M/S BANGALORE CLUBversusTHE COMMISSIONER OF WEALTH TAX & ANR.

488                       [2020]
               SUPREME COURT     13 S.C.R. 488
                              REPORTS                     [2020] 13 S.C.R.


A                          M/S BANGALORE CLUB
                                        v.
             THE COMMISSIONER OF WEALTH TAX & ANR.
                       (Civil Appeal Nos. 3964-71 of 2007)
B                            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
C
      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
D     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
E
      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
F     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
G     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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                                       488
    M/S BANGALORE CLUB v. THE COMMISSIONER OF                         489
               WEALTH TAX & ANR.

this provision. By the Finance Bill of 1981, Section 21AA was         A
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
                                                                      B
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            C
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   D
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       E
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        F
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         G
whom the Act would apply. The object was to rope in certain
assessees who have resorted to the creation of a large number


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490            SUPREME COURT REPORTS                       [2020] 13 S.C.R.


A     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
      to this object. [Paras 19, 24 & 26][502-E-F; 506-A-D; 508-G-H]
            Cricket Club of India Ltd v. Bombay Labour Union
B           [1969] 1 SCR 600 – relied on.
              1.3 The 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. Section
C     21AA of the Wealth Tax Act does not get attracted to the facts of
      the present case. The Section was not introduced to add one
      more category to the category of taxable persons – that could
      have been done by amending the charging section i.e. Section
      3(1) of the Wealth Tax Act. The judgment in CWT v. Chikmagalur
      Club not being correctly decided, is overruled. Equally, the High
D     Court judgment which rests solely upon the decision in
      Chikmagalur Club’s case has no legs to stand. Sub-section (2)
      begins with the words “any business or profession carried on”
      by an association of persons. No business or profession is carried
      on by a social members club. Further, the association of persons
E     mentioned in sub-section (1) must be persons who have banded
      together for a business objective – to earn profits – and if this
      itself is not the 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 remaining after all debts and
      liabilities of the club has been discharged, shall be divided equally
F     amongst all categories of members of the club. This would show
      that “at any time thereafter” within the meaning of Section 21AA
      (1), the members’ shares are determinate in that on liquidation
      each member of whatsoever category gets an equal share. Under
      Rule 35 the members of the Bangalore Club are entitled to
G     receive surplus assets in the circumstances stated in Rule 35-
      equally on liquidation. However, the result remains the same –
      viz., that even if it be held that the Bangalore Club is an association



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     M/S BANGALORE CLUB v. THE COMMISSIONER OF                          491
                WEALTH TAX & ANR.

of persons, the members’ shares being determinate do not attract        A
Section 21AA. [Paras 28, 30-32][509-E-F; 511-A-B, C-D, E-G;
512-B-C]
      CWT v. ChikmagalurClub 197 ITR Karnataka 609 –
      overruled.
      CIT v. Indira Balkrishna (1960) 39 ITR 546 – relied               B
      on.
      1.4 The definition of “person” in Section 2(31) of the Income
Tax Act would take in both an association of persons and a body
of individuals. For the purposes of income tax, the Bangalore
Club could perhaps be treated to be a ‘body of individuals’ which       C
is a wider expression than ‘association of persons’ in which such
body of individuals may have no common object at all but would
include a combination of individuals who had nothing more than a
unity of interest. To be taxed as an association of persons under
the Income Tax Act is to be taxed as an association of persons          D
per se. Section 21AA does not enlarge the field of tax payers but
only plugs evasion as the association of persons must be formed
with members who have indeterminate shares in its income or
assets. [Para 33][512-D-F]
       1.5 What has to be seen in the facts of the present case is      E
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           F
members ‘determinate’ as a result of which, Sec. 21AA would
have no application. The impugned judgment and the review
judgment are set aside. [Paras 35, 36][515-G-H; 516-A-B]
      CWT v. Trustees of H.E.H. Nizam’s Family 108 ITR 555
      (1977); P. Vajravelu Mudaliar v. Special Deputy                   G
      Collector for Land Acquisition [1965] 1 SCR 614; Sakal
      Deep Sahai Srivastava v. Union of India (1974) 1 SCC
      338 : [1974] 2 SCR 485; Shree Bhagwati Steel Rolling

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492          SUPREME COURT REPORTS                     [2020] 13 S.C.R.


