1. These appeals by the revenue are consolidated and disposed of by a common order for the sake of convenience as they involve common issue viz., whether the respondent club is liable to wealth tax or not. These appeals pertain to assessment years 1982-83 to 1988-89 and arise out of the consolidated order of the Commissioner of Wealth-tax (Appeals), Kolhapur dated 11-12-1989. The CWT (A) following the decision of the Tribunal, Pune Bench, in WTA No. 188/PN/1987 and the judgment of the Bombay High Court in the case of Orient Club v. CWT  136 ITR 697 held that the respondent club was not assessable to wealth tax for all these years under consideration. Accordingly he allowed the appeals for all these years under consideration.
2. The revenue is in appeal on common grounds to urge that the CWT(A) erred in holding the status of the assessee as 'AOP' and further holding that the wealth of the assessee is not taxable in the status of AOP' and he erred in not following the decision of the Supreme Court in the case of Banarsi Dass v. WTO  56 ITR 224 before coming to the conclusion that the assessee club is not. an assessable entity under the Wealth-tax Act. It was also urged that the CWT(A) erred in ignoring the provisions of Section 21AA effective from 1-4-1989. For all these reasons it was prayed that the orders of the CWT(A) be vacated and that of the Assessing Officer be restored.
3. The assessee filed nil returns of wealth claiming that it is not liable to wealth tax in view of the judgment of the Gujarat High Court in the case of Orient Club v. WTO  123 ITR 3952 because the club is not liable under the Wealth-tax Act as it is not an individual and therefore not an assessable entity under the Wealth-tax Act. On the other hand, it is contended that the assessee club is an 'AOP' as held by the Bombay High Court in the case of Willingdon Sports Club v. C.B.Patil, Third Addl. WTO  137 ITR 833 and thus not an assessable entity under the Wealth-tax Act. The Wealth-tax Officer was of the view that the term 'individual' used in Income-tax and Wealth-tax Act does not mean only a human being but includes group of persons forming a unit. Relying on the ruling of the Supreme Court in the case of Trustees of Gordhandas Govindram Family Charity Trust v. CIT  88 ITR 47 holding that the joint trustees cannot be regarded as an unit for the purpose of the tax and they can be assessed to wealth tax in the status of "individual" in respect of whom the properties were held by them as trustees. The Wealth-tax Officer concluded that the assessee could be assessed in the status of "individual". Thus he proceeded to evaluate the immovable property through the Departmental Valuation Officer and adopted the value as per the DVO and thus brought the net wealth of the assessee to tax as detailed separately in the assessment orders.
4. On appeal relying on the decision of the Tribunal in its own case for the assessment year 1981 -82 following earlier decision relating to the assessee for the assessment years 1971-72 to 1976-77 in favour of the assessee and also following the judgment of the Bombay High Court in the case of Orient Club (supra) the CWT(A) held that the assessee club is not liable to wealth-tax and therefore allowed the appeals filed by the assessee for all these years.
5. At the time of hearing the learned departmental representative reiterated common grounds taken by the revenue and emphasised the fact that the CWT(A) has not considered the judgment of the Supreme Court in the case of Banarsi Dass [supra). He further pointed out that the provisions of Section 21AA inserted by Finance Act, 1981 with effect from 1-4-1981 was not considered by the CIT(A).
6. The learned counsel for the assessee on the other hand, supported the orders of the CWT(A). According to him the Bombay High Court in the case of Orient Club (supra) has duly considered the judgment of the Supreme Court in the case of Banarsi Dass (supra) and yet decided the issue in favour of the assessee holding that the assessee is an 'AOP' and not an "individual" and not juristic personality and hence not assessable entity liable to wealth-tax. The judgment of the Gujarat High Court in the case of Orient Club (supra) was considered and followed by the Bombay High Court. Similar judgment was delivered in the case of Willingdon Sports Club (supra) wherein their Lordships have followed their earlier judgment in the case of Orient Club (supra).
