of Wealth Tax,Gujarat-Iii, Ahmedabad Vs. Ellis Bridge Gymkhana  INSC 786
(21 October 1997)
C. SEN, S. SAGHIR AHMAD
21ST DAY OF OCTOBER, 1997 Present:
Mr. Justice Suhas C. Sen Hon'ble Mr. Justice S.Saghir Ahmad T.A.Ramachandran
K.N. Shukla, Sr.Advs.,Ms.Renu George, B.K.Prasad, P.Parmeswaran, D.S.Mehra, S.N.Terdol,
K.J.John, Ms. Manju Mishra, R.A.Perumal, S. Sukumaran, S.K.Pasi, Mrs. Janki Ramachandran,
Mukul Mudgal, (Mrs. M. Karanjawala,) Adv. (NP), S.S.Khanduja, Y.P.Dhingra and B.K.satija,
Advs. with them for the appearing parties.
following Judgment of the Court was delivered:
[WITH C.A. Nos. 3210-14/88, 1544/93, 1649/93, 5340-48/93, 5393/94,
948/95, 8347/95, 1796-1799/96, SLP (C) Nos.
C.A.Nos. 4674/95, 2517/96, 9096/96, 3532-38/88, SLP (C) Nos. 7246-7250/97,
C.A.Nos.2366-2375/94, SLP (C) Nos. 16259-16275/94 with C.A. No.658/93 with C.A.
Nos. 7420-22 of 1997 @ SLP (C) Nos. 4658-60/1990
is an appeal from an order passed by the High Court of Gujarat in which
following question of law was answered in the affirmative and in favour of the assessee:
on the facts and in the circumstance of the case, the Appellate Tribunal has
been right in law in holding that the assessee is not liable to Wealth Tax
under Wealth-tax Act, 1957 for the assessment year in question?" The
assessment years involved are 1970-71 to 1977-78.
is a club. It filed its return of wealth being called upon to do so for the
aforesaid assessment years but contended that it was not liable to be assessed
under the Wealth Tax Act, 1957 at all. The Wealth Tax Officer rejected the
claim of the assessee. The Appellate Assistant Commissioner was of the view
that the assessee could not be brought to tax under the Act because of the
earlier decision of Gujarat High Court in the case of Orient Club v. Wealth Tax
Officer, 123 ITR 395. The Tribunal dismissed the appeal upholding the order of
the Appellate Assistant Commissioner.
question of law raised by the Revenue was answered by the High Court also in favour
of the assessee.
Club was not incorporated under the Companies Act, 1956. The case of the
Revenue is that the club will have to be assessed as an "individual"
under the Wealth Tax Act.
3 which is the charging section of the Act is as under:
(1) 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 but before the first day of April, 1993, a tax (hereinafter
referred to as wealth-tax) in respect of the net wealth on the corresponding
valuation date of every individual.
undivided family and company at the rate or rates specified in Schedule 1.
(2) x x
x" Three units of assessment have been mentioned in the charging section;
"individual, Hindu undivided family and company". The contention of
the Revenue is that "individual" has to be understood broadly so as
to include as association of persons like clubs.
rule of construction of a charging section is that before taxing any person, it
must be shown that he falls within the ambit of the charging section by clear
words used in the section. No one can be taxed by implication. A charging
section has to be construed strictly. If a person has not been brought within
the ambit of the charging section by clear words, he cannot be taxed at all.
Income Tax Act which is also a direct tax, the charging section does not speak
of a body of individuals or an association of persons or a firm. If the
legislative intent was to tax the wealth of a body of individuals or an
association of persons or a firm, the Legislature would have said so in so many
words as was done in the Indian Income Tax Act, 1922 or Income Tax Act, 1961.
Under Section 3 of the Indian Income Tax Act, 1922, the charge was on
"individual, Hindu undivided family, company, local authority, firm and
other association of persons or the partners of a firm or the members of the
association individually". When the Wealth Tax Act, 1957 was passed, the
Legislature decided to specify only "individual, Hindu undivided family
and company" as units of assessment. It will not be right to presume that
the Legislature was unaware of the wording of the charging provisions of Indian
Income Tax Act, 1922 when the Wealth Tax Act was enacted.