A          Mills v. CCE (2016) 3 SCC 643 : [2015] 12 SCR 332;
           Diwan Bros. v. Central Bank of India (1976) 3 SCC
           800 : [1976] Suppl. SCR 664 – relied on.
           CWT v. Ellis Bridge Gymkhana (1998) 1 SCC 384 :
           [1997] 4 Suppl. SCR 626; Bangalore Club v. CIT
B          (2013) 5 SCC 509 : [ 2013] 1 SCR 267; G.Murugesan
           & Brothers v. CIT 88 ITR 432 (1973); Meera and Co.
           v. CIT (1997) 4 SCC 677 : [1997] 2 SCR 991; Ramanlal
           Bhailal Patel v. State of Gujarat (2008) 5 SCC 449 :
           [2008] 2 SCR 468; State of W.B. v. Bela Banerjee [1954]
           SCR 558; State of West Bengal v. Calcutta Club Limited
C          (2019) 13 SCALE 474; K P Varghese v. ITO [1982] 1
           SCR 629 – referred to.
           CWT v. Rama Varma Club 226 ITR 898; CWT v. George
           Club 191 ITR 368 – distinguished.

D          Deccan Wine and General Stores v. CIT106 ITR 111 –
           referred to.
           Barras v. Aberdeen Steam Trawling and Fishing
           Company 1933 AC 402 – referred to.
                           Case Law Reference
E
      (1960) 39 ITR 546            relied on               Para 4
      [2013] 1 SCR 267             referred to             Para 8
      [1997] 4 Suppl. SCR 626      referred to             Para 8
      88 ITR 432 (1973)            referred to             Para 16
F
      [1997] 2 SCR 991             referred to             Para 17
      [2008] 2 SCR 468             referred to             Para 17
      [1965] 1 SCR 614             relied on               Para 20
      [1954] SCR 558               referred to             Para 20
G
      [1974] 2 SCR 485             relied on               Para 21
      [1976] Suppl. SCR 664        relied on               Para 22
      [2015] 12 SCR 332            relied on               Para 23

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     M/S BANGALORE CLUB v. THE COMMISSIONER OF                                 493
                WEALTH TAX & ANR.

[1969] 1 SCR 600                  relied on                  Para 24           A
(2019) 13 SCALE 474               referred to                Para 24
[1982] 1 SCR 629                  referred to                Para 27
108 ITR 555 (1977)       relied on             Para 33
      CIVIL APPELLATE JURISDICTION : Civil appeal nos. 3964-                   B
3971 of 2007.

      From the Judgment and Order dated 23.01.2007 of the High Court
of Karnataka at Bangalore in Wealth Tax Appeal Nos. 31, 32, 33, 34, 35,
36 and 37 of 2002.
                                                                               C
       Vikramjit Banerjee, ASG, Nikhil Nayyar, K. Radhakrishnan, Sr.
Advs., Gautam Narayan, Ms. Asmita Singh, Divyanshu Rai, Adithya
Nair, Ms. Gargi Khanna, Ms. Niranjana Singh, Mrs. Anil Katiyar, Advs.
for the appearing parties.
      The judgment of the Court was delivered by                               D
      R. F. NARIMAN, J.
       1. In the year of grace 1868, a group of British officers banded
together to start the Bangalore Club.In the year of grace 1899, one Lt.
W.L.S. Churchill was put up on the Club’s list of defaulters, which
                                                                               E
numbered 17, for an amount of Rs.13/- being for an unpaid bill of the
Club. The “Bill” never became an “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 the Bangalore
Club continues its mundane existence, the only excitement being when
the tax collector knocks at the door to extract his pound of flesh.            F
       2. Fast forward now from British India to free India and we come
to assessment years 1981-82 and 1984-85 upto 1990-91. The question
for determination in these appeals is whether Bangalore Club is liable to
pay wealth tax under the Wealth Tax Act.The order of assessment dated
3rd March, 2000, passed by the Wealth Tax Officer, Bangalore, referred         G
to the fact that Bangalore Club is not registered as a society, a trust or a
company. The assessing officer, without further ado, “after a careful
perusal” of the rules of the Club, came to the conclusion that the rights
of the members are not restricted only to user or possession, but definitely

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494            SUPREME COURT REPORTS                         [2020] 13 S.C.R.


