Case: Commissioner Of Wealth Tax,Gujarat-Iii, Ahmedabad Vs. Ellis Bridge Gymkhana Etc. Etc

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 Tarwads governed by the Marumakkathayam law have been regarded as individuals." * 28. On the basis of the reasoning given in the case of Venugopala this Court had no difficulty in holding that having regard to the legislative history of revenue laws, Mapilla Tarwad had to be assessed to tax as an "individual". 29. The Court laid special emphasis on the aforesaid passage in the judgment of Venugopala case and reiterated that for the purpose of various tax laws set out in that passage "Mapilla Tarwads governed by the Marumakkathayam law have been regarded as individuals". 30. This 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. Therefore, "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 Tarwad family. 31. This 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 statutes 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. 32. That 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 29-6-1981 clarifying the Finance Bill, 1981. The idea behind introduction of the new Section 21-AA was explained in the following words "21.1 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 member21.2 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. Under 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 thereof21.3 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 21-AA 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 cooperative society) and the individual shares of the members of the said association in 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 upon and recoverable from an individual 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." * 33. 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 21-AA 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 21-AA and association of individuals will be taxed as association of persons. 34. In the instant case, we are concerned with Assessment Years 1970-71 to 1977-78, Section 21-AA 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 members interest in the club was indeterminate or unknown.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]17. 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 eventuality that an assessment can be made on an association of persons, otherwise not.(2) of Section 21AA deals with cases of such associations as mentioned in(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 inns (4) and (5) deal with some consequences which will follow the members of an association of persons spoken of in(1) in the case of discontinuance orIt is 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, no argument was advanced on this aspect of the matter in any of the cases that have come for hearing along with this case. In 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 wereIn our view, Sectionfar 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 bythe Finance Act, 1981 whereby Sectionwas inserted to bring to tax net wealth of an association of persons where individual shares of the members of the association were unknown or. 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. Sectionhas 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 otherbody, 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 Sectionand association of individuals will be taxed as association ofIn the instant case, we are concerned with Assessment Years8, Sectionwas 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 members interest in the club was indeterminate or unknown