REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 3964-71 OF 2007 M/S BANGALORE CLUB Appellant VERSUS COMMISSIONER OF WEALTH TAX & ANR. ...Respondents JUDGMENT R.F. Nariman, J. 1. In year of grace 1868, group of British officers banded together to start Bangalore Club. In year of grace 1899, one Lt. W.L.S. Churchill was put up on Club s list of defaulters, which numbered 17, for amount of Rs.13/- being for unpaid bill of Club. Bill never became Act . Till date, this amount remains unpaid. Lt. W.L.S. Churchill went on to become Sir Winston Leonard Spencer Churchill, Prime Minister of Great Britain. And Bangalore Club continues its Signature Not Verified Digitally signed by Nidhi Ahuja Date: 2020.09.08 17:47:19 IST Reason: mundane existence, only excitement being when tax collector knocks at door to extract his pound of flesh. 1 2. Fast forward now from British India to free India and we come to assessment years 1981-82 and 1984-85 upto 1990-91. question for determination in these appeals is whether Bangalore Club is liable to pay wealth tax under Wealth Tax Act. order of assessment dated 3rd March, 2000, passed by Wealth Tax Officer, Bangalore, referred to fact that Bangalore Club is not registered as society, trust or company. assessing officer, without further ado, after careful perusal of rules of Club, came to conclusion that rights of members are not restricted only to user or possession, but definitely as persons to whom assets of Club belong. After referring to Section 167A, inserted into Income Tax Act, 1961, and after referring to Rule 35 of Club Rules, assessing officer concluded that number of members and date of dissolution are all uncertain and variable and therefore indeterminate, as result of which Club was liable to be taxed under Wealth Tax Act. By cryptic order dated 25th October, 2000, CIT (Appeals) dismissed appeal against aforesaid order. On other hand, by detailed order passed by Income Tax Appellate Tribunal, Bangalore dated 7th May, 2002, Appellate Tribunal first referred to Objects of Bangalore Club, which it described as social Club, as follows: 1. To provide for its Members, social, cultural, sporting, recreational and other facilities; 2 2. To promote camaraderie and fellowship among its members. 3. To run Club for benefit of its Members from out of subscriptions and contributions of its member. 4. To receive donations and gifts without conditions for betterment of Club. General Committee may use its discretion to accept sponsorships for sporting Areas 5. To undertake measures for social service consequent on natural calamities or disasters, national or local. 6. To enter into affiliation and reciprocal arrangements with other Clubs of similar standing both in India and abroad. 7. To do all other acts and things as are conducive or incidental to attainment of above objects. Provided always and notwithstanding anything hereinafter contained, aforesaid objects of Club, shall not be altered, amended, or modified, except, in General Meeting, for which unalterable quorum shall not be less than 300 members. Any resolution purporting to alter, amend, or modify objects of Club shall not be deemed to have been passed, except by two thirds majority of Members present and voting thereon. 3. Tribunal then set out Rule 35 of Club Rules, which stated as follows: RULE 35 APPOINTMENT OF LIQUIDATORS: If it be resolved to wind up, Meeting shall appoint liquidator or liquidators and fix his or their remuneration. liquidation shall be conducted as nearly as practicable in accordance with laws governing voluntary liquidation under Companies Act or any statutory modifications thereto and any surplus assets remaining after all debts and liabilities of Club have been discharged shall be divided equally amongst 3 Members of Club as defined in Rules 6.1(i), 6.1(ii), 6.1 (iii), 6.2(i), 6.2(ii), 6.2(iii), 6.2(vii), 6.2(viii) and 6.2(ix). 4. After setting out Section 21AA of Wealth Tax Act, Tribunal then referred to this Court s judgment in CIT v. Indira Balkrishna (1960) 39 ITR 546 and held: 9. From facts of case, it is clear that members who have joined here have not joined to earn any income or to share any profits. They have joined to enjoy certain facilities as per objects of club. members themselves are contributing to receipts of club. members themselves are contributing to receipts of club (sic) and what is difference between Income and Expenditure can be said to be only surplus and not income of assessee-club. It is accepted principle that principle of mutuality is applicable to assessee club and hence not liable to income-tax also. At most, this. may be called "Body of Individuals" but not AOP formed with intention to earn income. 5. It then referred to CBDT Circular dated 11th January, 1992, explaining pari materia provision of Sections 167A in Income Tax Act, and therefore inferred, from reading of aforesaid Circular, that Section 21AA would not be attracted to case of Bangalore Club. It was then held, on reading of Rule 35, that since members are entitled to equal shares in assets of Club on winding-up after paying all debts and liabilities, shares so fixed are determinate also making it clear that Section 21AA would have no application to facts of present case. As result, Appellate Tribunal allowed appeal and set aside orders of Assessing Officer and CIT (Appeals). 4 6. Against this order, by cryptic order of High Court, decision in CWT v. Club 197 ITR Karnataka 609 was stated to cover facts of present case, as result of which question raised was decided in favour of revenue by impugned order dated 23rd January, 2007. Review Petition filed against aforesaid order was dismissed on 19th April, 2007. 