Legislature must be presumed to have known the large number of cases that were
heard and decided on the scope of the charging section under the Indian Income
Tax Act and the meaning ascribed to "association of persons" therein.
The Legislature, however, decided to exclude "firms, association of
persons and body of individuals" from the ambit of charge of Wealth Tax.
What has been specifically left out by the Legislature cannot be brought back
within the ambit of the charging section by implication or by ascribing an
extended meaning to the word "individual" so as to include whatever
has been left out.
also to be noted that the charge under the Gift- Tax Act, 1958, a
contemporaneous statute is on a gift made by a "person".
"Person" has ben defined by Section 2 (xviii) as under:
includes a Hindu undivided family or a company or an association or a body of
individuals or persons, whether incorporated or not" Moreover, in the
Income Tax Act, 1961, Section 4 which is the charging section imposes a tax on
the total income of every person. `Person' has been defined by Section 2(3) of
the Act as under:
`person' includes- (i) 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, (vi) a local authority, and (vii) every artificial
juridical person, not falling within any of the preceding sub-clauses." It
will be seen from the above that just like the Indian Income Tax Act, 1922, in
the Gift Tax Act, 1958 and the Income Tax Act, 1961, an association of persons
or body of individuals have been specifically brought in as units of
assessment. It is only under the Wealth Tax Act, the charge is on "every
individual, Hindu undivided family and a company" and not on association
of persons or a body of individuals or a firm. If the language of Section 3 of
the Wealth Tax Act is contrasted with the provisions of other cognate statutes
it will clearly appear that the intention of the legislature was not to treat
an association of persons or a body of individuals or a firm as an unit of
assessment for the purpose of imposition of Wealth Tax.
is no other explanation why these units of assessment which have been specifically
made taxable under the Indian Income Tax Act, 1922, the Gift Tax Act, 1958 and
Income Tax Act, 1961 have been left out of the charging section of the Wealth
also to be noted that when the Wealth Tax Act was passed in 1957, Indian Income
Tax Act, 1922 was in force.
scheme and structure of the Wealth Tax Act are very similar to the Act of 1922.
In fact, some of the provisions of Wealth Tax Act are almost verbatim
reproduction of the corresponding provisions of the Indian Income Tax Act,
charge of wealth tax imposed by Section 3 is in respect of the net wealth on
the corresponding valuation date of every individual, Hindu undivided family
and the Company. Valuation date has been defined by Section 2(q) to mean the
last day of the previous year as defined in Section 3 of the Income-tax Act, if
an assessment was to be made under that Act for that year. Proviso(i) to
Section 2(q) lays down that where in the case of an assessee there are
different previous years under the Income-tax Act for different sources of
income, the valuation date for the purposes of this Act shall be the last day
of the last of the previous year. This proviso was deleted by the Direct Tax
Laws (Amendment) Act, 1987, with effect from 1.4.1989.
2(b) defines Appellate Tribunal to mean the Tribunal constituted under Section
252 of the Indian Income- tax Act. Various authorities under the Act like Chief
Commissioner, Commissioner, Additional Commissioner of Income Tax, Assistant
Commissioner of Income Tax have been given the meanings respectively assigned
to them under Section 2 of the Income-tax Act. Section 16(3) of the Indian
Income-tax Act, 1922 lays down that in computing the total income of any
individual for the purpose of assessment, the income of a wife or minor child
of such individual will have to be included if he wife is member of a firm of
which the husband is a partner or if a minor is admitted to the benefit of the
partnership of which the father of the minor is a partner. There were also
provisions for including in the income of an assessee income from assets
transferred directly or indirectly to his wife otherwise than for adequate
consideration or in connection with an agreement to live apart. Lastly, Section
16(3) provides that an income from assets transferred by a person for the
benefit of his wife or a minor child or both otherwise than for adequate
consideration will be included in the income of the person concerned. Similar
provisions have been made in Section 4 (1) (a) of the Wealth Tax Act.
