M/S BANGALORE CLUB versus THE COMMISSIONER OF WEALTH TAX & ANR.

Citation: [2020] 13 S.C.R. 488 · Decided: 08-09-2020 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2020] 13 S.C.R.
   [2020] 13 S.C.R. 488
M/S BANGALORE CLUB
v.
THE COMMISSIONER OF WEALTH TAX & ANR.
(Civil Appeal Nos. 3964-71 of 2007)
SEPTEMBER 08, 2020
[R. F. NARIMAN, NAVIN SINHA AND
INDIRA BANERJEE, JJ.]
Wealth Tax Act, 1957 – ss.3, 21AA – Liability of Bangalore
Club to pay wealth tax – Assessing Officer held that Club was liable
to be taxed under 1957 Act – Appeal dismissed by CIT (Appeals) –
Appellate Tribunal set aside the orders of the Assessing Officer and
CIT (Appeals) – High Court decided in favour of revenue – Review
Petition dismissed – Held: s.21AA was introduced in order to prevent
tax evasion – It was enacted not to rope in association of persons
per 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 large
number of associations of persons without defining the shares of
the members so as to escape tax liability – In order to be an
association of persons attracting s.21AA it is necessary that persons
band together with some business or commercial object in view in
order to make income or profits – Bangalore Club is a social club –
Persons who are banded together do not band together for any
business purpose or commercial purpose in order to make income
or profits – s.21AA does not get attracted to the facts of the present
case –Impugned judgment and review judgment set aside –Income
Tax Act, 1961 – s.2(31), 167A.
Allowing the appeals, the Court
HELD: 1.1 Section 3 is the charging section in the Wealth
Tax Act. Only three types of persons can be assessed to wealth
tax under Section 3 i.e. individuals, Hindu undivided families and
companies. If Section 3(1) alone were to be looked at, the
Bangalore Club neither being an individual, nor a HUF, nor a
company cannot possibly be brought into the wealth tax net under
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this provision. By the Finance Bill of 1981, Section 21AA was
introduced into the Wealth Tax Act. Section 21AA was enacted
w.e.f 1st April, 1981.For the first time from 1st April, 1981, an
association of persons other than a company or cooperative society
has been brought into the tax net so far as wealth tax is concerned
with the rider that the individual shares of the members of such
association in the income or assets or both on the date of its
formation or at any time thereafter must be indeterminate or
unknown.  It is only then that the section gets attracted. [Paras
9-13][497-C, E-F; 499-H; 500-A-B]
1.2 When Parliament used the expression “association of
persons” in Section 21AA of the Wealth Tax Act, it must be
presumed to know that this expression had been the subject
matter of comment in a cognate allied legislation, namely, the
Income Tax Act, as referring to persons banding together for a
common purpose, being a business purpose in the context of a
taxation statute in order to earn income or profits. In order to be
an association of persons attracting Section 21AA of the Wealth
Tax Act, it is necessary that persons band together with some
business or commercial object in view in order to make income
or profits. The presumption gets strengthened by the language
of Sec. 21AA (2), which speaks of a business or profession carried
on by an association of persons which then gets discontinued or
dissolved. The thrust of the provision therefore, is to rope in
associations of persons whose common object is a business or
professional object, namely, to earn income or profits. Bangalore
Club being a social club whose objects have been referred to by
the Appellate Tribunal in this case make it clear that persons
who are banded together do not band together for any business
purpose or commercial purpose in order to make income or
profits. A perusal of judgment in Ellis Bridge Gymkhana would
show that Section 21AA has been introduced in order to prevent
tax evasion. The reason why it was enacted was not to rope in
association of persons per se as “one more taxable person” to
whom the Act would apply. The object was to rope in certain
assessees who have resorted to the creation of a large number
M/S BANGALORE CLUB v. THE COMMISSIONER OF
WEALTH TAX & ANR.
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[2020] 13 S.C.R.
of association of persons without specifically defining the shares
of the members of such associations of persons so as to evade
tax.  In construing Section 21AA, it is important to have regard

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