7. Shri Nikhil Nayyar, learned counsel appearing on behalf of appellant, referred to object for enactment of Section 21AA of Wealth Tax Act and then took us through provisions of Section 21AA. According to him, it is settled law by several judgments of this Court that association of persons in context of taxing statute would only refer to persons who band together with common object in mind common object being to create income and make profit. As it is clear that present Club is social club where members do not band together for any commercial or business purpose of making income or profits, section does not get attracted at all. Further, in any case, as without prejudice argument, it is clear that individual shares of members of said association in income or assets of association must be indeterminate or unknown to attract provision of Sec. 21AA. He took us to Appellate Tribunal judgment and to Rule 35, in particular, to argue that since on winding-up all members get equal share in surplus that remains after all debts 5 and liabilities are dealt with, their shares cannot be said to be indeterminate or unknown. For this purpose, he cited number of judgments of High Courts. He then adverted to explanation that was added to definition of person contained in Section 2(31) of Income Tax Act, which made it clear that on and from 1st April, 2002, association of persons need not be persons who band together for object of deriving income or profits. This explanation does not apply to Wealth Tax Act, and, in any case, given fact that assessment years in question are way before 1st April, 2002, law laid down by this Court in several judgments on association of persons would directly apply. 8. To counter these arguments, Shri Vikramjit Banerjee, learned Additional Solicitor General, referred to Rule 35 of Club Rules and relied heavily upon Section 21AA(2). According to Shri Banerjee, sub-section (2) deals with situation where association of persons is dissolved, and given Rule 35, Section, therefore, would directly apply to Bangalore Club. He then referred to this Court s judgment in Bangalore Club v. CIT (2013) 5 SCC 509, in which, for income tax purposes, Bangalore Club was assessed as association of persons. This being case, it cannot be that for income tax purposes, Bangalore Club is treated as association of persons but for wealth tax purposes, it cannot be so treated. He then referred to this Court s judgment in 6 CWT v. Ellis Bridge Gymkhana (1998) 1 SCC 384 in order to support impugned judgment of High Court which, according to him, correctly followed Chikmagalur Club s case (supra) which, in turn, only relied upon this Court s judgment in Ellis Bridge Gymkhana (supra). He also stated that finding of Assessing Officer that shares of fluctuating body of members would be indeterminate is correct and therefore, even on this ground it is clear that High Court judgment can be supported. 9. Having heard learned counsel for both sides, it is important to first advert to Section 3, which is charging section in Wealth Tax Act. Section 3(1) states as follows: 3. Charge of wealth-tax (1) Subject to other provisions contained in this Act, there shall be charged for every assessment year commencing on and from first day of April, 1957 but before first day of April, 1993, tax (hereinafter referred to as wealth-tax) in respect of net wealth on corresponding valuation date of every individual, Hindu undivided family and company at rate or rates specified in Schedule I. 10. It will be noticed that only three types of persons can be assessed to wealth tax under Section 3 i.e. individuals, Hindu undivided families and companies. It is clear that if Section 3(1) alone were to be looked at, Bangalore Club neither being individual, nor HUF, nor company cannot possibly be brought into wealth tax net under this provision. 7 11. By Finance Bill of 1981, Section 21AA was introduced into Wealth Tax Act. explanatory notes on introduction of Section 21AA were as follows: 21.1 Under Wealth Tax Act, 1957, individuals and Hindu Undivided Families are taxable entities but association of persons is not charged to wealth tax on its net wealth. Where individual or Hindu Undivided Family is member of association of persons, value of interest of such member in association of persons is determined in accordance with provisions of rules and is includible in net wealth of member. 21.2 Instances had come to notice of Government where certain assessees had resorted to creation of large number of associations of persons without specifically defining shares of members therein with view to avoiding proper tax liability. Under existing provisions, only value of interest of member in association which is ascertainable is includible in his net wealth. Accordingly, to extent value of interest of member in association cannot be ascertained or is unknown, no wealth tax is payable by such member in respect thereof. 21.3 In order to counter such attempts at tax avoidance through medium of multiple associations of persons without defining shares of members, Finance Act has inserted new Section 21-AA in Wealth Tax Act to provide for assessment in case of associations of persons which do not define shares of members in assets thereof. Sub-section (1) provides that where assets chargeable to wealth tax are held by association of persons (other than company or cooperative society) and individual shares of members of said association in income or assets of association on 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 like manner and to same extent as it is leviable upon and 8 recoverable from individual who is citizen of India and is resident in India at rates specified in Part I of Schedule I or at rate of 3 per cent, whichever course is more beneficial to Revenue. 