8 of the Wealth Tax Act provides that the Income Tax authorities specified
under Section 116 of the Income Tax Act shall be the Wealth Tax authorities for
the purposes of the Wealth Tax Act and every such authority shall exercise the
powers and perform the functions of the Wealth Tax authority in respect of any
individual, Hindu Undivided Family or a Company, and for this purpose his
jurisdiction shall be the same as he had under the Income Tax Act by virtue of
orders or directions issued under Section 120 of that Act or under any other
provisions of that Act. Section 8B confers power of transfer of cases on the
Commissioner from one officer to another. This provision is almost identical
with the provisions of sub-section (7A) of Section 5 of the Income Tax Act.
Chapter IV of the Wealth Tax Act deals with assessment and the provisions are
similar to the corresponding provisions of the Income Tax Act. A return of
wealth has to be filed by an assessee if his net wealth exceeded the maximum
amount which is not chargeable to wealth tax in the prescribed form and
verified in the prescribed manner on or before the "due date".
Explanation to Section 14 clarified that "due date" in relation to assessee
under this Act shall be the same date as that applicable to an assessee under
the Income Tax Act under the Explanation to sub-section (1) of Section 139 of
the Income Tax Act.
as in the Income Tax Act, 1922 Section 15 of the Wealth Tax Act provides that
if any person does not file a return within the time prescribed by the statute
or having furnished a return, discovers any omission or wrong statement in the
return, he may furnish a revised return at any time before the expiry of one
year from end of the relevant assessment year or before the completion of the
assessment whichever is earlier. There are provisions for provisional
assessment under Section 15C similarly to Section 23B of the Indian Income Tax
Act, 1992. Section 16 which deals with assessment is similar to Section 23 of
the Income Tax Act. After completion of assessment if the assessing office has
reason to believe that the net wealth chargeable to tax has escaped assessment,
he is empowered to issue a notice under sub-section (1) of Section 17. These
provisions are similar to corresponding provisions of Section 34 of the Income
Tax Act of 1992. The penalty provisions in Section 18 are similar to provisions
of Section 28 of the Income Tax Act. Provisions for appeal against an order of
assessment of penalty are provided by Section 23. There are also provisions for
further appeal to the Appellate Tribunal. The Commissioner has been given power
to revise orders on his own motion pr on an application made by the assessee
under Section 25. All these provisions are almost identically worded with the
corresponding provisions of the Income Tax Act, 1922. A reference lies from an
order of the Appellate Tribunal to the High Court under Section 27 in respect
of any question of law arising out of the appellate order. From the order
passed by the High Court on reference, an appeal lies to the Supreme Court
under Section 29.
these provisions go to show that the Wealth Tax Act has been drafted on the
same lines as the Indian Income Tax, 1922. There is great similarity of wording
between the various provisions of Wealth Tax Act and corresponding provisions
of Indian Income Tax Act, 1922. But in the case of the charging Section 3 of
the Wealth Tax Act, the phraseology of the charging section 3 of Indian Income
Tax Act, 1922 has not been adopted.
Section 3 of the Income Tax Act, Section 3 of the Wealth Tax Act does not
mention a firm or an association of persons or a body individuals as taxable
units of assessment.
position has been placed beyond doubt by insertion of Section 21AA in the Wealth
Tax Act itself. This amendment was effected by the Finance Act, 1981 with
effect from 1.4.1981. It provides for assessment of association of persons in
certain special cases and not otherwise. Section 21AA is:
when assets are held by certain association of persons 21AA. (1) Where assets
chargeable to tax under this Act are held by an association of persons, other
than a company or co-operative society or society registered under the
Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to
that Act in force in any part of India, and the individual shares of the
members of the said association in the income or assets or both of the said
association on the date of its formation or at any time thereafter are
indeterminate or unknown, the wealth-tax shall be levied upon and recovered
from such association in the like manner and to the same extent as it would be leviable
upon and recoverable from an individual who is a citizen of India and resident
in India for the purposes of this Act.