A     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, the assessing officer 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 dated
B
      25th October, 2000, the CIT (Appeals) dismissed the appeal against the
      aforesaid order. On the other hand, by a detailed order passed by the
      Income Tax Appellate Tribunal, Bangalore dated 7th May, 2002, the
      Appellate Tribunal first referred to the Objects of the Bangalore Club,
      which it described as a “social” Club, as follows:
C           “1. To provide for its Members, social, cultural, sporting,
            recreational and other facilities;
            2. To promote camaraderie and fellowship among its members.
            3. To run the Club for the benefit of its Members from out of the
D           subscriptions and contributions of its member.
            4. To receive donations and gifts without conditions for the
            betterment of the Club. The General Committee may use its
            discretion to accept sponsorships for sporting Areas
            5. To undertake measures for social service consequent on natural
E           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
            the attainment of the above objects.
F
            Provided always and notwithstanding anything hereinafter
            contained, the aforesaid objects of the Club, shall not be altered,
            amended, or modified, except, in a General Meeting, for which
            the unalterable quorum shall not be less than 300 members. Any
            resolution purporting to alter, amend, or modify the objects of the
G           Club shall not be deemed to have been passed, except by a two
            thirds majority of the Members present and voting thereon.”
             3. The Tribunal then set out Rule 35 of the Club Rules, which
      stated as follows:

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     M/S BANGALORE CLUB v. THE COMMISSIONER OF                                 495
          WEALTH TAX & ANR. [R.F. NARIMAN, J.]

      “RULE 35 APPOINTMENT OF LIQUIDATORS:                                     A
      If it be resolved to wind up, the Meeting shall appoint a liquidator
      or liquidators and fix his or their remuneration. The liquidation
      shall be conducted as nearly as practicable in accordance with
      thelaws governing voluntary liquidation under the Companies Act
      orany statutory modifications thereto and any surplus                    B
      assetsremaining after all debts and liabilities of the Club have
      beendischarged shall be divided equally amongst the Members of
      theClub 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 the Wealth Tax Act, the             C
Tribunal then referred to this Court’s judgment in CIT v. Indira
Balkrishna (1960) 39 ITR 546 and held:
      “9. From the facts of the 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 the          D
      objectsof the club.The members themselves are contributing to
      the receipts of the club. Themembers themselves are contributing
      to the receipts of the club (sic) and whatis the difference between
      the Income and Expenditurecan be said to beonly surplus and not
      income of the assessee-club. It is an acceptedprinciple that principle
                                                                               E
      of mutuality is applicable to the assessee club andhence not liable
      to income-tax also. At the most, this. may be called the”Body of
      Individuals” but not an AOP formed with an intention to
      earnincome.”
       5. It then referred to a CBDT Circular dated 11th January, 1992,
                                                                               F
explaining the pari materia provision of Sections 167A in the Income
Tax Act, and therefore inferred, from a reading of the aforesaid Circular,
that Section 21AA would not be attracted to the case of the Bangalore
Club. It was then held, 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     G
making it clear that Section 21AA would have no application to the facts
of the present case. As a result, the Appellate Tribunal allowed the appeal
and set aside the orders of the Assessing Officer and the CIT (Appeals).
      6. 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              H
496             SUPREME COURT REPORTS                          [2020] 13 S.C.R.