Therefore he submitted that the said ground taken by the revenue namely the CWT(A) erred in not considering the judgment of the Supreme Court in the case of Banarsi Dass (supra) was not correct. He also submitted that the Tribunal while rendering its order for the assessment year 1981-82 on 4-10-1988 was aware of the provisions of Section 21AA inserted by the Finance Act, 1981 with effect from 1-4-1981 and therefore, the Tribunal is deemed to have considered such provision before rendering its decision.
7. We have duly considered the submission of the parties and the orders of the authorities. After careful consideration, we have arrived at a conclusion that the decisions of the CWT(A) are in accordance with law and in tune with the judgment of the jurisdictional High Court of Bombay contained in the case of Orient Club (supra), wherein it has been held that the Association of Persons is not an individual for the purpose of Wealth Tax and therefore, it is not an assessable entity. It also held that there are no provisions in the Wealth-tax Act which make an Association of Persons as an individual. At page 706 of the judgment, it was held that the charging Section 3 of the Wealth-tax Act did not contemplate association of persons or Body of Individuals as taxable entity. Reference was made to the provisions of Section 4(1)(b) of the Wealth-tax Act, 1957 read with Rule 2 of the Wealth-tax Rules, 1958 requiring the ascertainment of interest of a partner or member of the AOP in the partnership firm or AOP to be included in the net wealth of individual who is a partner or member of AOP thereof for the purpose of his assessment. From this the High Court has concluded that the individual partner or individual member of AOP is to be treated as taxable entity and not the firm or AOP in which he is a partner or a member thereof. The High Court has considered the definition of "company" in Section 2(h) of the Wealth-tax Act and observed that some institutions, associations or bodies which may be included within the extended definition of company. However, the High Court made a pertinent observation to the effect that it is apparent that if the institution, association or body contemplated by the extended definition of company were to be treated as taxable unit for the purpose of Section 3 of the Wealth-tax Act, 1957, then this would be something different from a partnership firm or an a association of persons which was contemplated by the provisions of Section 4(1)(b) of the Wealth-tax Act, 1957.
8. The same conclusion has been reiterated in the later decision of the Bombay High Court in the case of Willingdon Sports Club (supra). The common thread of reasoning running through both the judgments is that both are un-incorporated members club in which the property of the club is vested in the members for the time being and it is an Association of Persons and as an Association of Persons it is not to be treated as a taxable unit under the Wealth-tax Act, 1957 and such a club is not to be treated as an individual as contemplated by the charging Section 3 of the Wealth-tax Act, 1957.
9. The aforesaid judgments were followed by the Bombay High Court in the case of Bombay Cricket Association v. B.R. Sonkar, First WTO  166 ITR 356. In that case, the assessee was a charitable trust for the promotion of the game of Cricket which was registered under the Bombay Public Trusts Act and also under the Societies Registration Act and the Government has issued certificate under Section 10(23) of the Income-tax Act to exempt the income. When the question arose whether such trust was liable to Wealth-tax, it was held by the Bombay High Court that the properties were held under trust for public purposes of a charitable nature and therefore, the trust was exempt under Section 5(1)(i) of the Wealth-tax Act, 1957. Following the earlier Judgments of the Court in the cases of Orient Club and Willingdon Sports Club (supra) Bombay H.C. Held that the trust did not fall in any of the categories set out in Section 3 of the W.T. Act and therefore not assessable to Wealth-tax.
10. In this connection, it is relevant to point out that the Gujarat High Court has taken earlier a similar decision in the case of Orient Club (supra) which was also an unregistered members' club and the Gujarat High Court held that it is not an individual and therefore, not assessable entity as individual. The Gujarat High Court considered the relevant provisions of Wealth-tax Act to come to the conclusion and in fact this judgment of the Gujarat High Court and the reasoning given in the said judgment was fully adopted by the Bombay High Court in the judgments cited (supra).