Where any business or profession carried on by an association of persons
referred to in sub-section (1) has been discontinued or where such association
of persons is dissolved, the Assessing Officer shall make an assessment of the
net wealth of the association of persons as if no such discontinuance or
dissolution had taken place and all the provisions of this had taken place and
all the provisions of this Act, including the provisions relating to the levy
of penalty or any other sum chargeable under any provisions of this Act, so far
as may be, shall apply to such assessment.
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 any proceedings under this Act in respect of any
such association of persons as is referred to in sub- section (1) is satisfied
that the association of persons was guilty of any of the acts specified in
section 18 or section 18a, he may impose or direct the imposition of a penalty
in accordance with the provisions of the said sections.
Every person who was at the time of such discontinuance or dissolution a member
of the association of persons, and the legal representative of any such person
who is deceased, shall be jointly and severally liable for he amount of tax,
penalty or other sum payable, and all the provisions of this Act, so far as may
be, shall apply to any such assessment or imposition of penalty or other sum.
Where such discontinuance or dissolution takes place after any proceedings in
respect of an assessment year have commenced, the proceedings may be continued
against the persons referred to in sub-section (4) from the stage at which the
proceedings stood at the time of such discontinuance or dissolution, and all
the provisions of this Act shall, so far as may be, apply accordingly." It
will be seen that assessment as an association of persons can be made only when
the individual shares of members of the association in the income or assets or
both of the association on the date of its formation or any time thereafter are
indeterminate or unknown. It is only in such an eventually that an assessment
can be made on an association of persons, otherwise not. Sub-section (2) of
Section 21AA deals with cases of such associations as mentioned in sub-section
(1). That means only association of persons in which individual shares of the
members were unknown or indeterminate can be subjected to wealth tax.
(3) also deals with association of persons referred to in sub-section (1). Sub-sections
(4) and (5) deal with some consequences which will follow the members of an
association of persons spoken of in sub-section (1) in the case of
discontinuance of dissolution.
not the case of the Revenue before us that the members of the club were unknown
or that their interest in the assets of the club was indeterminate. In fact, or
argument was advanced on this aspect of the matter in any of the cases that
have come for hearing along with this case.
fact, a list of members of the club should be readily available. In any event,
there is no finding of fact that particulars of members were unknown or their interest
in the assets of the club were indeterminate.
view, Section 21AA far from helping the case of the Revenue directly goes
against its contention. An association of persons cannot be taxed at all under
Section 3 of the Act. That is why an amendment was necessary to be made by the
Finance Act, 1981 whereby Section 21AA was inserted to bring to tax net wealth
of an association of persons where individual shares of the members of the
association were unknown or indeterminate.
were referred to a large number of cases. It is not necessary to deal with them
in detail. It may be noted that the Gujarat High Court in the case of Orient
Club v. Wealth Tax Officer, 123 ITR 395 and the Bombay High Court in the case
of Orient Club v. Commissioner of Wealth Tax, 136 ITR 697 were of the view that
the charging provisions of the Wealth Tax had not treated a firm or an
association of persons as a taxable unit. An unincorporated members' club was a
society of persons and did not have any existence apart from the members of
which it was composed. An unincorporated club being an association of persons
could not be brought to tax as an individual under the Wealth Tax Act. The Kerala
High Court in the case of Commissioner of Wealth Tax v. Mulam Club, 191 ITR 370
has taken a similar view.
contrary view was taken by the Madras High Court in the case of Coimbatore Club
v. Wealth Tax Officer, 153 ITR 172 where it was held that the expression
"individual" occurring in Section 3 of the Act was wide enough to
include within its scope a plurality of individuals forming a single collective
unit even though formed without any profit motive.
judgment, the Kerala High Court in the case of Commissioner of Wealth Tax v. Mulam
Club (supra), the Bombay High Court in the case of Orient club v. Commissioner
of Wealth Tax (supra) and the Gujarat High Court in the case of Orient Club v.