A     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 dated 23rd
      January, 2007. A Review Petition filed against the aforesaid order was
      dismissed on 19th April, 2007.
              7. Shri Nikhil Nayyar, learned counsel appearing on behalf of the
B     appellant, referred to the object for the enactment of Section 21AA of
      the Wealth Tax Act and then took us through the provisions of Section
      21AA. According to him, it is settled law by several judgments of this
      Court that “association of persons” in the context of a taxing statute
      would only refer to persons who band together with a common object in
      mind – the common object being to create income and make a profit.As
C     it is clear that the present Club is a social club where the members do
      not band together for any commercial or business purpose of making
      income or profits, the section does not get attracted at all.Further, in any
      case, as a without prejudice argument, it is clear that the individual shares
      of the members of the said association in income or assets of the
D     association must be indeterminate or unknown to attract the provision of
      Sec. 21AA. He took us to the Appellate Tribunal judgment and to Rule
      35, in particular, to argue that since on winding-up all members get an
      equal share in the surplus that remains after all debtsand liabilities are
      dealt with, their shares cannot be said to be indeterminate or unknown.For
      this purpose, he cited a number of judgments of the High Courts.He
E     then adverted to an explanation that was added to the definition of
      “person” contained in Section 2(31) of the Income Tax Act, which made
      it clear that on and from 1st April, 2002, an association of persons need
      not be persons who band together for the object of deriving income or
      profits. This explanationdoes not apply to the Wealth Tax Act, and, in
F     any case, given the fact that the assessment years in question are way
      before 1st April, 2002, the 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 the Club Rules and
G     relied heavily upon Section 21AA(2). According to Shri Banerjee, sub-
      section (2) deals with a situation where the association of persons is
      dissolved, and given Rule 35, the Section, therefore, would directly apply
      to the 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, the Bangalore Club was assessed as an association of persons.
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     M/S BANGALORE CLUB v. THE COMMISSIONER OF                                497
          WEALTH TAX & ANR. [R.F. NARIMAN, J.]

This being the case, it cannot be that for income tax purposes, the           A
Bangalore Club is treated as an association of persons but for wealth
tax purposes, it cannot be so treated.He then referred to this Court’s
judgment in CWT v. Ellis Bridge Gymkhana(1998) 1 SCC 384 in
order to support the impugned judgment of the High Court which,
according to him, correctly followed Chikmagalur Club’s case (supra)
                                                                              B
which, in turn, only relied upon this Court’s judgment in Ellis Bridge
Gymkhana (supra). He also stated that the finding of the Assessing
Officer that the shares of a fluctuating body of members would be
indeterminate is correct and therefore, even on this ground it is clear
that the High Court judgment can be supported.
        9. Having heard learned counsel for both sides, it is important to    C
first advert to Section 3, which is the charging section in the Wealth Tax
Act. Section 3(1) states as follows:
      “3. Charge of wealth-tax—(1) Subject to the other provisions
      contained in this Act, there shall be charged for every assessment
      year commencing on and from the first day of April, 1957 but            D
      before the first day of April, 1993, a tax (hereinafter referred to
      as wealth-tax) in respect of the net wealth on the corresponding
      valuation date of every individual, Hindu undivided family and
      company at the rate or rates specified in Schedule I.”
       10. It will be noticed that only three types of persons can be         E
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, the Bangalore Club neither being an individual, nor a HUF, nor
a company cannot possibly be brought into the wealth tax net under this
provision.                                                                    F
       11. By the Finance Bill of 1981, Section 21AA was introduced
into the Wealth Tax Act.The explanatory notes on the introduction of
Section 21AA were as follows:
      “21.1 Under the Wealth Tax Act, 1957, individuals and Hindu
      Undivided Families are taxable entities but an association of persons   G
      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 member.
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498            SUPREME COURT REPORTS                           [2020] 13 S.C.R.


