth Tax Act.The order of assessment dated3[rd] March, 2000, passed by the Wealth Tax Officer, Bangalore, referredto the fact that Bangalore Club is not registered as a society, a trust or acompany. The assessing officer, without further ado, “after a carefulperusal” of the rules of the Club, came to the conclusion that the rightsof the members are not restricted only to user or possession, but definitely C

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Aas persons to whom the assets of the Club belong.After referring toSection 167A, inserted into the Income Tax Act, 1961, and after referringto Rule 35 of the Club Rules, the assessing officer concluded that thenumber of members and the date of dissolution are all uncertain andvariable and therefore indeterminate, as a result of which the Club wasliable to be taxed under the Wealth Tax Act. By a cryptic order datedB25[th] October, 2000, the CIT (Appeals) dismissed the appeal against theaforesaid order. On the other hand, by a detailed order passed by theIncome Tax Appellate Tribunal, Bangalore dated 7[th] May, 2002, theAppellate Tribunal first referred to the Objects of the Bangalore Club,which it described as a “social” Club, as follows:C“1. To provide for its Members, social, cultural, sporting,recreational and other facilities;

2. To promote camaraderie and fellowship among its members.

3. To run the Club for the benefit of its Members from out of theDsubscriptions and contributions of its member.4. To receive donations and gifts without conditions for thebetterment of the Club. The General Committee may use itsdiscretion to accept sponsorships for sporting Areas

5. To undertake measures for social service consequent on naturalEcalamities or disasters, national or local.

6. To enter into affiliation and reciprocal arrangements with otherClubs of similar standing both in India and abroad.

7. To do all other acts and things as are conducive or incidental tothe attainment of the above objects.FProvided always and notwithstanding anything hereinaftercontained, the aforesaid objects of the Club, shall not be altered,amended, or modified, except, in a General Meeting, for whichthe unalterable quorum shall not be less than 300 members. Anyresolution purporting to alter, amend, or modify the objects of theGClub shall not be deemed to have been passed, except by a twothirds majority of the Members present and voting thereon.”

3. The Tribunal then set out Rule 35 of the Club Rules, whichstated as follows:

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“RULE 35 APPOINTMENT OF LIQUIDATORS:

If it be resolved to wind up, the Meeting shall appoint a liquidatoror liquidators and fix his or their remuneration. The liquidationshall be conducted as nearly as practicable in accordance withthelaws governing voluntary liquidation under the Companies Actorany statutory modifications thereto and any surplusassetsremaining after all debts and liabilities of the Club havebeendischarged shall be divided equally amongst the Members oftheClub as defined in Rules 6.1(i), 6.1(ii), 6.1 (iii), 6.2(i),6.2(ii),6.2(iii), 6.2(vii), 6.2(viii) and 6.2(ix).

4. After setting out Section 21AA of the Wealth Tax Act, theTribunal then referred to this Court’s judgment in CIT v. IndiraBalkrishna (1960) 39 ITR 546 and held:

“9. From the facts of the case, it is clear that members who havejoined here have not joined to earn any income or to share anyprofits.They have joined to enjoy certain facilities as per theobjectsof the club.The members themselves are contributing tothe receipts of the club. Themembers themselves are contributingto the receipts of the club (sic) and whatis the difference betweenthe Income and Expenditurecan be said to beonly surplus and notincome of the assessee-club. It is an acceptedprinciple that principleof mutuality is applicable to the assessee club andhence not liableto income-tax also. At the most, this. may be called the”Body ofIndividuals” but not an AOP formed with an intention toearnincome.”

5. It then referred to a CBDT Circular dated 11th January, 1992,explaining the pari materia provision of Sections 167A in the IncomeTax Act, and therefore inferred, from a reading of the aforesaid Circular,that Section 21AA would not be attracted to the case of the BangaloreClub. It was then held, on a reading of Rule 35, that since members areentitled to equal shares in the assets of the Club on winding-up afterpaying all debts and liabilities, the shares so fixed are determinate alsomaking it clear that Section 21AA would have no application to the factsof the present case. As a result, the Appellate Tribunal allowed the appealand set aside the orders of the Assessing Officer and the CIT (Appeals).

6. Against this order, by a cryptic order of the High Court, thedecision in CWT v. Club 197 ITR Karnataka 609 was stated to cover A

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Athe facts of the present case, as a result of which the question raisedwas decided in favour of the revenue by the impugned order dated 23[rd]January, 2007. A Review Petition filed against the aforesaid order wasdismissed on 19th April, 2007.

7. Shri Nikhil Nayyar, learned counsel appearing on behalf of theBappellant, referred to the object for the enactment of Section 21AA ofthe Wealth Tax Act and then took us through the provisions of Section21AA. According to him, it is settled law by several judgments of thisCourt that “association of persons” in the context of a taxing statutewould only refer to persons who band together with a common object inmind – the common object being to create income and make a profit.AsCit is clear that the present Club is a social club where the members donot band together for any commercial or business purpose of makingincome or profits, the section does not get attracted at all.Further, in anycase, as a without prejudice argument, it is clear that the individual sharesof the members of the said association in income or assets of the Dassociation must be indeterminate or unknown to attract the provision ofSec. 21AA. He took us to the Appellate Tribunal judgment and to Rule35, in particular, to argue that since on winding-up all members get anequal share in the surplus that remains after all debtsand liabilities aredealt with, their shares cannot be said to be indeterminate or unknown.Forthis purpose, he cited a number of judgments of the High Courts.HeEthen adverted to an explanation that was added to the definition of“person” contained in Section 2(31) of the Income Tax Act, which madeit clear that on and from 1st April, 2002, an association of persons neednot be persons who band together for the object of deriving income orprofits. This explanationdoes not apply to the Wealth Tax Act, and, in Fany case, given the fact that the assessment years in question are waybefore 1st April, 2002, the law laid down by this Court in several judgmentson association of persons would directly apply.