12. With this object in mind, Section 21AA was enacted w.e.f. 1st April, 1981 as follows: 21AA. Assessment when assets are held by certain associations of persons (1) Where assets chargeable to tax under this Act are held by association of persons, other than company or cooperative society or society registered under Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India, and individual shares of members of said association in income or assets or both of said association on date of its formation or at any time thereafter are indeterminate or unknown, wealth-tax shall be levied upon and recovered from such association in like manner and to same extent as it would be leviable upon and recoverable from individual who is citizen of India and resident in India for purposes of this Act. (2) Where any business or profession carried on by association of persons referred to in subsection (1) has been discontinued or where such association of persons is dissolved, Assessing Officer shall make assessment of net wealth of association of persons as if no such discontinuance or dissolution had taken place and all provisions of this Act, including provisions relating to levy of penalty or any other sum chargeable under any provisions of this Act, so far as may be, shall apply to such assessment. (3) Without prejudice to generality of provisions of sub-section (2), if Assessing Officer or Deputy Commissioner (Appeals) or Commissioner (Appeals) in course of any proceedings under this Act in respect of any such association of persons as is referred to in sub- section (1) is satisfied that association of persons was guilty of any of acts specified in section 18 or section 9 18A, he may impose or direct imposition of penalty in accordance with provisions of said sections. (4) Every person who was at time of such discontinuance or dissolution member of association of persons, and legal representative of any such person who is deceased, shall be jointly and severally liable for amount of tax, penalty or other sum payable, and all provisions of this Act, so far as may be, shall apply to any such assessment or imposition of penalty or other sum. (5) Where such discontinuance or dissolution takes place after any proceedings in respect of assessment year have commenced, proceedings may be continued against persons referred to in sub-section (4) from stage at which proceedings stood at time of such discontinuance or dissolution, and all provisions of this Act shall, so far as may be, apply accordingly. 13. It can be seen that for first time from 1st April, 1981, association of persons other than company or cooperative society has been brought into tax net so far as wealth tax is concerned with rider that individual shares of members of such association in income or assets or both on date of its formation or at any time thereafter must be indeterminate or unknown. It is only then that section gets attracted. 14. first question that arises is as to what is meaning of expression association of persons which occurs in Section 21AA. In early judgment of this Court where expression association of persons occurred in Income Tax Act, 1922 cognate tax statute, 10 this Court in CIT v. Indira Balkrishna (supra) posed question no.3 as follows: (3) Whether on facts and in circumstances of case Tribunal was right in holding that assessment made on three widows of Balkrishna Purushottam Purani in status of association of persons is legal and valid in law? 15. After referring to amendments made in Income Tax Act speaking of association of persons and association of individuals , this Court went on to hold: 8 In absence of any definition as to what constitutes association of persons, we must construe words in their plain ordinary meaning and we must also bear in mind that words occur in section which imposes tax on total income of each one of units of assessment mentioned therein including association of persons. meaning to be assigned to words must take colour from context in which they occur 9. It is enough for our purpose to refer to three decisions: In re, B.N. Elias [(1935) 3 ITR 408]; CIT v. Laxmidas Devidas [(1937) 5 ITR 584]; and In re. Dwaraknath Harishchandra Pitale [(1937) 5 ITR 716]. In B.N. Elias Derbyshire, C.J. rightly pointed out that word associate means, according to Oxford dictionary, to join in common purpose, or to join in action . Therefore, association of persons must be one in which two or more persons join in common purpose or common action, and as words occur in section which imposes tax on income, association must be one object of which is to produce income profits or gains. This was view expressed by Beaumont, C.J. in CIT v. Laxmidas Devidas at p. 589 and also in Re. Dwaraknath Harishchandra Pitale. In re. B.N. Elias [(1935) III ITR 408] Costello, J. put test in more forceful language. He said: It may well be that intention of legislature was to hit combinations of 11 individuals who were engaged together in some joint enterprise but did not in law constitute partnership . When we find . that there is combination of persons formed for promotion of joint enterprise . then I think no difficulty arise in way of saying that these persons did constitute association . 10. We think that aforesaid decisions correctly lay down crucial test for determining what is association of persons within meaning of Section 3 of Income Tax Act, and they have been accepted and followed in number of later decisions of different High Courts to all of which it is unnecessary to call attention. It is, however, necessary to add some words of caution here. There is no formula of universal application as to what facts, how many of them and of what nature, are necessary to come to conclusion that there is association of persons within meaning of Section 3; it must depend on particular facts and circumstances of each case as to whether conclusion can be drawn or not. 16. Likewise, in G. Murugesan & Brothers v. CIT 88 ITR 432 (1973), this Court referred with approval to Indira Balakrishna (supra) and then held: 11. For forming Association of Persons , members of association must join together for purpose of producing income. Association of Persons can be formed only when two or more individuals voluntarily combine together for certain purpose. Hence volition on part of member of association is essential ingredient. It is true that even minor can join Association of Persons if his lawful guardian gives his consent. In case of receiving dividends from shares, where there is no question of any management, it is difficult to draw inference that two more shareholders functioned as Association of Persons from. mere fact that they jointly own one or more shares, and jointly receive dividends declared 12 those circumstances do not by themselves go to show that they acted as Association of Persons . 