A           21.2 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
B
            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
            thereof.
            21.3 In order to counter such attempts at tax avoidance through
C           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)
D           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
E           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.”
F            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 an association of persons, other than a
G           company or cooperative society or society registered under the
            Societies Registration Act, 1860 (21 of 1860) or under any law
            corresponding to that Act in force in any part of India, and the
            individual shares of the members of the said association in the
            income or assets or both of the said association on the date of its
H           formation or at any time thereafter are indeterminate or unknown,
     M/S BANGALORE CLUB v. THE COMMISSIONER OF                               499
          WEALTH TAX & ANR. [R.F. NARIMAN, J.]

      the wealth-tax shall be levied upon and recovered from such            A
      association in the like manner and to the same extent as it would
      be leviable upon and recoverable from an individual who is a citizen
      of India and resident in India for the purposes of this Act.
      (2) Where any business or profession carried on by an association
      of persons referred to in subsection (1) has been discontinued or      B
      where such association of persons is dissolved, the Assessing
      Officer shall make an assessment of the net wealth of the
      association of persons as if no such discontinuance or dissolution
      had taken place and all the provisions of this Act, including the
      provisions relating to the levy of penalty or any other sum
      chargeable under any provisions of this Act, so far as may be,         C
      shall apply to such assessment.
      (3) Without prejudice to the generality of the provisions of sub-
      section (2), if the Assessing Officer or the Deputy Commissioner
      (Appeals) or the Commissioner (Appeals) in the course of any
      proceedings under this Act in respect of any such association of       D
      persons as is referred to in sub-section (1) is satisfied that the
      association of persons was guilty of any of the acts specified in
      section 18 or section 18A, he may impose or direct the imposition
      of a penalty in accordance with the provisions of the said sections.
      (4) Every person who was at the time of such discontinuance or         E
      dissolution a member of the association of persons, and the legal
      representative of any such person who is deceased, shall be jointly
      and severally liable for the amount of tax, penalty or other sum
      payable, and all the provisions of this Act, so far as may be, shall
      apply to any such assessment or imposition of penalty or other         F
      sum.
      (5) Where such discontinuance or dissolution takes place after
      any proceedings in respect of an assessment year have
      commenced, the proceedings may be continued against the persons
      referred to in sub-section (4) from the stage at which the             G
      proceedings stood at the time of such discontinuance or dissolution,
      and all the provisions of this Act shall, so far as may be, apply
      accordingly.”
      13. It can be seen that for the first time from 1st April, 1981, an
association of persons other than a company or cooperative society has
                                                                             H
500            SUPREME COURT REPORTS                         [2020] 13 S.C.R.


A     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.
B            14. The first question that arises is as to what is the meaning of
      the expression “association of persons” which occurs in Section 21AA.
      In an early judgment of this Court where the expression “association of
      persons” occurred in the Income Tax Act, 1922 – a cognate tax statute,
      this Court in CIT v. Indira Balkrishna (supra) posed question no.3 as
      follows:
C
            “(3) Whether on the facts and in the circumstances of the case
            the Tribunal was right in holding that the assessment made on the
            three widows of Balkrishna Purushottam Purani in the status of
            an association of persons is legal and valid in law?”

D            15. After referring to the amendments made in the Income Tax
      Act speaking of “association of persons” and “association of individuals”,
      this Court went on to hold:
            “8…In the absence of any definition as to what constitutes an
            association of persons, we must construe the words in their plain
E           ordinary meaning and we must also bear in mind that the words
            occur in a section which imposes a tax on the total income of
            each one of the units of assessment mentioned therein including
            an association of persons. The meaning to be assigned to the
            words must take colour from the context in which they occur…

F           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 the word “associate” means, according to
            the Oxford dictionary, “to join in common purpose, or to join in
G           an action”. Therefore, an association of persons must be one in
            which two or more persons join in a common purpose or common
            action, and as the words occur in a section which imposes a tax
            on income, the association must be one the object of which is to
            produce income profits or gains. This was the view expressed by
            Beaumont, C.J. in CIT v. LaxmidasDevidas at p. 589 and also
H
     M/S BANGALORE CLUB v. THE COMMISSIONER OF                                501
          WEALTH TAX & ANR. [R.F. NARIMAN, J.]