8. To counter these arguments, Shri Vikramjit Banerjee, learnedAdditional Solicitor General, referred to Rule 35 of the Club Rules andGrelied heavily upon Section 21AA(2). According to Shri Banerjee, sub-section (2) deals with a situation where the association of persons isdissolved, and given Rule 35, the Section, therefore, would directly applyto the Bangalore Club. He then referred to this Court’s judgment inBangalore Club v. CIT (2013) 5 SCC 509, in which, for income taxpurposes, the Bangalore Club was assessed as an association of persons.H

This being the case, it cannot be that for income tax purposes, theBangalore Club is treated as an association of persons but for wealthtax purposes, it cannot be so treated.He then referred to this Court’sjudgment in CWT v. Ellis Bridge Gymkhana(1998) 1 SCC 384 inorder to support the impugned judgment of the High Court which,according to him, correctly followed Chikmagalur Club’s case (supra)which, in turn, only relied upon this Court’s judgment in Ellis BridgeGymkhana (supra). He also stated that the finding of the AssessingOfficer that the shares of a fluctuating body of members would beindeterminate is correct and therefore, even on this ground it is clearthat the High Court judgment can be supported.

9. Having heard learned counsel for both sides, it is important tofirst advert to Section 3, which is the charging section in the Wealth TaxAct. Section 3(1) states as follows:

“3. Charge of wealth-tax—(1) Subject to the other provisionscontained in this Act, there shall be charged for every assessmentyear commencing on and from the first day of April, 1957 butbefore the first day of April, 1993, a tax (hereinafter referred toas wealth-tax) in respect of the net wealth on the correspondingvaluation date of every individual, Hindu undivided family andcompany at the rate or rates specified in Schedule I.”

10. It will be noticed that only three types of persons can beassessed to wealth tax under Section 3 i.e. individuals, Hindu undividedfamilies and companies. It is clear that if Section 3(1) alone were to belooked at, the Bangalore Club neither being an individual, nor a HUF, nora company cannot possibly be brought into the wealth tax net under thisprovision.

11. By the Finance Bill of 1981, Section 21AA was introducedinto the Wealth Tax Act.The explanatory notes on the introduction ofSection 21AA were as follows:

“21.1 Under the Wealth Tax Act, 1957, individuals and HinduUndivided Families are taxable entities but an association of personsis not charged to wealth tax on its net wealth. Where an individualor a Hindu Undivided Family is a member of an association ofpersons, the value of the interest of such member in the associationof persons is determined in accordance with the provisions of therules and is includible in the net wealth of the member.

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21.2 Instances had come to the notice of the Government wherecertain assessees had resorted to the creation of a large numberof associations of persons without specifically defining the sharesof the members therein with a view to avoiding proper tax liability.Under the existing provisions, only the value of the interest of themember in the association which is ascertainable is includible inhis net wealth. Accordingly, to the extent the value of the interestof the member in the association cannot be ascertained or isunknown, no wealth tax is payable by such member in respectthereof.

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21.3 In order to counter such attempts at tax avoidance throughthe medium of multiple associations of persons without definingthe shares of the members, the Finance Act has inserted a newSection 21-AA in the Wealth Tax Act to provide for assessmentin the case of associations of persons which do not define theshares of the members in the assets thereof. Sub-section (1)provides that where assets chargeable to wealth tax are held by C

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an association of persons (other than a company or a cooperativesociety) and the individual shares of the members of the saidassociation in income or the assets of the association on the dateof its formation or at any time thereafter, are indeterminate orunknown, wealth tax will be levied upon and recovered from such E

association in the like manner and to the same extent as it is leviableupon and recoverable from an individual who is a citizen of Indiaand is resident in India at the rates specified in Part I of ScheduleI or at the rate of 3 per cent, whichever course is more beneficialto the Revenue.”

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12. With this object in mind, Section 21AA was enacted w.e.f. 1[st]April, 1981 as follows:

“21AA. Assessment when assets are held by certainassociations of persons—(1) Where assets chargeable to taxunder this Act are held by an association of persons, other than aGcompany or cooperative society or society registered under theSocieties Registration Act, 1860 (21 of 1860) or under any lawcorresponding to that Act in force in any part of India, and theindividual shares of the members of the said association in theincome or assets or both of the said association on the date of itsformation or at any time thereafter are indeterminate or unknown, H

the wealth-tax shall be levied upon and recovered from suchassociation in the like manner and to the same extent as it wouldbe leviable upon and recoverable from an individual who is a citizenof India and resident in India for the purposes of this Act.

(2) Where any business or profession carried on by an associationof persons referred to in subsection (1) has been discontinued orwhere such association of persons is dissolved, the AssessingOfficer shall make an assessment of the net wealth of theassociation of persons as if no such discontinuance or dissolutionhad taken place and all the provisions of this Act, including theprovisions relating to the levy of penalty or any other sumchargeable under any provisions of this Act, so far as may be,shall apply to such assessment.