17. These judgments have since been referred to with approval in Meera and Co. v. CIT (1997) 4 SCC 677 (see paras 19 and 20) and Ramanlal Bhailal Patel v. State of Gujarat (2008) 5 SCC 449 (see paragraph 28). It may be mentioned in passing at this stage that under Income Tax Act explanation has been added to definition of person contained in Section 2(31), sub-clause (v) of which includes association of persons or body of individuals, whether incorporated or not . explanation inserted by amendment, which is w.e.f. 1st April, 2002, is as follows: Explanation. For purposes of this clause, association of persons or body of individuals or local authority or artificial juridical person shall be deemed to be person, whether or not such person or body or authority or juridical person was formed or established or incorporated with object of deriving income, profits or gains; 18. Obviously, therefore, after 1st April, 2002, ratio of aforesaid judgments has been undone by this explanation insofar as income tax is concerned. 19. It is well-settled that when Parliament used expression association of persons in Section 21AA of Wealth Tax Act, it must be presumed to know that this expression had been subject matter of comment in cognate allied legislation, namely, Income Tax Act, as referring to 13 persons banding together for common purpose, being business purpose in context of taxation statute in order to earn income or profits. This presumption is felicitously referred to in following judgments. 20. In P. Vajravelu Mudaliar v. Special Deputy Collector for Land Acquisition (1965) 1 SCR 614, this Court had to decide whether 4th Amendment to Constitution of India, which amended Article 31(2) of Constitution, made any change in whether compensation being just equivalent in money to be paid for acquisition continued to be just equivalent or something less. This Court held that since expression compensation , as interpreted in State of W.B. v. Bela Banerjee 1954 SCR 558, continued even after 4th Amendment, just equivalent in terms of money for land acquisition would continue having to be paid. Court held: Even after amendment, provision for compensation or laying down of principles for determining compensation is condition for making of law of acquisition or requisition. legislature, if it intends to make law for compulsory acquisition or requisition, must provide for compensation or specify principles for ascertaining compensation. fact that Parliament used same expressions, namely, compensation and principles as were found in Article 31 before amendment is clear indication that it accepted meaning given by this Court to those expressions in Mrs Bela Banerjee case [(1954) SCR 558] . It follows that legislature in making law of acquisition or requisition shall provide for just equivalent of what owner has been deprived of or specify principles for 14 purpose of ascertaining just equivalent of what owner has been deprived of. If Parliament intended to enable legislature to make such law without providing for compensation so defined, it would have used other expressions like price , consideration etc. In Craies on Statute Law, 6th Edn., at p. 167, relevant principle of construction is stated thus: There is well-known principle of construction, that where legislature used in Act legal term which has received judicial interpretation, it must be assumed that term is used in sense in which it has been judicially interpreted unless contrary intention appears. said two expressions in Article 31(2) before Constitution (Fourth Amendment) Act, have received authoritative interpretation by highest court in land and it must be presumed that Parliament did not intend to depart from meaning given by this Court to said expressions. (at page. 626) 21. In Sakal Deep Sahai Srivastava v. Union of India (1974) 1 SCC 338, in context of Limitation Act, this Court held: 8. only question of some difficulty raised before us is whether Article 102 or Article 120 of Limitation Act of 1908 would apply to case. After having heard attractive arguments of Mr Yogeshwar Prasad, we have no doubt that good deal can be said in favour of contention that claim for arrears of salary is distinguishable from claim for wages. But, our difficulty is that question appears to us to be no longer open for consideration afresh by us, or, at any rate, it is not advisable to review authorities of this Court, after such lapse of time when, despite view taken by this Court that Article 102 of Limitation Act of 1908 was applicable to such cases, Limitation Act of 1963 had been passed repeating law, contained in Articles 102 and 120 of Limitation Act of 1908, in identical terms without any modification. Legislature must be 15 presumed to be cognizant of view of this Court that claim of nature before us, for arrears of salary, falls within purview of Article 102 of Limitation Act of 1908. If Parliament, which is deemed to be aware of declarations of law by this Court, did not alter law, it must be deemed to have accepted interpretation of this Court even though correctness of it may be open to doubt. If doubts had arisen, it was for Legislature to clear these doubts. When Legislature has not done so, despite repeal of Limitation Act of 1908, and enactment of Limitation Act of 1963 after decisions of this Court, embodying possibly questionable view, we think it is expedient and proper to overrule submission made on behalf of appellant that correctness of view adopted by this Court in its decisions on question so far should be re-examined by larger Bench. 22. Likewise, in Diwan Bros. v. Central Bank of India (1976) 3 SCC 800, this Court referred to well-known dictum of Lord Buckmaster in Barras v. Aberdeen Steam Trawling and Fishing Company 1933 AC 402 and held as under: 22. Apart from above considerations, it is well- settled principle of interpretation of statutes that where Legislature uses expression bearing well-known legal connotation it must be presumed to have used said expression in sense in which it has been so understood. Craies on Statute Law observes as follows: There is well-known principle of construction, that where legislature uses in Act legal term which has received judicial interpretation, it must be assumed that term is used in sense in which it has been judicially interpreted, unless contrary intention appears. 