Wealth Tax Officer (supra) have come to a right decision. The judgment of the
Madras High Court in the case of Coimbatore Club (supra) to the contrary is
erroneous. The Madras High Court has overlooked the significance of omission of
firms or association of persons or a body of individuals from the charging
section even though these entities were specifically made taxable under various
direct tax enactments from 1922 to 1961. Moreover, the Wealth Tax Assessment of
an individual will involve computation of "net wealth". All the
assets belonging to an individual will have to be included. If an individual is
a partner of a firm or member of an Association of persons, the value of his
share in these entities will have to be included in his individual assessment.
We have already examined the scheme of the Wealth Tax Act and also the object
behind the insertion of Section 21AA. All these will go to show, the
legislature deliberately excluded a firm or an association of persons from the
charge of wealth tax and the word "individual" in the charging
section cannot be stretched to include entities which had been deliberately
left out of the charge.
reliance was placed on the judgment of this Court in Wealth Tax Officer, Calicut vs. C.M.Mammed Kayi 129 ITR 307. In
that case, the question was whether Mapilla Marumkkathayam tarwards of North Malabar - Muslim undivided families
governed by their Marumkkathayam Act (Madras Act 17 of 1939) - fell within the
expression "individual" and were assessable to tax under section 3 of
the Wealth Tax Act, 1957.
contention in that case was about the constitutionality of the charging Section
of the Wealth Tax Act. The challenge was on two grounds; (a) that Parliament
was not competent to include an Hindu Undivided Family in the charging Section
3 of the Act in view of Entry 86, List I of the Seventh Schedule of the
Constitution and (b) that the charge of wealth tax on an Hindu Undivided Family
Under Section 3 of the Act was violative of Article 14 of the Constitution.
Entry 86 in List I of the Seventh Schedule of the Constitution is "Taxes
on the capital value of the assets, exclusive of agricultural land, of
individuals and companies; taxes on the capital of companies". The High
Court rejected the challenge on the first ground and held that Parliament was
competent to include an Hindu Undivided Family in Section 3 of the Act as
constituting a body or group of individuals coming within the term
"individuals" in entry 86. However, the challenge on the ground of
Article 14 was upheld. The High Court was of the view that there was
discrimination as between an Hindu Undivided Family and Muslim Mapilla Tarwards
which were also undivided families and, therefore, the charging section so far
as it governed undivided families was hit by Article 14. The Department came up
in appeal before this Court and by a judgment dated February 17, 1964, this
Court set aside the judgment and order of the High Court and remanded the case
back to the High Court to consider whether Article 14 applied to the case or
not after giving the parties further opportunity to put forward their cases
supported by facts and figures.
remand, out of the two contentions initially advanced by the assessee, the
first relating to the constitutionality of the Act in relation to Entry 86,
List I had become academic because the point was dealt with and overruled by
this Court in the case of Banarsi Das v. Wealth Tax Officer, 56 ITR 224 (S.C).
Therefore, only the second contention regarding validity of the charge imposed
by Section 3 survived. A Special Bench of three Judges ultimately rejected the
challenge and held that Section 3 was not violative of Article 14. But the
three judges, by different reasonings held that non-HUFs like Mapilla Tarwards
fell altogether outside the scope of the charge of Section 3. The Revenue once
again came up in appeal to this Court. The Court drew distinction between
canons of construction applicable to entries in the legislative lists and
canons of construction applicable to construction of a charging section in a
taxing statute. It was explained:
cannot be disputed that the canon of construction applicable to entries in the
three Legislative Lists occurring in a Constitution would be different from the
canon of construction that would apply to terms or expressions used in a taxing
statute. The object of an entry in any legislative field as possible by the use
of compendious words or expressions while the rule of construction applicable
to a taxing statute must ensure hat "the subject is not to be taxed unless
the language of the statute clearly imposes the obligation" [per Lord Simonds
in Russel v. Scott (1948) AC 422 (HL)." The Court further held that the
point in controversy has to be examined having regard to the general scheme of
the Wealth Tax Act which was to assess all persons who had wealth beyond the
statutory limit. The presumption would be equality of incidence rather than
exemption of a few.
it was observed that the term "individual" can be read in plural and
as such would include a body or group of individuals like a Mapilla Tarwad.