(3) Without prejudice to the generality of the provisions of sub-section (2), if the Assessing Officer or the Deputy Commissioner(Appeals) or the Commissioner (Appeals) in the course of anyproceedings under this Act in respect of any such association ofpersons as is referred to in sub-section (1) is satisfied that theassociation of persons was guilty of any of the acts specified insection 18 or section 18A, he may impose or direct the impositionof a penalty in accordance with the provisions of the said sections.

(4) Every person who was at the time of such discontinuance ordissolution a member of the association of persons, and the legalrepresentative of any such person who is deceased, shall be jointlyand severally liable for the amount of tax, penalty or other sumpayable, and all the provisions of this Act, so far as may be, shallapply to any such assessment or imposition of penalty or othersum.

(5) Where such discontinuance or dissolution takes place afterany proceedings in respect of an assessment year havecommenced, the proceedings may be continued against the personsreferred to in sub-section (4) from the stage at which theproceedings stood at the time of such discontinuance or dissolution,and all the provisions of this Act shall, so far as may be, applyaccordingly.”

13. It can be seen that for the first time from 1st April, 1981, anassociation of persons other than a company or cooperative society has A

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Abeen brought into the tax net so far as wealth tax is concerned with therider that the individual shares of the members of such association in theincome or assets or both on the date of its formation or at any timethereafter must be indeterminate or unknown. It is only then that thesection gets attracted.

B14. The first question that arises is as to what is the meaning ofthe expression “association of persons” which occurs in Section 21AA.In an early judgment of this Court where the expression “association ofpersons” occurred in the Income Tax Act, 1922 – a cognate tax statute,this Court in CIT v. Indira Balkrishna (supra) posed question no.3 asfollows:C

“(3) Whether on the facts and in the circumstances of the casethe Tribunal was right in holding that the assessment made on thethree widows of Balkrishna Purushottam Purani in the status ofan association of persons is legal and valid in law?”

D15. After referring to the amendments made in the Income TaxAct speaking of “association of persons” and “association of individuals”,this Court went on to hold:

“8…In the absence of any definition as to what constitutes anassociation of persons, we must construe the words in their plainEordinary meaning and we must also bear in mind that the wordsoccur in a section which imposes a tax on the total income ofeach one of the units of assessment mentioned therein includingan association of persons. The meaning to be assigned to thewords must take colour from the context in which they occur…

9. It is enough for our purpose to refer to three decisions: In re,B.N. Elias [(1935) 3 ITR 408]; CIT v. Laxmidas Devidas [(1937)5 ITR 584]; and In re. Dwaraknath HarishchandraPitale [(1937) 5 ITR 716]. In B.N. Elias Derbyshire, C.J. rightlypointed out that the word “associate” means, according tothe Oxford dictionary, “to join in common purpose, or to join inan action”. Therefore, an association of persons must be one inwhich two or more persons join in a common purpose or commonaction, and as the words occur in a section which imposes a taxon income, the association must be one the object of which is toproduce income profits or gains. This was the view expressed byBeaumont, C.J. in CIT v. LaxmidasDevidas at p. 589 and also F

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in Re. Dwaraknath Harishchandra Pitale. In re. B.N.Elias [(1935) III ITR 408] Costello, J. put the test in more forcefullanguage. He said: “It may well be that the intention of thelegislature was to hit combinations of individuals who were engagedtogether in some joint enterprise but did not in law constitutepartnership…. When we find …. that there is a combination ofpersons formed for the promotion of a joint enterprise …. then Ithink no difficulty arise in the way of saying that these persons didconstitute an association….”

10. We think that the aforesaid decisions correctly lay down thecrucial test for determining what is an association of persons withinthe meaning of Section 3 of the Income Tax Act, and they havebeen accepted and followed in a number of later decisions ofdifferent High Courts to all of which it is unnecessary to callattention. It is, however, necessary to add some words of cautionhere. There is no formula of universal application as to what facts,how many of them and of what nature, are necessary to come toa conclusion that there is an association of persons within themeaning of Section 3; it must depend on the particular facts andcircumstances of each case as to whether the conclusion can bedrawn or not.”

16. Likewise, in G. Murugesan & Brothers v. CIT 88 ITR 432(1973), this Court referred with approval to Indira Balakrishna (supra)and then held:

“11. For forming an “Association of Persons”, the members ofthe association must join together for the purpose of producing anincome. An “Association of Persons” can be formed only whentwo or more individuals voluntarily combine together for a certainpurpose. Hence volition on the part of the member of theassociation is an essential ingredient. It is true that even a minorcan join an “Association of Persons” if his lawful guardian giveshis consent. In the case of receiving dividends from shares, wherethere is no question of any management, it is difficult to draw aninference that two more shareholders functioned as an “Associationof Persons” from. The mere fact that they jointly own one ormore shares, and jointly receive the dividends declared thosecircumstances do not by themselves go to show that they actedas an “Association of Persons”. “

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A17. These judgments have since been referred to with approval inMeera and Co. v. CIT(1997) 4 SCC 677 (see paras 19 and 20) andRamanlal Bhailal Patel v. State of Gujarat(2008) 5 SCC 449 (seeparagraph 28). It may be mentioned in passing at this stage that underthe Income Tax Act an explanation has been added to the definition of“person” contained in Section 2(31), sub-clause (v) of which includesB“an association of persons or a body of individuals, whether incorporatedor not”. The explanation inserted by amendment, which is w.e.f. 1stApril, 2002, is as follows:

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“Explanation.—For the purposes of this clause, an associationof persons or a body of individuals or a local authority or an artificialCjuridical person shall be deemed to be a person, whether or notsuch person or body or authority or juridical person was formedor established or incorporated with the object of deriving income,profits or gains;”

18. Obviously, therefore, after 1[st] April, 2002, the ratio of theDaforesaid judgments has been undone by this explanation insofar as incometax is concerned.