23. In Barras v. Aberdeen Steam Trawling and Fishing Company [1933 AC 402, 411] Lord Buckmaster pointed out as follows: 16 It has long been well-established principle to be applied in consideration of Acts of Parliament that where word of doubtful meaning has received clear judicial interpretation, subsequent statute which incorporates same word or same phrase in similar context must be construed so that word or phrase is interpreted according to meaning that has previously been ascribed to it. Craies further points out that rule as to words judicially interpreted applies also to words with well-known legal meanings, even though they have not been subject of judicial interpretation. Thus applying these principles in instant case it would appear that when Court Fees Act uses word decree which had well-known legal significance or meaning, then Legislature must be presumed to have used this term in sense in which it has been understood, namely, as defined in Code of Civil Procedure even if there has been no express judicial interpretation on this point. 23. recent judgment of this Court namely, Shree Bhagwati Steel Rolling Mills v. CCE (2016) 3 SCC 643, refers to same presumption as follows: 21. It is settled law that Parliament is presumed to know law when it enacts particular piece of legislation. Prevention of Corruption Act was passed in year 1988, that is long after 1969 when Constitution Bench decision in Rayala Corpn. [Rayala Corpn. (P) Ltd. v. Director of Enforcement, (1969) 2 SCC 412] had been delivered. It is, therefore, presumed that Parliament enacted Section 31 knowing that decision in Rayala Corpn. [Rayala Corpn. (P) Ltd. v. Director of Enforcement, (1969) 2 SCC 412] had stated that omission would not amount to repeal and it is for this reason that Section 31 was enacted. This again does not take us further as this statement of law in Rayala Corpn. [Rayala Corpn. (P) Ltd. v. Director of Enforcement, (1969) 2 SCC 412] is no longer law declared by Supreme Court after decision in Fibre Board case [Fibre Boards (P) Ltd. v. CIT, 17 (2015) 10 SCC 333]. This reason therefore again cannot avail appellant. 24. This being case, it is clear that in order to be association of persons attracting Section 21AA of 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. presumption gets strengthened by language of Sec. 21AA (2), which speaks of business or profession carried on by association of persons which then gets discontinued or dissolved. thrust of provision therefore, is to rope in associations of persons whose common object is business or professional object, namely, to earn income or profits. Bangalore Club being social club whose objects have been referred to by 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. In fact, nature of these kind of clubs has been set out in Cricket Club of India Ltd v. Bombay Labour Union (1969) 1 SCR 600 as follows: What we have to see is nature of activity in fact and in substance. Though Club is incorporated as Company, it is not like ordinary Company constituted for purpose of carrying on business. There are no shareholders. No dividends are ever declared and no distribution of profits takes place. Admission to Club is by payment of admission fee and not by purchase of shares. Even this admission is subject to balloting. membership is not transferable like right of shareholders. There is provision for expulsion of 18 Member under certain circumstances which feature never exists in case of shareholder holding shares in Limited Company. membership is fluid. person retains rights as long as he continues as Member and gets nothing at all when he ceases to be Member, even though he may have paid large amount as admission fee. He even loses his rights on expulsion. In these circumstances, it is clear that Club cannot be treated as separate legal entity of nature of Limited Company carrying on business. Club, in fact, continues to be Members' Club without any shareholders and, consequently, all services provided in Club for Members have to be treated as activities of self-serving institution. (at page. 614) This judgment has been referred to with approval recently in State of West Bengal v. Calcutta Club Limited (2019) 13 SCALE 474 at paragraph 28. 25. At this stage, it is important to refer to CWT v. Ellis Bridge Gymkhana, (supra). In this case, Ellis Bridge Gymkhana, like Bangalore Club, is unincorporated club. assessment years involved in this case are from 1970-71 to 1977-78 i.e. prior to Section 21AA coming into force. Despite fact that Section 21AA did not apply, this Court referred to Section 21AA as follows: 15. All these provisions go to show that Wealth Tax Act has been drafted on same lines as Indian Income Tax Act, 1922. There is great similarity of wording between various provisions of Wealth Tax Act and corresponding provisions of Indian Income Tax Act, 1922. But in case of charging Section 3 of Wealth Tax Act, phraseology of charging Section 3 of Indian Income Tax Act, 1922 has not been adopted. Unlike Section 3 of Income Tax Act, Section 19 3 of Wealth Tax Act does not mention firm or association of persons or body of individuals as taxable units of assessment. 