      in Re. Dwaraknath Harishchandra Pitale. In re. B.N.                     A
      Elias [(1935) III ITR 408] Costello, J. put the test in more forceful
      language. He said: “It may well be that the intention of the
      legislature was to hit combinations of individuals who were engaged
      together in some joint enterprise but did not in law constitute
      partnership…. When we find …. that there is a combination of
                                                                              B
      persons formed for the promotion of a joint enterprise …. then I
      think no difficulty arise in the way of saying that these persons did
      constitute an association….”
      10. We think that the aforesaid decisions correctly lay down the
      crucial test for determining what is an association of persons within
      the meaning of Section 3 of the Income Tax Act, and they have           C
      been accepted and followed in a 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           D
      a conclusion that there is an association of persons within the
      meaning of Section 3; it must depend on the particular facts and
      circumstances of each case as to whether the conclusion can be
      drawn or not.”
      16. Likewise, in G. Murugesan & Brothers v. CIT 88 ITR 432              E
(1973), this Court referred with approval to Indira Balakrishna (supra)
and then held:
      “11. For forming an “Association of Persons”, the members of
      the association must join together for the purpose of producing an
      income. An “Association of Persons” can be formed only when             F
      two or more individuals voluntarily combine together for a certain
      purpose. Hence volition on the part of the member of the
      association is an essential ingredient. It is true that even a minor
      can join an “Association of Persons” if his lawful guardian gives
      his consent. In the case of receiving dividends from shares, where
      there is no question of any management, it is difficult to draw an      G
      inference that two more shareholders functioned as an “Association
      of Persons” from. The mere fact that they jointly own one or
      more shares, and jointly receive the dividends declared those
      circumstances do not by themselves go to show that they acted
      as an “Association of Persons”. “                                       H
502            SUPREME COURT REPORTS                            [2020] 13 S.C.R.


A            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
      the Income Tax Act an explanation has been added to the definition of
      “person” contained in Section 2(31), sub-clause (v) of which includes
B
      “an association of persons or a body of individuals, whether incorporated
      or not”. The explanation inserted by amendment, which is w.e.f. 1st
      April, 2002, is as follows:
            “Explanation.—For the purposes of this clause, an association
            of persons or a body of individuals or a local authority or an artificial
C           juridical person shall be deemed to be a person, whether or not
            such person or body or authority or juridical person was formed
            or established or incorporated with the object of deriving income,
            profits or gains;”
             18. Obviously, therefore, after 1st April, 2002, the ratio of the
D     aforesaid judgments has been undone by this explanation insofar as income
      tax is concerned.
             19. It is well-settled that 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
E     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.This presumption is felicitously referred to in the
      following judgments.
F            20. In P. VajraveluMudaliar v. Special Deputy Collector for
      Land Acquisition (1965) 1 SCR 614, this Court had to decide whether
      the 4th Amendment to the Constitution of India, which amended Article
      31(2) of the Constitution, made any change in whether compensation
      being a just equivalent in money to be paid for acquisition continued to
G     be a just equivalent or something less. This Court held that since the
      expression “compensation”,as interpreted in State of W.B. v. Bela
      Banerjee 1954 SCR 558, continued even after the 4th Amendment, a
      just equivalent in terms of money for land acquisition would continue
      having to be paid. The Court held:

H
    M/S BANGALORE CLUB v. THE COMMISSIONER OF                                  503
         WEALTH TAX & ANR. [R.F. NARIMAN, J.]