19. It is well-settled that when Parliament used the expression“association of persons” in Section 21AA of the Wealth Tax Act, it mustbe presumed to know that this expression had been the subject matter ofEcomment in a cognate allied legislation, namely, the Income Tax Act, asreferring to persons banding together for a common purpose, being abusiness purpose in the context of a taxation statute in order to earnincome or profits.This presumption is felicitously referred to in thefollowing judgments.F20. In

20. In P. VajraveluMudaliar v. Special Deputy Collector forLand Acquisition (1965) 1 SCR 614, this Court had to decide whetherthe 4th Amendment to the Constitution of India, which amended Article31(2) of the Constitution, made any change in whether compensationbeing a just equivalent in money to be paid for acquisition continued toGbe a just equivalent or something less. This Court held that since theexpression “compensation”,as interpreted in State of W.B. v. BelaBanerjee 1954 SCR 558, continued even after the 4th Amendment, ajust equivalent in terms of money for land acquisition would continuehaving to be paid. The Court held:

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“… Even after the amendment, provision for compensation orlaying down of the principles for determining the compensation isa condition for the making of a law of acquisition or requisition. Alegislature, if it intends to make a law for compulsory acquisitionor requisition, must provide for compensation or specify theprinciples for ascertaining the compensation. The fact thatParliament used the same expressions, namely, “compensation”and “principles” as were found in Article 31 before the amendmentis a clear indication that it accepted the meaning given by thisCourt to those expressions in Mrs Bela Banerjee case [(1954)SCR 558] . It follows that a legislature in making a law of acquisitionor requisition shall provide for a just equivalent of what the ownerhas been deprived of or specify the principles for the purpose ofascertaining the “just equivalent” of what the owner has beendeprived of. If Parliament intended to enable a legislature to makesuch a law without providing for compensation so defined, it wouldhave used other expressions like “price”, “consideration” etc. InCraies on Statute Law, 6th Edn., at p. 167, the relevant principleof construction is stated thus:

“There is a well-known principle of construction, ‘that where thelegislature used in an Act a legal term which has received judicialinterpretation, it must be assumed that the term is used in thesense in which it has been judicially interpreted unless a contraryintention appears.”

The said two expressions in Article 31(2) before the Constitution(Fourth Amendment) Act, have received an authoritativeinterpretation by the highest court in the land and it must bepresumed that Parliament did not intend to depart from the meaninggiven by this Court to the said expressions.”

(at page. 626)

21. In Sakal Deep Sahai Srivastava v. Union of India (1974) 1SCC 338, in the context of the Limitation Act, this Court held:

“8. The only question of some difficulty raised before us is whetherArticle 102 or Article 120 of the Limitation Act of 1908 wouldapply to the case. After having heard the attractive arguments ofMr Yogeshwar Prasad, we have no doubt that a good deal can besaid in favour of the contention that a claim for arrears of salary AB

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Ais distinguishable from a claim for wages. But, our difficulty isthat the question appears to us to be no longer open forconsideration afresh by us, or, at any rate, it is not advisable toreview the authorities of this Court, after such a lapse of timewhen, despite the view taken by this Court that Article 102 of theLimitation Act of 1908 was applicable to such cases, the LimitationBAct of 1963 had been passed repeating the law, contained inArticles 102 and 120 of the Limitation Act of 1908, in identicalterms without any modification. The Legislature must be presumedto be cognizant of the view of this Court that a claim of the naturebefore us, for arrears of salary, falls within the purview of ArticleC102 of the Limitation Act of 1908. If Parliament, which is deemedto be aware of the declarations of law by this Court, did not alterthe law, it must be deemed to have accepted the interpretation ofthis Court even though the correctness of it may be open to doubt.If doubts had arisen, it was for the Legislature to clear thesedoubts. When the Legislature has not done so, despite the repealDof the Limitation Act of 1908, and the enactment of the LimitationAct of 1963 after the decisions of this Court, embodying a possiblyquestionable view, we think it is expedient and proper to overrulethe submission made on behalf of the appellant that the correctnessof the view adopted by this Court in its decisions on the questionEso far should be re-examined by a larger Bench.”

22. Likewise, in Diwan Bros. v. Central Bank of India (1976)3 SCC 800, this Court referred to the well-known dictum ofLordBuckmaster in Barras v. Aberdeen Steam Trawling and FishingCompany1933 AC 402and held as under:F

“22. Apart from the above considerations, it is a well-settledprinciple of interpretation of statutes that where the Legislatureuses an expression bearing a well-known legal connotation it mustbe presumed to have used the said expression in the sense inwhich it has been so understood. Craies on Statute Law observesas follows:

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“There is a well-known principle of construction, that where thelegislature uses in an Act a legal term which has received judicialinterpretation, it must be assumed that the term is used in thesense in which it has been judicially interpreted, unless a contraryHintention appears.”

23. In Barras v. Aberdeen Steam Trawling and FishingCompany [1933 AC 402, 411] Lord Buckmaster pointed out asfollows:

“It has long been a well-established principle to be applied in theconsideration of Acts of Parliament that where a word of doubtfulmeaning has received a clear judicial interpretation, the subsequentstatute which incorporates the same word or the same phrase ina similar context must be construed so that the word or phrase isinterpreted according to the meaning that has previously beenascribed to it.”

