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First Wealth-tax Officer Vs. Bowring Institute - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1984)8ITD441(Bang.)
AppellantFirst Wealth-tax Officer
RespondentBowring Institute
Excerpt:
.....under the act.6. in orient club's case (supra) the gujarat high court held that an aop is not an entity assessable as individual under the act nor is there any other provision in the act which makes an aop an assessable entity. it was observed as under: ... it is, therefore, clear that under rule 2(1) of the wealth-tax rules, 1957, read with section 4(1)(b), the legislature has given clear indication that an association of persons is not an assessable entity covered by the word 'individual' in section 3 of the wealth-tax act....that was also a mutual association for the benefit of the members of the club. the ratio laid down therein squarely applies to the instant case which is a mutual association running a club for the benefit of its members.7. the decision of the supreme court in.....
Judgment:
2. The assessee is a mutual association running a club for the benefit of its members. The WTO issued notice under Section 14(2) of the Wealth-tax Act, 1957('the Act') requiring the assessee to file a return of wealth. Accordingly, the assessee filed a return in the status of an AOP. It was claimed that the assessee being an AOP is not an assessable entity. The WTO held that the assessee is a society registered under the Mysore Societies Registration Act, 1960. Under Section 23 of that Act, upon dissolution of the society, any property remaining after the satisfaction of all its debts and liabilities shall not be paid to or distributed amongst the members of the society but shall be given to some other society. The managing committee holds the property under trust. The membership of the society cannot be transferred. He held that the society is not an ordinary AOP but a trust. In the case of Trustees of Gordhandas Govindram Family Charity Trust v. CIT [1973] 88 ITR 47 the Supreme Court has held that the trusts are assessable to wealth-tax. Accordingly, he rejected the contention of the assessee and made the assessments in the status of an AOP under the Act in both these years.

3. The assessee appealed to the Commissioner (Appeals). He held that the decision of the Gujarat High Court in Orient Club v. WTO [1980] 123 ITR 395 squarely applies to this case and there is no justification for holding that the term 'individual' in Section 3 of the Act covers an AOP like the assessee. The assessee is not a trust. It clearly falls in the category of AOPs considered by the Gujarat High Court. Thus, the assessee is not an assessable entity for wealth-tax purposes. Thus, he cancelled the assessments made on the assessee in both the years.

Against the same, the revenue has preferred these appeals.

4. The learned departmental representative strongly urged that the assessee can be treated as a group or body of individuals which is assessable under the Act as individual. The Commissioner (Appeals) was wrong in holding that the assessee is not an assessable entity. He placed reliance on the decisions in WTO v. C.K. Mammed Kayi [1981] 129 ITR 307(SC) and Sarjerao Appasaheb Shitole v. WTO [1964] 52 ITR 372 (Mys.). The learned counsel for the assessee strongly urged that the assessee is an AOP and as such it is not an assessable entity. The ratio laid down by the Gujarat High Court in Orient Club's case (supra) squarely applies to the instant case. He supported the orders of the Commissioner (Appeals).

5. We have considered the rival submissions. The assessee is a mutual association running a club for the benefit of its members. It is an AOP. In fact, the WTO, in the wealth-tax assessment orders, has stated in the status column as an 'AOP'. Under Section 3 only individual and HUF family are assessable entities. An AOP is not an assessable entity under the Act.

6. In Orient Club's case (supra) the Gujarat High Court held that an AOP is not an entity assessable as individual under the Act nor is there any other provision in the Act which makes an AOP an assessable entity. It was observed as under: ... It is, therefore, clear that under Rule 2(1) of the Wealth-tax Rules, 1957, read with Section 4(1)(b), the Legislature has given clear indication that an association of persons is not an assessable entity covered by the word 'individual' in Section 3 of the Wealth-tax Act....

That was also a mutual association for the benefit of the members of the club. The ratio laid down therein squarely applies to the instant case which is a mutual association running a club for the benefit of its members.

7. The decision of the Supreme Court in C.K. Mammed Kayi's case (supra) is clearly distinguishable. The question in that case was whether non-HUFs like Mappilla Marumakkatayam Tarwads are assessable under the Act. It was held that the term 'individual' in Section 3 includes a group of individuals like Mappilla Marumakkatayam. In Sarjerao Appasaheb Shitole's case (supra) the contention was that the levy of wealth-tax on HUFs is bad in law while other undivided family such as Mappilla Marumakkathayam Tarwads are exempt. It was held by the Mysore High Court that this grievance does not appear to be correct as non-HUFs are not exempt from taxation as they are liable to tax as individuals. This decision also is distinguishable. The ratio of those decisions cannot be extended to the assessee which is an AOP.8. We are unable to accept the contention of the learned departmental representative that the assessee should be treated as a group or body of individuals. In fact, the WTO himself has taken the status as that of an AOP in the assessment orders against the status column. In the assessment order for 1976-77 he has held as under in para 2(i).

The exemption given by Section 45(f) is limited to a company and it is not applicable in the case of assessee which is an association of persons.

Thereafter, he proceeded on the footing that it can be treated as a trust. In our view, the assessee cannot be treated as a trust as no trust is created by any settlement and no trustees are constituted under any deed. Thus, the assessee which is a mutual association cannot be treated as a trust. Thus, the ratio laid down by the Supreme Court in Trustees of Gordhandas Govindram Family Charity Trust's case (supra) has no application to the instant case. This decision has, in fact, been referred to by the Gujarat High Court in Orient Club's case (supra).

9. The only decision dealing with a club is that of the Gujarat High Court in Orient Club's case (supra) which is directly on the point. The ratio laid down therein squarely applies to the assessee's case.

Following with respect the above decision, we hold that the assessee which is a mutual association running a club, for the benefit of its members, is only an AOP. It cannot be treated as either 'individual' or 'trust'. An AOP is not an assessable entity under the Act. Thus, the assessments made on the assessee under the Act are not valid. The Commissioner (Appeals) was perfectly justified in cancelling the assessments made on the assessee under the Act for these two years. We uphold his order.


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