11. The Calcutta High Court in the case of Royal Calcutta Turf Club v.WTO  148 ITR 790, which is an un-incorporated club held that the Association of Persons is not an individual entity for the purpose of Wealth-tax and therefore not chargeable under Section 3 of the Wealth-tax Act because it is not a juristic entity, but an AOP who came together for social intercourse and recreation, but not absolutely for gain.
12. Thus the majority of the High Courts, namely, Bombay High Court, Gujarat High Court and the Calcutta High Court have taken consistent view that an un-incorporated members' club is an AOP but it is not a taxable entity for the purpose of Section 3 of the Wealth-tax Act.
13. The Madras High Court has taken a contrary view in the case of Coimbatore Club v. WTO  153 ITR 172 wherein it has disagreed with the view of the Bombay and Gujarat High Courts. According to the Madras High Court, the phrase 'individual' would take in a plurality of individuals which would include a body or group of individuals forming a single collective unit knit together by ties of common aims and joint interest without any profit motive, but owning property. For coming to this conclusion, reliance was placed on the judgment of the Supreme Court in the case of CIT v. Sodra Devi  32 ITR 615, wherein it has been held that 'individual' does not mean only a human being but wide enough to include a group of persons forming an unit. Reliance was placed on the judgment of the Supreme Court in the case of WTO v. C.K.Mammed Kayi  129 ITR 3072 where a Mapilla Marurnakkathayam tar wad was held to be liable to Wealth tax as falling within the phrase 'individual'. Reliance was also placed on Section 13(2) of the General Clauses Act, 1897 according to which the word 'individual can be read in plural. Thus, except the minority view expressed by the Madras High Court, the majority view is in favour of the assessee. However, all these case laws related to cases for the years prior to the insertion of Section 21AA of the Wealth-tax Act by the Finance Act, 1981 with effect from 1-4-1981 whereby the assets held by certain association of persons other than company or co-operative society were also brought to tax.
14. The Andhra Pradesh High Court in the case of CWT v. George Club  191 ITR 368 had occasion to consider the issue with reference to Section 21AA of the Wealth-tax Act, 1957. That club was registered under the Societies Registration Act, 1860 and not engaged in an income-producing activity. The question of members' holding shares either in the income or in the assets or both of the club came to sharp focus in the light of the provisions in Section 21AA. The Andhra Pradesh High Court came to the conclusion that no individual member holds a share in the case of such club. Neither does he have a share in the income nor in the assets of the club. Section 14 of the Societies Registration Act provides that upon dissolution of a society registered under the said Act if any assets remained after satisfying all its debts and liabilities, the same shall not be paid to or distributed among the members of the society or any of them, but shall be given to some other society. Relying on this provision, it was concluded that a member of the club has no share in the income or in the assets of the club. The Andhra Pradesh High Court referred to its earlier judgment in the case of Deccan Wine & General Stores v. CIT  106 ITR 111 wherein the distinguishing features of Association of Persons vis-a-vis body of individuals were highlighted. It was held that for constitution an Association of Persons, the association must be engaged in the income producing activity which is not applicable in that case.
Reference was also made to the Board's Circular No. 320 dated 11-1-1982 (134 ITR St. 166) issued under Section 167A of the Income-tax Act, 1961 which is similar to Section 21AA of the Wealth-tax Act and which has been inserted by the very same Finance Act 1981 with effect from 1-4-1981 to counter the tax avoidance adopted by persons by creating multifarious Association of Persons wherein the individual shares of the members in income of the AOP remained indeterminate or unknown.
While clarifying the intent and purpose of Section 167A the Board has pointed out that in the cases of registered societies, trade and professional association, social and sports club, charitable or religious trusts, etc., the members or trustees are not entitled to any share in the income of the association of persons, the provisions of new Section 167A will not be attracted and, accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate. The aforesaid circular clearly shows that even the CBDT has agreed that in the aforesaid categories of association of persons, the individual members are not entitled to any share in the income of the association. The AP High Court pointed out that since there was no definition of Association of Persons under the Wealth-tax Act, 1957, the expression has to be understood in the same sense it is used in the Income-tax Act, 1961 and if so, the principle of Board's circular applied with equal force in the case of AOP under the Wealth-tax Act also.