Craies further points out that the rule as to words judiciallyinterpreted applies also to words with well-known legal meanings,even though they have not been the subject of judicialinterpretation. Thus applying these principles in the instant case itwould appear that when the Court Fees Act uses the word“decree” which had a well-known legal significance or meaning,then the Legislature must be presumed to have used this term inthe sense in which it has been understood, namely, as defined inthe Code of Civil Procedure even if there has been no expressjudicial interpretation on this point.”

23. A recent judgment of this Court namely, Shree BhagwatiSteel Rolling Mills v. CCE (2016) 3 SCC 643, refers to the samepresumption as follows:

“21. It is settled law that Parliament is presumed to know the lawwhen it enacts a particular piece of legislation. The Prevention ofCorruption Act was passed in the year 1988, that is long after1969 when the Constitution Bench decision in RayalaCorpn.[RayalaCorpn. (P) Ltd. v. Director of Enforcement, (1969) 2SCC 412] had been delivered. It is, therefore, presumed thatParliament enacted Section 31 knowing that the decision inRayalaCorpn. [RayalaCorpn. (P) Ltd. v. Director of Enforcement,(1969) 2 SCC 412] had stated that an omission would not amountto a repeal and it is for this reason that Section 31 was enacted.This again does not take us further as this statement of the law inRayala Corpn. [RayalaCorpn. (P) Ltd. v. Director of Enforcement,(1969) 2 SCC 412] is no longer the law declared by the SupremeCourt after the decision in Fibre Board case [Fibre Boards (P)

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ALtd. v. CIT, (2015) 10 SCC 333]. This reason therefore againcannot avail the appellant.”

24. This being the case, it is clear that in order to be an associationof persons attracting Section 21AA of the Wealth Tax Act, it is necessarythat persons band together with some business or commercial object inBview in order to make income or profits.The presumption getsstrengthened by the language of Sec. 21AA (2), which speaks of abusiness or profession carried on by an association of persons whichthen gets discontinued or dissolved. The thrust of the provision therefore,is to rope in associations of persons whose common object is a businessor professional object, namely, to earn income or profits.Bangalore ClubCbeing a social club whose objects have been referred to by the AppellateTribunal in this case make it clear that persons who are banded togetherdo not band together for any business purpose or commercial purpose inorder to make income or profits. In fact, the nature of these kind ofclubs has been set out in Cricket Club of India Ltd v. Bombay LabourDUnion (1969) 1 SCR 600 as follows:

“What we have to see is the nature of the activity in fact and insubstance. Though the Club is incorporated as a Company, it isnot like an ordinary Company constituted for the purpose of carryingon business. There are no shareholders. No dividends are everEdeclared and no distribution of profits takes place. Admission tothe Club is by payment of admission fee and not by purchase ofshares. Even this admission is subject to balloting. The membershipis not transferable like the right of shareholders. There is theprovision for expulsion of a Member under certain circumstanceswhich feature never exists in the case of a shareholder holdingFshares in a Limited Company. The membership is fluid. A personretains rights as long as he continues as a Member and gets nothingat all when he ceases to be a Member, even though he may havepaid a large amount as admission fee. He even loses his rights onexpulsion. In these circumstances, it is clear that the Club cannotGbe treated as a separate legal entity of the nature of a LimitedCompany carrying on business. The Club, in fact, continues to bea Members’ Club without any shareholders and, consequently, allservices provided in the Club for Members have to be treated asactivities of a self-serving institution.”

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This judgment has been referred to with approval recently in Stateof West Bengal v. Calcutta Club Limited (2019) 13 SCALE 474 atparagraph 28.

25. At this stage, it is important to refer to CWT v. Ellis BridgeGymkhana, (supra). In this case, the Ellis Bridge Gymkhana, like theBangalore Club, is an unincorporated club.The assessment years involvedin this case are from 1970-71 to 1977-78 i.e. prior to Section 21AAcoming into force. Despite the fact that Section 21AA did not apply, thisCourt referred to Section 21AA as follows:

“15. All these provisions go to show that the Wealth Tax Act hasbeen drafted on the same lines as the Indian Income Tax Act,1922. There is great similarity of wording between the variousprovisions of the Wealth Tax Act and corresponding provisions ofthe Indian Income Tax Act, 1922. But in the case of the chargingSection 3 of the Wealth Tax Act, the phraseology of the chargingSection 3 of the Indian Income Tax Act, 1922 has not beenadopted. Unlike Section 3 of the Income Tax Act, Section 3 of theWealth Tax Act does not mention a firm or an association of personsor a body of individuals as taxable units of assessment.

16. The position has been placed beyond doubt by insertion ofSection 21-AA in the Wealth Tax Act itself. This amendment waseffected by the Finance Act, 1981 with effect from 1-4-1981. Itprovides for assessment of association of persons in certain specialcases and not otherwise.”

The Court then went on to hold:

“17. It will be seen that assessment as an association of personscan be made only when the individual shares of members of theassociation in the income or assets or both of the association onthe date of its formation or any time thereafter are indeterminateor unknown. It is only in such an eventuality that an assessmentcan be made on an association of persons, otherwise not. Sub-section (2) of Section 21-AA deals with cases of such associationsas mentioned in sub-section (1). That means only association ofpersons in which individual shares of the members were unknownor indeterminate can be subjected to wealth tax. Sub-section (3)also deals with association of persons referred to in sub-section(1). Sub-sections (4) and (5) deal with some consequences which A

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will follow the members of an association of persons spoken of insub-section (1) in the case of discontinuance or dissolution.

