Section 21AA of the Wealth Tax Act- Wealth Tax - Club is not assessable to wealth tax in assessment as an Association of Persons.

Facts: The question for determination is whether Bangalore club is liable to pay wealth tax under the Wealth Tax Act. The order of assessment passed by the Wealth Tax Officer, Bangalore, referred to the fact that Bangalore club is not registered as a society, a trust or a company. AO came to the conclusion that the rights of the members are not restricted only to user or possession, but definitely as persons to whom the assets of the Club belong. After referring to Section 167A, inserted into the Income-tax Act, 1961, and after referring to Rule 35 of the Club Rules, AO concluded that the number of members and the date of dissolution are all uncertain and variable and therefore indeterminate, as a result of which the Club was liable to be taxed under the Wealth Tax Act. By a cryptic order,CIT (Appeals) dismissed the appeal against the aforesaid order. On further appeal, Tribunal held that on a reading of Rule 35, that since members are entitled to equal shares in the assets of the Club on winding-up after paying all debts and liabilities, the shares so fixed are determinate also making it clear that Section 21AA would have no application to the facts of the present case. As a result, Tribunal allowed the appeal and set aside the orders of AO and CIT (Appeals). Against this order, by a cryptic order of the High Court, the decision in CWT v. Club 197 ITR Karnataka 609 was stated to cover the facts of the present case, as a result of which the question raised was decided in favour of the revenue by the impugned order. A Review Petition filed against the order was dismissed. Being aggrieved, assessee went on appeal before Supreme Court.

Held, that 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. For all these reasons, it is clear that Section 21AA of the Wealth Tax Act does not get attracted to the facts of the present case. Several High Courts and the Tribunals have taken different view on the question whether a club registered under the provisions of Karnataka Societies Registration Act is exigible to tax under the provisions of the Wealth Tax Act, but in our view, for the present, the issue is now settled by the pronouncement of the Supreme Court in the case of the 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 an Association of Persons' and while saying so, the Court has observed that' the position has been placed beyond doubt by the insertion of Section 21AA in the Wealth Tax Act itself. What has to be seen in the facts of the present case is the list of members on the date of liquidation as per Rule 35. Given that as on that particular date, there would be a fixed list of members belonging to the various classes mentioned in the rules, it is clear that, applying the ratio of Trustees of H.E.H. Nizam's Family, such list of members not being a fluctuating body, but a fixed body as on the date of liquidation would again make the members 'determinate' as a result of which, Sec. 21AA would have no application. For all these reasons, the impugned judgment and the review judgment are set aside. The appeals are allowed with no order as to costs. - BANGALORE CLUB V/s CWT - [2020] 29 ITCD Online 004 (SC)