Thirdly, there was no warrant for suggesting that the two terms of
"individuals" and "Hindu Undivided Family" had been used in
antithesis with each other. Section 3 being the charging provisions was merely
concerned with specifying different assessing units for the purpose of
assessment of wealth. There could be no dispute that the Legislature was
competent to select persons, properties, transactions and objects for the
imposition of a levy and for that purpose classify as many different assessing
units as it could reasonably think necessary and that is how the three
assessing units "individual" "Hindu Undivided Family" and
"Company" (which was later omitted) came to be specified in Section
3. The Court concluded:
our view, the specific mention of an HUF in the section does not result in the
exclusion of group of individuals who only form a unit by reason of their birth
like a Mapilla tarward from the operation of the section. It is difficult to
accept the argument that if the term "individual" was intended to
include joint families or undivided families it was redundant to specify HUFs."
The Court thereafter pointed out that this conclusion accorded with legislative
history of the taxing statues in the country. Mapilla Tarwards have been
consistently treated and taxed in the status of "individuals" under
various taxing statutes. Reference was made to the Expenditure Tax Act, 1957
under which a similar question was considered by this Court in the case of V. Venugopala
Ravi Varma Rajah v.
of India, 74 ITR 49 (SC). In that case, the
question was whether a Mapilla Tarwad in North Malabar had to be treated as Hindu undivided family for the purpose
of levy of expenditure tax. Expenditure tax was levied in respect of
"expenditure incurred by any individual or Hindu undivided family in the
previous year" (Section 3 of the Expenditure Tax Act). It was held by this
Court that Mapilla Tarwad could not be assessed to tax in the status of Hindu
undivided family. However, it was liable to pay tax as an individual. It was
the taxing Acts the scheme of treating Hindu undivided family as a distinct
taxable entity has been adopted for a long time, e.g., the Indian Income-tax
Act, 1869 (IX of 1869), the Indian Income-tax Act, 1870 (IX of 1870), the
Indian Income-Tax Act, 1871 (XII of 1871), Act No. VIII of 1872, Act No. II of
1886, Act No. VII of 1912, Act No.
1922, Act No.43 of 1961, have treated a Hindu undivided family as a distinct
under the Wealth-tax Act, 1957 (27 of 1957), and the Gift-tax Act, 1958 (18 of
1958), the Hindu undivided family is made a unit of taxation. Under the
Business Profits Tax Act, 1947 (21 of 1947), and the Excess Profits Tax Act,
1940, also the Hindu undivided family was made a unit of taxation. For the
purposes of these Acts Mapilla tarwards governed by the Marumakkathayam law
have been regarded as individuals." (Emphasis supplied) On the basis of the
reasoning given in the case of Venugopala (supra), this Court had no difficulty
in holding that having regard to the legislative history of revenue laws, Mapilla
Tarward had to be assessed to tax as an "individual".
Court laid special emphasis on the aforesaid passage in the judgment of Venugopala's
case, and reiterated that for the purpose of various tax laws set out in that
passage "Mapilla tarwards governed by the Marumakkathayam law have been
regarded as individuals".
judgment took note of the fact that long before the Wealth Tax Act was passed Mapilla
Tarwad families had been treated as distinct taxable entities and had been
taxed as individuals under various tax laws for a very long time.