15. The Andhra Pradesh High Court also relied on Sub-section (4) of Section 21AA in support of its conclusion, which provides that upon discontinuation or dissolution of an association of persons, every person who was a member of such association on such date shall be jointly and severally liable for the amount of tax, penalty or other sum payable by the association. According to the A.P. High Court, such an occasion is not contemplated in the case of a club whose members do not have a share in its income or in its assets. Thus it has been held that a club registered under the Societies Registration Act, was not liable to Wealth Tax Act.
16. The Kerala High Court had also an occasion to consider the issue with reference to Section 21AA of the W.T. Act in the case of CWT v.Mulam Club  191 ITR 370. The Kerala High Court noted the difference between the definition of "person" contained in Section 2(31) of the Income Tax Act. and the persons who are taxable under Section 3 of the Wealth Tax Act. According to the Kerala High Court a members' club is a voluntary association of persons joining together in accordance with rules and bye-laws of the club for enjoyment of one another's company and other facilities or for some other purposes. The High Court considered Section 2(h) as amended with effect from 1-4-1975 of the Wealth Tax Act, but held that it is not applicable unless the CBDT has declared AOP as company for the assessment year 1975-76 or later years, which is not the case there. The High Court agreed with the interpretation of the Supreme Court in the case of C.K. Mammed Kayi (supra), but yet observed that, that judgment is of no assistance to the revenue. It is pertinent to point out that the Kerala High Court has followed the three judgments of the Bombay High Court, Gujarat High Court and also Calcutta High Court cited supra, but dissented from the judgment of the Madras High Court in the case of Coimbatore Club (supra) and State Bank of India Officers Association v. CWT 158 ITR 23. After considering all the aforesaid judgments, the Kerala High Court came to the conclusion that the assessee club in that case was not an assessable entity under the Wealth Tax Act. Thus the aforesaid case laws show that there is judicial controversy over the issue, but the majority of the High Courts is in favour of the assessee holding that such social club is not liable to wealth tax.
17. Clause 102 of the Finance Bill 1992 proposed to amend Section 45 of the Wealth-tax Act so as to restrict the exemption from Wealth Tax only to co-operative societies, political parties, social clubs and mutual funds. The said amendment became necessary since companies are now included as entity for the purpose of Wealth Tax, vide Notes on Clauses contained in 194 ITR (St.) 162. Section 99 of the Finance Act 1992 amended Section 45 of the Wealth Tax Act, 1957 with effect from 1-4-1993 whereby clauses (a) to (e) were omitted and for Clause (h) the words "any social club" has been substituted for any company incorporated outside India which has no place of business in India. By the latest amendment made by the Finance Act 1992 with effect from 1-4-1993 in Section 45 of the Wealth Tax Act specifying categories which are not liable to the Wealth Tax the intention of the Legislature is clear so as to exempt social club from the purview of taxation. The un-incorporated members club could be said to be social club in the sense that there is no profit motive for the AOP coming together for social intercourse and for common benefits without any vested right in the corpus of the trust funds. As per the latest rules, the club of Mahabaleshwar is an Association of Persons (AOP) for the mutual benefit of its members, operating on a non-profit basis, vide Rule 1 of the said rules.
18. Section 167A upto the assessment year 1988-89 and Section 167B from the assessment year 1989-90 onwards provide for levy of tax at the maximum marginal rate on whole or any part of income of AOP or BOI if the individual shares of income of the members of an Association or Body of Individuals (other than a company, a co-operative society or a society registered under the Societies Registration Act, 1860) are indeterminate or unknown. These provisions contemplate that the individual members of an Association of Persons or Body of Individuals, as the case may be, are entitled to a share in the whole or any part of income of such association or BOI, but such shares are indeterminate or unknown. In other words, the right to share of profits or income is a pre-requisite, though they are indeterminate or unknown which, in such eventuality, would attract levy of maximum marginal levy of tax to avoid creation of multiple association of persons for purpose of tax avoidance.