16. position has been placed beyond doubt by insertion of Section 21-AA in Wealth Tax Act itself. This amendment was effected by Finance Act, 1981 with effect from 1-4-1981. It provides for assessment of association of persons in certain special cases and not otherwise. Court then went on to hold: 17. It will be seen that assessment as association of persons can be made only when individual shares of members of association in income or assets or both of association on date of its formation or any time thereafter are indeterminate or unknown. It is only in such eventuality that assessment can be made on association of persons, otherwise not. Sub-section (2) of Section 21-AA deals with cases of such associations as mentioned in sub-section (1). That means only association of persons in which individual shares of members were unknown or indeterminate can be subjected to wealth tax. Sub-section (3) also deals with association of persons referred to in sub-section (1). Sub- sections (4) and (5) deal with some consequences which will follow members of association of persons spoken of in sub-section (1) in case of discontinuance or dissolution. xxx xxx xxx 19. In our view, Section 21-AA far from helping case of Revenue directly goes against its contention. association of persons cannot be taxed at all under Section 3 of Act. That is why amendment was necessary to be made by Finance Act, 1981 whereby Section 21-AA was inserted to bring to tax net wealth of association of persons where individual shares of members of association were unknown or indeterminate. 20 After referring to explanatory notes introducing Section 21AA in paragraph 32, Court then went on to hold: 33. It will appear from this notification that Central Board of Direct Taxes clearly recognised that 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 normal case, in assessment of individual, his wealth from every source will be added up and computed in accordance with provisions of Wealth Tax Act to arrive at net wealth which has to be taxed. So, if individual has any interest in 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 shares of individual in 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. 26. perusal of this judgment would show that Section 21AA has been introduced in order to prevent tax evasion. reason why it was enacted was not to rope in association of persons per se as one more taxable person to whom Act would apply. object was to rope in certain assessees who have resorted to creation of large number of association of persons without specifically defining shares of members of such associations of persons so as to evade tax. In construing Section 21AA, it is important to have regard to this object. 27. In K P Varghese v. ITO, 1982 (1) SCR 629, what arose for interpretation before Supreme Court was in context of capital gains as to 21 whether, to attract applicability of Sec. 52(2) of Income Tax Act, understatement of consideration is prerequisite. On purely literal reading of Sec. 52(2), it would be clear that no such condition has been mentioned. However, this Court, after referring to object of section held: Thus it is not enough to attract applicability of sub- section (2) that fair market value of capital asset transferred by assessee as on date of transfer exceeds full value of consideration declared in respect of transfer by not less than 15 per cent of value so declared, but it is furthermore necessary that full value of consideration in respect of transfer is understated or in other words, shown at lesser figure than that actually received by assessee. Sub-section (2) has no application in case of honest and bona fide transaction where consideration in respect of transfer has been correctly declared or disclosed by assessee, even if condition of 15 per cent difference between fair market value of capital asset as on date of transfer and full value of consideration declared by assessee is satisfied. (at page. 652, 653) 28. Bangalore Club is association of persons and not creation, by person who is otherwise assessable, of one among large number of associations of persons without defining shares of members so as to escape tax liability. For all these reasons, it is clear that Section 21AA of Wealth Tax Act does not get attracted to facts of present case. 22 29. However, impugned judgment of High Court relies solely upon CWT v. Chikmagalur Club (supra). This case dealt with club that was registered under provisions of Karnataka Societies Registration Act, 1960. After referring copiously to Appellate Authority s orders on facts in this case, Court went on to hold: 10. Several High Courts and Tribunals have taken different view on question whether club registered under provisions of Karnataka Societies Registration Act is exigible to tax under provisions of Wealth Tax Act, but in our view, for present, issue is now settled by pronouncement of Supreme Court in case of Commissioner of Wealth Tax v. Ellis Bridge Gymkhana [ 229 ITR 1.] wherein it is held that club is not assessable to wealth tax in assessment years 1970- 1971 to 1977-1978 as Association of Persons and while saying so, Court has observed that position has been placed beyond doubt by insertion of Section 21AA in Wealth Tax Act itself. For this purpose, paragraph 17 already extracted in Ellis Bridge Gymkhana case (supra) was referred to by said judgment. After referring to paragraph 17, Court then concluded: 13. Now that scope of Section 21AA of Act has been explained by Apex Court in Ellies Bridge Gymkhana Club's case-229 ITR 1, we need not dilate much on scope and interpretation of said Section. It would be suffice to notice that assessment as association of persons can be made only, when individual shares of members of association in income or assets or both of association on date of its formation or any time thereafter are indeterminate or unknown can be subjected to wealth tax. In present case, assessee is club registered under provisions of Karnataka Societies Registration Act and had declared nil wealth and had claimed that it is not 23 susceptible to provision of wealth Tax Act, since it is only association of persons providing recreation facilities to its members. This claim, in our view, is rightly rejected by both assessing authority as well as by first appellate authority on ground that assessee is association of persons and members are owners of assets and individual shares of members in owners of assets and individual shares of members in income or assets or both of association on date of formation or any time thereafter or indeterminate or unknown and accordingly, has subjected assessee to wealth tax. 30. What will be noticed is that High