1. This is a petition by the Willingdon Sports Club, Bombay, challenging the notices under s. 17 of the W. T. Act (hereinafter referred to as 'the Act') issued to the petitioner club on 11th March, 1970, on the footing that for the assessment years 1961-62 to 1968-69, the wealth of the club has escaped assessment. Similar notices have also been issued on 17th March, 1979, in respect of assessment years 1970-71 to 1977-78. In addition to these notices, notices under s. 14 of the Act have been issued to the club on 11th March, 1970, for the assessment year 1969-70, calling upon the club to file a return of net wealth. A similar notice has been issued for the assessment year 1978-79 on 17th March, 1979, to the assessee-club by the WTO. The petitioner-club seeks to have these notices quashed on the ground that the club is not a taxable unit under s. 3 of the Act and all the notices are, therefore, without jurisdiction.
2. It is the case of the petitioners-club that it is a non-proprietary members' club and though it is assessed for the purpose of income-tax as an association of persons, an association of persons not being a taxable entity contemplated by s. 3 of the Act, the club was not liable to any assessment to wealth-tax. Apart from this ground, another ground which has been raised in the petition to challenge the notices under s. 17 of the Act is that the club had addressed a letter on 31st December, 1967, to the ITO pointing out that the Act applied only to an individual or an HUF or a company and that the status of the petitioner was that of an association of persons and, in the circumstances, the petitioner-club was not liable to wealth-tax and that the ITO was requested to confirm that this was in order. No action having been taken by the department on this letter and no intimation having been sent by the ITO that the stand taken by the club was incorrect, the assets of the club cannot be said to have escaped assessment to wealth-tax on account of failure of the assessee to file a return of wealth-tax.
3. In the affidavit and the reply to the petitioner filed by the 6th ITO. G Ward, Bombay, the notices are sought to be supported on the footing that the club must be treated as an individual, as it was a body of individuals and, therefore, liable to wealth-tax under s. 3. That is the only justification which has been made out in the affidavit in reply. However, when the matter was taken up for argument. Mr. Joshi on behalf of the revenue has contended that the property of the petitioner-club vests in the trustees under r. 7 of the rules of the club and the trustees must be treated as owning the property, and thus the trustees were liable under s. 3 because, though there are more than one trustee, they would be treated as a body of individuals and would be covered by the word 'individual', which must also include a body of individuals.
4. Mr. Dastur has objected to this new ground on which the notices were sought to be defended. However, since we do not find that any additional facts than what were already on record were necessary for a decision on the contention raised by Mr. Joshi and a decision on the contention turned mostly on the construction of the rules of the petitioner-club, we have permitted this additional ground of liability as trustees to be raised.
5. It is not in dispute that the petitioner-club is an unincorporated members' club, and the relations between the members inter se are controlled and regulated by the rules of the club. In so far as the property of the club is concerned, the relevant rule is rule No. 7, which provides as follows :
'There shall be not less than three trustees of the club and each of the first trustees and any trustee hereafter elected shall remain in office until his death or permanent retirement from India, or until he resigns or ceases to be a member of the club or is removed..... The property of the club of whatever description shall be vested in and shall, when necessary, be transferred to the trustees for the time being, who shall in any legal proceedings be deemed sufficiently to represent the club and its members. The trustees for the time being shall under the direction of the general committee act in legal proceedings, effect insurances, invest money, execute mortgages and all deeds to be entered into on behalf of the club, sign any debentures, the issue and form of which may be directed by the general committee and generally transact all business of like nature in such manner as the general committee may from time to time determine. Every direction of the general committee to the trustees shall be signified by a copy of the resolution of the general committee signed by the chairman of the day and one other members of the general committee and when so signified shall be obligatory upon and a justification to the trustees as to anything to be done by virtue of such resolution; and the trustees shall be indemnified out of the club's property against all liabilities, risk and expense incurred by them as such trustees.'