19. Similarly, under Section 21AA of the Wealth Tax Act, 1957 which is similar to Section 167A/167B of the Income-tax Act, 1961 holding of assets chargeable to tax under the Wealth Tax Act by an AOP in which the individual shares of the members of the association in the income or assets or both are indeterminate or unknown on the date of its formation or at any time thereafter tax is levied at the maximum marginal rate applicable to an individual who is a citizen and resident of India. This section also presupposes that the member of the association other than a company or a co-operative society or a society registered under the Societies Registration Act is entitled to a share in income or the assets or both of the association on the date of its formation or at any time thereafter.
20. The Bombay High Court in the case of Orient Club (supra) has observed that in an un-incorporated members club there are usually trustees appointed in pursuance of provisions in the rules in whom the property and assets of the club are vested in trust for the members for the time being and who are given power to invest the funds of the club, sometimes at their own discretion and sometimes according to the directions of the committee. In a non-proprietary club, the members for the time being are jointly entitled to all the property or funds and it is only on dissolution that the individual interest of the members becomes capable of realisation. On the dissolution of a members' club the property and assets are sold and realised and after the discharge of the debts and liabilities of the club, the surplus is divisible equally amongst the members for the time being other than the honorary members subject to any provisions in the rules to the contrary.
Therefore, a members club is a voluntary association resulting from persons coming together in accordance with the rules and bye-laws of the club for enjoying certain facilities or for certain purposes. It has also been observed that a club is not a juristic entity, but is merely an association of persons who come together for social intercourse and recreation but not for gain.
21. The assessee is a Members' club. Rule XII of the rules of the assessee club provides that the property of the club will be applied solely towards the purposes and objects of the club and no portion thereof will be paid or transferred to any member during the continuance of the club. On the winding up or dissolution of the club the assets will be realised and after payment and discharge of all liabilities the surplus shall be paid to or distributed amongst the then members of the club. During the existence of the club the membership would be increasing and decreasing depending upon admission and resignation of the members with the result there is no guarantee about any specified members continuing till the end. Even at the time of winding up or dissolution of the club the surplus remaining after payment of all liabilities will be paid or distributed among the then existing members of the club, which is a distant possibility.
22. In view of the relevant provisions of the Income Tax and Wealth Tax Act and Rules I and XII of the said club, it can be inferred that this club does not fall within the mischief of the aforesaid provisions of law. Nonetheless, the members do associate themselves to form members' club but not with the intention of earning of profit or income or sharing it with other members. The members of a club come to own wealth as an incidence of membership when they join the club, though the object of joining the club is not the acquisition of wealth. It is an incidence of membership that if and when the club is dissolved and if they continue to be members on the date of dissolution, the property of the club will be distributed among the members for the time being. Thus the members are not vested with any share of right in the wealth of the club which is incidental to the membership and which would materialise in the event of distribution taking place at the time of dissolution.
23. In fact the Bombay High Court did consider in the case of Orient Club (supra) the ratio of the Supreme Court in the case of Banarsi Dass (supra) and C.K. Mammed Kayi (supra) and Sodra Devi (supra) and observed that they are not helpful to the revenue. Therefore, there is no force in the contention of the learned departmental representative as the aforesaid judgments were duly considered by the Bombay H.C.24. If according to the revenue the Association of Persons as such including a members' club is to be treated as a taxable entity then instead of depending on the interpretations of various Court's Section 3 of the Wealth Tax Act could have been simply amended or enlarged to include AOP as a taxable entity. On the contrary, the Finance Act, 1992 made a specific amendment to Section 45 of the Wealth Tax Act to specify social club as one of the exempted categories for Wealth Tax.
25. In the light of conspectus of judicial decisions, Board's circular and latest amendment excluding social club form Wealth Tax, we have no hesitation to uphold the orders of the CWT(A) as they are in accordance with the law.