"individual" in Section 3 of the Wealth Tax Act must be given the
same meaning as was given in various other tax laws so as to include a Mapilla Tarward
judgment really goes against the contention made on behalf of the Revenue. The
Court first laid down that a charging section of a taxing statute has to be
strictly construed. The Court found that the charging section of various taxing
statutes had imposed tax on Hindu Undivided Families as well as on
"individuals". It has been held under various fiscal statues that Mapilla
Tarwads cannot be taxed as a Hindu undivided family but will have to be taxed
as an "individual". If "individual" is understood under the
Wealth Tax Act, in the same sense in which it has been understood in various
fiscal statutes, then "individual" under Section 3 of the Wealth Tax
Act will include a Mapilla Tarwad. But in the various tax Acts mentioned in
that judgment `individual' has not been interpreted to include a firm or an
association of persons.
the charging section of the Wealth Tax Act does not impose a charge on a firm
or association of persons has been made clear by explanatory notes on the
provisions relating to direct taxes issued by the Central Board of Direct Taxes
on June 29, 1981 clarifying the Finance Bill, 1981. The idea behind introduction
of the new Section 21AA was explained in the following words:
Under the Wealth-tax Act, 1957, individuals and Hindu undivided families are
taxable entities but an association of persons is not charged to wealth- tax on
its net wealth. Where an individual or a Hindu undivided family is a member of
an association of persons, the value of the interest of such member in the
association of persons is determined in accordance with the provisions of the
rules and is includible in the net wealth of the member.
Instances had come to the notice of the Government where certain assessees had
resorted to the creation of a large number of associations of persons without
specifically defining the shares of the members therein with a view to avoiding
proper tax liability.
the existing provisions, only the value of the interest of the member in the
association which is ascertainable is includible in his net wealth.
Accordingly, to the extent the value of the interest of the member in the
association cannot be ascertained or is unknown, no wealth-tax is payable by
such member in respect thereof.
In order to counter such attempts at tax avoidance through the medium of
multiple associations of persons without defining the shares of the members,
the Finance Act has inserted a new Section 21AA in the Wealth-tax Act to
provide for assessment in the case of associations of persons which do not
define the shares of the members in the assets thereof. Sub- section (1)
provides that where assets chargeable to wealth-tax are held by an association
of persons (other than a company or a co- operative society) and the individual
shares of the members of the said association is income or the assets of the
association on the date of its formation or at any time thereafter, are
indeterminate or unknown, wealth-tax will be levied upon and recovered from
such association in the like manner and to the same extent as it is leviable
who is a citizen of India and is resident in India at the rates specified in
Part I of Schedule I or at the rate of 3 per cent, whichever course is more
beneficial to the revenue." It will appear from this notification that the
Central Board of Direct Taxes clearly recognised that the charge of wealth tax
was on individuals and Hindu undivided families and not on any other body of
individuals or association of persons. Section 21AA has been introduced to
prevent evasion of tax. In a normal case, in assessment of an individual, his
wealth from every source will be added up and computed in accordance with
provisions of the Wealth Tax Act to arrive at the net-wealth which has to be
taxed. So, if an individual has any interest in a firm or any other non-
corporate body, then his interest in those bodies or associations will be added
up in his wealth. it is only where such addition is not possible because the
shares of the individual in a body holding property is unknown or
indeterminate, resort will be taken to Section 21AA and association of
individuals will be taxed as association of persons.
instant case, we are concerned with assessment years 1970-71 to 1977-78.
Section 21AA was not in force during the relevant assessment period. There was
no way that a club could be assessed as an association of persons in these
assessment years. It is not even the case of the Revenue that individual
member's interest in the club was indeterminate or unknown.
view of the aforesaid, the appeal must fail. The question referred by the
tribunal was correctly answered by the High Court in the affirmative and in favour
of the assesee. The appeal is dismissed. There will be no order as to costs.
Nos. 3210-14/88, 1544/93, 1649/93, 5340/48/93, 5393/94, 948/95, 8347/95,
1796-1799/96, SLP (C) No. 2490/84, C.A.Nos.
9096/96, SLP (C) Nos. 7246-7250/97, C.A.Nos. 2366- 2375/94, SLP (C) Nos.
16259-16275/94 with C.A. No.658/93 In view of our decision in C.A. No.650 of
1988, the above appeals and Special Leave Petitions are also dismissed with no
order as to costs.
C.A.Nos.3532-38/1988 & C.A.Nos. 7420-22 of 1997 arising out of S.L.P. Nos.
4658-60/1990 Leave granted.
appeals are allowed.