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19. In our view, Section 21-AA far from helping the case of theRevenue directly goes against its contention. An association ofBpersons cannot be taxed at all under Section 3 of the Act. That iswhy an amendment was necessary to be made by the FinanceAct, 1981 whereby Section 21-AA was inserted to bring to taxnet wealth of an association of persons where individual sharesof the members of the association were unknown orCindeterminate.”

After referring to the explanatory notes introducing Section 21AAin paragraph32, the Court then went on to hold:

“33. It will appear from this notification that the Central Board ofDirect Taxes clearly recognised that the charge of wealth taxDwas on individuals and Hindu Undivided Families and not on anyother body of individuals or association of persons. Section 21-AA has been introduced to prevent evasion of tax. In a normalcase, in assessment of an individual, his wealth from every sourcewill be added up and computed in accordance with provisions ofthe Wealth Tax Act to arrive at the net wealth which has to beEtaxed. So, if an individual has any interest in a firm or any othernon-corporate body, then his interest in those bodies or associationswill be added up in his wealth. It is only where such addition is notpossible because the shares of the individual in a body holdingproperty is unknown or indeterminate, resort will be taken toFSection 21-AA and association of individuals will be taxed asassociation of persons.”

26. A perusal of this judgment would show that Section 21AA hasbeen introduced in order to prevent tax evasion. The reason why it wasenacted was not to rope in association of persons per se as “one moreGtaxable person” to whom the Act would apply. The object was to rope incertain assessees who have resorted to the creation of a large numberof association of persons without specifically defining the shares of themembers of such associationsof persons so as to evade tax. In construingSection 21AA, it is important to have regard to this object.

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27. In K P Varghese v. ITO, 1982 (1) SCR 629, what arose forinterpretation before the Supreme Court was in the context of capitalgains – as to whether, to attract the applicability of Sec.52(2) of theIncome Tax Act, understatement of consideration is a prerequisite. On apurely literal reading of Sec.52(2), it would be clear that no such conditionhas been mentioned.However, this Court, after referring to the object ofthe section held:

“Thus it is not enough to attract the applicability of sub-section (2)that the fair market value of the capital asset transferred by theassessee as on the date of the transfer exceeds the full value ofthe consideration declared in respect of the transfer by not lessthan 15 per cent of the value so declared, but it is furthermorenecessary that the full value of the consideration in respect of thetransfer is understated or in other words, shown at a lesser figurethan that actually received by the assessee. Sub-section (2) hasno application in case of an honest and bona fide transaction wherethe consideration in respect of the transfer has been correctlydeclared or disclosed by the assessee, even if the condition of 15per cent difference between the fair market value of the capitalasset as on the date of the transfer and the full value of theconsideration declared by the assessee is satisfied.”

(at page. 652, 653)

28. The Bangalore Club is an association of persons and not thecreation, by a person who is otherwise assessable, of one among a largenumber of associations of persons without defining the shares of themembers so as to escape tax liability. For all these reasons, it is clearthat Section 21AA of the Wealth Tax Act does not get attracted to thefacts of the present case.

29. However, the impugned judgment of the High Court reliessolely upon CWT v. Chikmagalur Club(supra). This case dealt with aclub that was registered under the provisions of the Karnataka SocietiesRegistration Act, 1960. After referring copiously to the AppellateAuthority’s orders on facts in this case, the Court went on to hold:

“10. … Several High Courts and the Tribunals have taken differentview on the question whether a club registered under the provisionsof Karnataka Societies Registration Act is exigible to tax underthe provisions of the Wealth Tax Act, but in our view, for the A

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510SUPREME COURT REPORTS

Apresent, the issue is now settled by the pronouncement of theSupreme Court in the case of the Commissioner of WealthTax v. Ellis Bridge Gymkhana [ 229 ITR 1.] — wherein it isheld that ‘club is not assessable to wealth tax in assessment years1970-1971 to 1977-1978 as an Association of Persons’ and whilesaying so, the Court has observed that’ the position has been placedBbeyond doubt by the insertion of Section 21AA in the Wealth TaxAct itself.”

For this purpose, paragraph 17 already extracted in the EllisBridge Gymkhana case (supra) was referred to by the said judgment.After referring to paragraph 17, the Court then concluded:C

“13. … Now that the scope of Section 21AA of the Act hasbeen explained by the Apex Court in Ellies Bridge GymkhanaClub’s case-229 ITR 1, we need not dilate much on the scopeand interpretation of the said Section. It would be suffice to noticethat assessment as an association of persons can be made only,Dwhen the individual shares of the members of the association inthe income or assets or both of the association on the date of itsformation or any time thereafter are indeterminate or unknowncan be subjected to wealth tax. In the present case, the assesseeis a club registered under the provisions of the Karnataka SocietiesERegistration Act and had declared ‘nil’ wealth and had claimedthat it is not susceptible to the provision of wealth Tax Act, sinceit is only an association of persons providing recreation facilitiesto its members. This claim, in our view, is rightly rejected by boththe assessing authority as well as by the first appellate authorityon the ground that the assessee is an association of persons andFthe members are the owners of the assets and the individual sharesof the members in the owners of the assets and the individualshares of the members in the income or assets or both of theassociation on the date of formation or any time thereafter orindeterminate or unknown and accordingly, has subjected theGassessee to wealth tax.”