Court in Chikmagalur Club (supra) only referred to paragraph 17 and omitted to refer to paras 19, 32 and 33 of Ellis Bridge Gymkhana judgment (supra) which have been referred to by us hereinabove. If all these paragraphs would have been referred to, what would have been clear is that social club like Chikmagalur Club could not possibly be said to be association of persons regard being had to object sought to be achieved by enacting Section 21AA, which is Section enacted in order to prevent tax evasion. As has been pointed out by us hereinabove, Section was not introduced to add one more category to category of taxable persons that could have been done by amending charging section i.e. Section 3(1) of Wealth Tax Act. Further, High Court judgment is completely oblivious of line of judgments starting with Indira Balakrishna s case (supra) by which association of persons must mean persons who are banded together with common object 24 and, in context of taxation statute, common object being business object being to earn income or profits. This judgment does not refer to Indira Balakrishna (supra) and judgments following it at all. For all these reasons, judgment in CWT v. Chikmagalur Club (supra) not being correctly decided, is overruled. Equally, High Court judgment which rests solely upon decision in Chikmagalur Club s case (supra) has no legs to stand. 31. We now come to some of points raised by learned Additional Solicitor General, Shri Banerjee. submission that Section 21AA (2) which deals with dissolution of association of persons and fact that on dissolution under Rule 35 of Bangalore Club, members get equal share would show first, that Bangalore Club is association of persons; and second, that member s share in its income and assets are indeterminate or unknown, is argument which has to be stated to be rejected. First and foremost, sub-section (2) begins with words any business or profession carried on by association of persons. No business or profession is carried on by social members club. Further, association of persons mentioned in sub-section (1) must be persons who have banded together for business objective to earn profits and if this itself is not case, then sub-section (2) cannot possibly apply. Insofar as Rule 35 is concerned, again what is clear is that on liquidation, any surplus assets 25 remaining after all debts and liabilities of club has been discharged, shall be divided equally amongst all categories of members of club. This would show that at any time thereafter within meaning of Section 21AA (1), members shares are determinate in that on liquidation each member of whatsoever category gets equal share. 32. judgments cited by Shri Nikhil Nayyar in so far as this aspect is concerned, have no direct relevance. judgment in CWT v. Rama Varma Club 226 ITR 898 and CWT v. George Club 191 ITR 368 are both judgments in which no part of assets is to be distributed even on liquidation to any of members of these clubs. Thus, it was held in these cases that members do not have any share in income or assets of club at all. same cannot be said in facts of this case inasmuch as under Rule 35 members of Bangalore Club are entitled to receive surplus assets in circumstances stated in Rule 35 - equally on liquidation. However, result remains same viz., that even if it be held that Bangalore Club is association of persons, members shares being determinate do not attract Section 21AA. 33. Shri Banerjee then relied upon judgment in Bangalore Club v. CIT (2013) 5 SCC 509 only in order to point out that Bangalore Club was taxed as AOP under Income Tax Act and cannot and should not therefore, escape liability under Wealth Tax Act (an allied and 26 cognate Act). First and foremost, definition of person in Section 2(31) of Income Tax Act would take in both association of persons and body of individuals. For purposes of income tax, Bangalore Club could perhaps be treated to be body of individuals which is wider expression than association of persons in which such body of individuals may have no common object at all but would include combination of individuals who had nothing more than unity of interest. This distinction has been made by Andhra Pradesh High Court in Deccan Wine and General Stores v. CIT 106 ITR 111 at pages 116, 117. Quite apart from this, to be taxed as association of persons under Income Tax Act is to be taxed as association of persons per se. We have already seen that Section 21AA does not enlarge field of tax payers but only plugs evasion as association of persons must be formed with members who have indeterminate shares in its income or assets. For all these reasons, we cannot accede to Shri Banerjee s argument that being taxed as association of persons under Income Tax Act, Bangalore Club must be regarded to be association of persons for purpose of tax evasion provision in Wealth Tax Act as opposed to charging provision in Income Tax Act. One last argument of Shri Banerjee needs to be addressed. According to learned ASG, fact that membership of club is fluctuating body of individuals would 27 necessarily lead to conclusion that shares of members in assets or income of club would be indeterminate. In CWT v. Trustees of H.E.H. Nizam's Family 108 ITR 555 (1977), this court had to construe Sec. 21 of Wealth Tax Act. Sec. 21 (1) & (4) which are relevant for our purpose are set out hereinbelow: 21. (1) In case of assets chargeable to tax under this Act, which are held by court of wards or administrator-general or official trustee or any receiver or manager or any other person, by whatever name called, appointed under any order of court to manage property on behalf of another, or any trustee appointed under trust declared by duly executed instrument in writing, whether testamentary or otherwise (including trustee under valid deed of wakf), wealth-tax shall be levied upon and recoverable from court of wards, administrator-general, official trustee, receiver, manager or trustee, as case may be, in like manner and to same extent as it would be leviable upon and recoverable from person on whose behalf or