6. We have considered at some length the question of the liability of an unincorporated members' club to wealth-tax in the case of Orient Club v. CWT, Wealth-tax Reference No. 11 of 1972, decided on 8th February, 1982, [since reported in : 136ITR697(Bom) , and we have, in that case, taken the view that in the case of an unincorporated members' club the property of the club vests in the members for the time being. On the same principle, the assessee-club being an unincorporated members' club, the property of the assessee-club will be owned by the members for the time being. We have also held in the case of the Orient Club that an unincorporated members' club is an association of persons and an association of persons is not treated as a taxable unit under the W. T. Act and that such a club is not an 'individual' as contemplated by the charging provision in s. 3 of the Act.
7. It is possible in view of this legal position that the learned counsel for the revenue was required to urge that the property of the club vests in the trustees and the trustees, as a unit of assessment, would have to be treated as an individual for the purposes of s. 3 of the Act. Such an argument would be wholly inconsistent with the finding that in the case of an unincorporated members' club, the property is owned by the members of the club for the time being. The provisions of r. 7 do not indicate any position to the contrary. When r. 7 provides that the property of the club shall be vested in the trustees, it does not have the effect of converting the trustees into owners of the property of the club. Rule 7 does not have the effect of departing from the normal concept as to the ownership of the property of an unincorporated members' club. Rule 7 does not have the effect of departing from the normal concept as to the ownership of the property of an unincorporated members' club. Only such wealth as belongs to the assessee can be brought to tax under the Act and unless it is shown that the property of the club belongs to the trustees, it will be difficult to accept the argument that the club will become liable because the trustees own the property. The vesting contemplated by r. 7 is not the vesting of the ownership. The property vests only for the purpose of management of the property. Under r. 7 it is obligatory on the trustees to follow and abide by any direction which is given by the general committee to the trustees. Rule 7 requires the trustees to obey every direction and such direction has to be given in the form of a resolution and the rule provides that when such a resolution is forwarded to the trustees, it 'shall be obligatory upon and a justification to the trustees as to anything to be done by virtue of such resolution'. The rule does not stop there, but further provides for an indemnification of the trustees against all liabilities, risk and expense incurred by them as trustees 'out of the club's property'. Therefore, even r. 7 recognises the fact that the properties do not belong to the trustees but is described as the 'club's property'. When property is described as or is said to be the club's property, it is only a convenient way of referring to the property which really belongs to the members for the time being.
8. Mr. Joshi wanted to argue that the beneficial interest in the property of the club is vested in the trustees of the club. On a careful reading of r. 20, however, such an argument is not possible to be accepted. On the contrary, r. 20 further emphasises the fact that the property really belongs to the members of the club for the time being. Rule 20 reads as follows :
'The beneficial interest in the property of the club, subject to the liabilities thereof and thereon and to its being vested in the trustees of the club, shall belong to the members (life, founder, ordinary and supernumerary other than gymkhana) of the club for the time being, but no member shall be reason of his membership have any transmissible or assignable share by operation of law or otherwise in any of such property; and in the event of any members by death, resignation or any way ceasing to be such, all his interest in such property, shall survive, accrue, and belong to the other members as aforesaid, of the club.'
9. Rule 20 in fact highlights the well-recognised position in respect of ownership of the property of an unincorporated members' club. The members for the time being are, no doubt, treated as owners of the property but at the same time they have no transmissible or assignable interest in the property and their interest ceases when they cease to be members of the club. Therefore, apart from r. 20 indicating that the property does not vest in the trustees in ownership, it further indicates that the beneficial interest of the property vested in the members. If the property does not vest in the trustees as owners, it is not necessary to consider the further argument advanced by Mr. Dastur that even if the property is owned by the trustees, the assessment cannot be made under s. 3 but it will have to be made under s. 21(1) of the Act.
10. In the view which we have taken and in view of the decision in Orient Club's case : 136ITR697(Bom) , we find that the notices issued to the club either under s. 17 or under s. 14 are wholly without jurisdiction. We are not, therefore, required to go into the other contention raised by Mr. Dastur as to whether the WTO had any reason to be believe that the wealth of the club had escaped assessment and, alternatively, even if there was any escapement, such an escapement was not on account of the failure of the club to file a return under s. 14 of the Act.
11. In the view which we have taken, all the notices dated 11th October, 1970, and 17th March, 1979, impugned in this petition are quashed. Rule is made absolute in terms of prayer (a) with costs. It is not necessary to make any order with regard to prayer (b).