30. What will be noticed is that the High Court in ChikmagalurClub (supra) only referred to paragraph 17 and omitted to refer to paras19, 32 and 33 of the Ellis Bridge Gymkhana judgment (supra) whichhave been referred to by us hereinabove. If all these paragraphs wouldHhave been referred to, what would have been clear is that a social club like the Chikmagalur Club could not possibly be said to be an associationof persons regard being had to the object sought to be achieved byenacting Section 21AA, which is a Section enacted in order to preventtax evasion. As has been pointed out by us hereinabove, the Section wasnot introduced to add one more category to the category of taxablepersons – that could have been done by amending the charging sectioni.e. Section 3(1) of the Wealth Tax Act. Further, the High Court judgmentis completely oblivious of the line of judgments starting with IndiraBalakrishna’s case (supra) by which “association of persons” mustmean persons who are banded together with a common object – and, inthe context of a taxation statute, common object being a business objectbeing to earn income or profits. This judgment does not refer to IndiraBalakrishna (supra) and the judgments following it at all. For all thesereasons, the judgment in CWT v. Chikmagalur Club (supra) not beingcorrectly decided, is overruled. Equally, the High Court judgment whichrests solely upon the decision in Chikmagalur Club’s case(supra) hasno legs to stand.

31. We now come to some of the points raised by the learnedAdditional Solicitor General, Shri Banerjee. The submission that Section21AA(2) which deals with dissolution of an association of persons andthe fact that on dissolution under Rule 35 of the Bangalore Club, membersget an equal share would show first, that the Bangalore Club is anassociation of persons; and second, that the member’s share in its incomeand assets are indeterminate or unknown, is an argument which has tobe stated to be rejected.First and foremost, sub-section (2) begins withthe words “any business or profession carried on” by an association ofpersons. No business or profession is carried on by a social membersclub. Further, the association of persons mentioned in sub-section (1)must be persons who have banded together for a business objective – toearn profits – and if this itself is not the case, then sub-section (2) cannotpossibly apply.Insofar as Rule 35 is concerned, again what is clear isthat on liquidation, any surplus assets remaining after all debts andliabilities of the club has been discharged, shall be divided equally amongstall categories of members of the club. This would show that “at any timethereafter” within the meaning of Section 21AA(1), the members’ sharesare determinate in that on liquidation each member of whatsoever categorygets an equal share.

32. The judgments cited by Shri Nikhil Nayyar in so far as thisaspect is concerned, have no direct relevance.The judgment in CWT v.

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ARama Varma Club 226 ITR 898 and CWT v. George Club 191 ITR368 are both judgments in which no part of the assets is to be distributedeven on liquidation to any of the members of these clubs. Thus, it washeld in these cases that the members do not have any share in the incomeor assets of the club at all.The same cannot be said in the facts of thiscase inasmuch as under Rule 35 the members of the Bangalore ClubBare entitled to receive surplus assets in the circumstances stated in Rule35 - equally on liquidation. However, the result remains the same – viz.,that even if it be held that the Bangalore Club is an association of persons,the members’ shares being determinate do not attract Section 21AA.

33. Shri Banerjee then relied upon the judgment in BangaloreCClub v. CIT(2013) 5 SCC 509 only in order to point out that the BangaloreClub was taxed as an AOP under the Income Tax Act and cannot andshould not therefore, escape liability under the Wealth Tax Act (an alliedand cognate Act). First and foremost, the definition of “person” in Section2(31) of the Income Tax Act would take in both an association of personsDand a body of individuals. For the purposes of income tax, the BangaloreClub could perhaps be treated to be a ‘body of individuals’ which is awider expression than ‘association of persons’ in which such body ofindividuals may have no common object at allbut would include acombination of individuals who had nothing more than a unity of interest.This distinction has been made by the Andhra Pradesh High Court inEDeccan Wine and General Stores v. CIT 106 ITR 111 at pages 116,117. Quite apart from this, to be taxed as an association of personsunder the Income Tax Act is to be taxed as an association of personsper se.We have already seen that Section 21AA does not enlarge thefield of tax payers but only plugs evasion as the association of personsFmust be formed with members who have indeterminate shares in itsincome or assets. For all these reasons, we cannot accede to ShriBanerjee’s argument that being taxed as an association of persons underthe Income Tax Act, the Bangalore Club must be regarded to be an‘association of persons’ for the purpose of a tax evasion provision in the

Wealth Tax Act as opposed to a charging provision in the Income TaxGAct. One last argument of Shri Banerjee needs to be addressed.According to the learned ASG, the fact that the membership of the clubis a fluctuating body of individuals would necessarily lead to the conclusionthat the shares of the members in the assets or the income of the clubwould be indeterminate. In CWT v. Trustees of H.E.H. Nizam’sHFamily108 ITR 555 (1977), this court had to construe Sec. 21 of the Wealth Tax Act. Sec. 21(1) & (4) which are relevant for our purposeare set out hereinbelow:

“21. (1) In the case of assets chargeable to tax under this Act,which are held by a court of wards or an administrator-general oran official trustee or any receiver or manager or any other person,by whatever name called, appointed under any order of a court tomanage property on behalf of another, or any trustee appointedunder a trust declared by a duly executed instrument in writing,whether testamentary or otherwise (including a trustee under avalid deed of wakf), the wealth-tax shall be levied upon andrecoverable from the court of wards, administrator-general, officialtrustee, receiver, manager or trustee, as the case may be, in thelike manner and to the same extent as it would be leviable uponand recoverable from the person on whose behalf or for whosebenefit the assets are held, and the provisions of this Act shallapply accordingly.