for whose benefit assets are held, and provisions of this Act shall apply accordingly. xxx xxx xxx (4) Notwithstanding anything contained in this section, where shares of persons on whose behalf or for whose benefit any such assets are held are indeterminate or unknown, wealth-tax shall be levied upon and recovered from court of wards, administrator-general, official trustee, receiver, manager, or other person aforesaid as if person on whose behalf or for whose benefit assets are held were individual for purposes of this Act. 28 34. argument made in this case was that, as members of Nizam s family trust who are beneficiaries thereof would be fluctuating body of persons, beneficiaries must be said to be indeterminate as result of which Sec. 21(4) of Act would apply and not Sec. 21(1). This was repelled by this Court stating: This immediately takes us to question as to which of two sub-sections, (1) or (4) of Section 21 applies for purpose of assessing assessees to wealth tax in respect of beneficial interest in remainder qua each set of unit or units allocated to relatives specified in Second Schedule. Now it is clear from language of Section 3 that charge of wealth tax is in respect of net wealth on relevant valuation date, and, therefore, question in regard to applicability of sub- section (1) or (4) of Section 21 has to be determined with reference to relevant valuation date. Wealth Tax Officer has to determine who are beneficiaries in respect of remainder on relevant date and whether their shares are indeterminate or unknown. It is not at all relevant whether beneficiaries may change in subsequent years before date of distribution, depending upon contingencies which may come to pass in future. So long as it is possible to say on relevant valuation date that beneficiaries are known and their shares are determinate, possibility that beneficiaries may change by reason of subsequent events such as birth or death would not take case out of ambit of sub-section (1) of Section 21. It is no answer to applicability of sub-section (1) of Section 21 to say that beneficiaries are indeterminate and unknown because it cannot be predicated who would be beneficiaries in respect of remainder on death of owner of life interest. position has to be seen on relevant valuation date as if preceding life interest had come to end on that date and if, on that hypothesis, it is possible to determine who precisely would 29 be beneficiaries and on what determinate shares, sub- section (1) of Section 21 must apply and it would be matter of no consequence that number of beneficiaries may vary in future either by reason of some beneficiaries ceasing to exist or some new beneficiaries coming into being. Not only does this appear to us to be correct approach in application of sub-section (1) of Section 21, but we find that this has also been general consensus of judicial opinion in this country in various High Courts during last about thirty years. first decision in which this view was taken was rendered as far back as 1945 by Patna High Court in Khan Bahadur M. Habibur Rahman v.CIT [(1945) 13 ITR 189 (Pat)] and since then, this view has been followed by Calcutta High Court in Suhashini Karuri v. WTO [(1962) 46 ITR 953 (Cal)] Bombay High Court in Trustees of Putlibai R.F. Mulla Trust v. CWT [(1967) 66 ITR 653, 657- 8 (Bom)] and CWT v. Trustees of Mrs Hansabai Tribhu wandas Trust [(1967) 69 ITR 527 (Bom)] and Gujarat High Court in Padmavati Jaykrishna Trust v.CIT [(1966) 61 ITR 66, 73-4 (Guj)]. Calcutta High Court pointed out in Suhashini Karuri case: share of beneficiary can be said to be indeterminate if at relevant time share cannot be determined but merely because number of beneficiaries vary from time to time, one cannot say that it is indeterminate. same proposition was formulated in slightly different language by Bombay High Court in Trustees of Putalibai R.F. Mulla Trust case [(1967) 66 ITR 653, 657-8 (Bom)]: question whether shares of beneficiaries are determinate or known has to be judged as on relevant date in each respective year of taxation. Therefore, whatever may be position as to any future date, so far as relevant date in each year is concerned, it is upon terms of trust deed always possible to determine who are sharers and what their shares respectively are. 30 Gujarat High Court also observed in Padmavati Jaykrishna Trust case [(1966) 61 ITR 66, 73-4 (Guj)] : . . . in order to ascertain whether shares of beneficiaries and their numbers were determinate or not, Wealth Tax Officer has to ascertain facts as they prevailed on relevant date and therefore any variation in number of beneficiaries in future would not matter and would not make sub-section (4) of Section 21 applicable. These observations represent correct statement of law and we have no doubt that in order to determine applicability of sub-section (1) of Section 21, what has to be seen is whether on relevant valuation date, it is possible to say with certainty and definiteness as to who would be beneficiaries and whether their shares would be determinate and specific, if event on happening of which distribution is to take place occurred on that date. If it is, sub-section (1) of Section 21 would apply: if not, case will be governed by sub-section (4) of Section 21. 35. It is thus clear that what has to be seen in facts of present case is list of members on date of liquidation as per Rule 35 cited hereinabove. Given that as on that particular date, there would be fixed list of members belonging to various classes mentioned in rules, it is clear that, applying ratio of Trustees of H.E.H. Nizam's Family (supra), such list of members not being fluctuating body, but fixed body as on date of liquidation would again make members determinate as result of which, Sec. 21AA would have no application. 31 36. For all these reasons, impugned judgment and review judgment are set aside. appeals are allowed with no order as to costs. .. J. (R. F. Nariman) .. J. (Navin Sinha) .. J. (Indira Banerjee) New Delhi. September 08, 2020. 32 Bangalore Club v. Commissioner of Wealth-tax & Anr