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(4) Notwithstanding anything contained in this section, where theshares of the persons on whose behalf or for whose benefit anysuch assets are held are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from the court of wards,administrator-general, official trustee, receiver, manager, or otherperson aforesaid as if the person on whose behalf or for whosebenefit the assets are held were an individual for the purposes ofthis Act.”

34. The argument made in this case was that, as the members ofthe Nizam’s family trust who are beneficiaries thereof would be afluctuating body of persons, the beneficiaries must be said to beindeterminate as a result of which Sec. 21(4) of the Act would apply andnot Sec. 21(1). This was repelled by this Court stating:

“This immediately takes us to the question as to which of the twosub-sections, (1) or (4) of Section 21 applies for the purpose ofassessing the assessees to wealth tax in respect of the beneficialinterest in the remainder qua each set of unit or units allocated tothe relatives specified in the Second Schedule. Now it is clearfrom the language of Section 3 that the charge of wealth tax is inrespect of the net wealth on the relevant valuation date, and, A

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therefore, the question in regard to the applicability of sub-section(1) or (4) of Section 21 has to be determined with reference tothe relevant valuation date. The Wealth Tax Officer has todetermine who are the beneficiaries in respect of the remainderon the relevant date and whether their shares are indeterminateor unknown. It is not at all relevant whether the beneficiaries maychange in subsequent years before the date of distribution,depending upon contingencies which may come to pass in future.So long as it is possible to say on the relevant valuation date thatthe beneficiaries are known and their shares are determinate, thepossibility that the beneficiaries may change by reason ofsubsequent events such as birth or death would not take the caseout of the ambit of sub-section (1) of Section 21. It is no answerto the applicability of sub-section (1) of Section 21 to say that thebeneficiaries are indeterminate and unknown because it cannotbe predicated who would be the beneficiaries in respect of theremainder on the death of the owner of the life interest. Theposition has to be seen on the relevant valuation date as if thepreceding life interest had come to an end on that date and if, onthat hypothesis, it is possible to determine who precisely would bethe beneficiaries and on what determinate shares, sub-section (1)of Section 21 must apply and it would be a matter of noconsequence that the number of beneficiaries may vary in thefuture either by reason of some beneficiaries ceasing to exist orsome new beneficiaries coming into being. Not only does thisappear to us to be the correct approach in the application of sub-section (1) of Section 21, but we find that this has also been thegeneral consensus of judicial opinion in this country in variousHigh Courts during the last about thirty years. The first decisionin which this view was taken was rendered as far back as 1945by the Patna High Court in Khan Bahadur M. HabiburRahman v.CIT [(1945) 13 ITR 189 (Pat)] and since then, thisview has been followed by the Calcutta High Court in SuhashiniKaruri v. WTO [(1962) 46 ITR 953 (Cal)] the Bombay High Courtin Trustees of Putlibai R.F. Mulla Trust v. CWT [(1967) 66 ITR653, 657-8 (Bom)] and CWT v. Trustees of Mrs HansabaiTribhuwandas Trust [(1967) 69 ITR 527 (Bom)] and the GujaratHigh Court in Padmavati Jaykrishna Trust v.CIT [(1966) 61 ITR

66, 73-4 (Guj)]. The Calcutta High Court pointed out in SuhashiniKaruri case:

“The share of a beneficiary can be said to be indeterminate if atthe relevant time the share cannot be determined but merelybecause the number of beneficiaries vary from time to time, onecannot say that it is indeterminate.”

The same proposition was formulated in slightly different languageby the Bombay High Court in Trustees of Putalibai R.F. MullaTrust case [(1967) 66 ITR 653, 657-8 (Bom)]:

“The question whether the shares of the beneficiaries aredeterminate or known has to be judged as on the relevant date ineach respective year of taxation. Therefore, whatever may bethe position — as to any future date, so far as the relevant date ineach year is concerned, it is upon the terms of the trust deedalways possible to determine who are the sharers and what theirshares respectively are.”

The Gujarat High Court also observed in Padmavati JaykrishnaTrust case [(1966) 61 ITR 66, 73-4 (Guj)] :

“. . . in order to ascertain whether the shares of beneficiaries andtheir numbers were determinate or not, the Wealth Tax Officerhas to ascertain the facts as they prevailed on the relevant dateand therefore any variation in the number of beneficiaries in futurewould not matter and would not make sub-section (4) of Section21 applicable.”

These observations represent correct statement of the law andwe have no doubt that in order to determine the applicability ofsub-section (1) of Section 21, what has to be seen is whether onthe relevant valuation date, it is possible to say with certainty anddefiniteness as to who would be the beneficiaries and whethertheir shares would be determinate and specific, if the event on thehappening of which the distribution is to take place occurred onthat date. If it is, sub-section (1) of Section 21 would apply: if not,the case will be governed by sub-section (4) of Section 21.”

35. It is thus clear that what has to be seen in the facts of thepresent case is the list of members on the date of liquidation as per Rule35 cited hereinabove. Given that as on that particular date, there would A

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B36. For all these reasons, the impugned judgment and the reviewjudgment are set aside. The appeals are allowed with no order as tocosts.

Divya Pandey

Appeals allowed

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