     “… Even after the amendment, provision for compensation or                A
     laying down of the principles for determining the compensation is
     a condition for the making of a law of acquisition or requisition. A
     legislature, if it intends to make a law for compulsory acquisition
     or requisition, must provide for compensation or specify the
     principles for ascertaining the compensation. The fact that
                                                                               B
     Parliament used the same expressions, namely, “compensation”
     and “principles” as were found in Article 31 before the amendment
     is a clear indication that it accepted the meaning given by this
     Court to those expressions in Mrs Bela Banerjee case [(1954)
     SCR 558] . It follows that a legislature in making a law of acquisition
     or requisition shall provide for a just equivalent of what the owner      C
     has been deprived of or specify the principles for the purpose of
     ascertaining the “just equivalent” of what the owner has been
     deprived of. If Parliament intended to enable a legislature to make
     such a law without providing for compensation so defined, it would
     have used other expressions like “price”, “consideration” etc. In
                                                                               D
     Craies on Statute Law, 6th Edn., at p. 167, the relevant principle
     of construction is stated thus:
     “There is a well-known principle of construction, ‘that where the
     legislature used in an Act a legal term which has received judicial
     interpretation, it must be assumed that the term is used in the
     sense in which it has been judicially interpreted unless a contrary       E
     intention appears.”
     The said two expressions in Article 31(2) before the Constitution
     (Fourth Amendment) Act, have received an authoritative
     interpretation by the highest court in the land and it must be
     presumed that Parliament did not intend to depart from the meaning        F
     given by this Court to the said expressions.”
                                                            (at page. 626)
     21. In Sakal Deep Sahai Srivastava v. Union of India (1974) 1
SCC 338, in the context of the Limitation Act, this Court held:                G
     “8. The only question of some difficulty raised before us is whether
     Article 102 or Article 120 of the Limitation Act of 1908 would
     apply to the case. After having heard the attractive arguments of
     Mr Yogeshwar Prasad, we have no doubt that a good deal can be
     said in favour of the contention that a claim for arrears of salary
                                                                               H
504           SUPREME COURT REPORTS                          [2020] 13 S.C.R.


A          is distinguishable from a claim for wages. But, our difficulty is
           that the question appears to us to be no longer open for
           consideration afresh by us, or, at any rate, it is not advisable to
           review the authorities of this Court, after such a lapse of time
           when, despite the view taken by this Court that Article 102 of the
           Limitation Act of 1908 was applicable to such cases, the Limitation
B
           Act of 1963 had been passed repeating the law, contained in
           Articles 102 and 120 of the Limitation Act of 1908, in identical
           terms without any modification. The Legislature must be presumed
           to be cognizant of the view of this Court that a claim of the nature
           before us, for arrears of salary, falls within the purview of Article
C          102 of the Limitation Act of 1908. If Parliament, which is deemed
           to be aware of the declarations of law by this Court, did not alter
           the law, it must be deemed to have accepted the interpretation of
           this Court even though the correctness of it may be open to doubt.
           If doubts had arisen, it was for the Legislature to clear these
           doubts. When the Legislature has not done so, despite the repeal
D
           of the Limitation Act of 1908, and the enactment of the Limitation
           Act of 1963 after the decisions of this Court, embodying a possibly
           questionable view, we think it is expedient and proper to overrule
           the submission made on behalf of the appellant that the correctness
           of the view adopted by this Court in its decisions on the question
E          so far should be re-examined by a larger Bench.”
           22. Likewise, in Diwan Bros. v. Central Bank of India (1976)
      3 SCC 800, this Court referred to the well-known dictum ofLord
      Buckmaster in Barras v. Aberdeen Steam Trawling and Fishing
      Company1933 AC 402and held as under:
F          “22. Apart from the above considerations, it is a well-settled
           principle of interpretation of statutes that where the Legislature
           uses an expression bearing a well-known legal connotation it must
           be presumed to have used the said expression in the sense in
           which it has been so understood. Craies on Statute Law observes
G          as follows:
           “There is a well-known principle of construction, that where the
           legislature uses in an Act a legal term which has received judicial
           interpretation, it must be assumed that the term is used in the
           sense in which it has been judicially interpreted, unless a contrary
H          intention appears.”
    M/S BANGALORE CLUB v. THE COMMISSIONER OF                                505
         WEALTH TAX & ANR. [R.F. NARIMAN, J.]

     23. In Barras v. Aberdeen Steam Trawling and Fishing                    A
     Company [1933 AC 402, 411] Lord Buckmaster pointed out as
     follows:
     “It has long been a well-established principle to be applied in the
     consideration of Acts of Parliament that where a word of doubtful
     meaning has received a clear judicial interpretation, the subsequent    B
     statute which incorporates the same word or the same phrase in
     a similar context must be construed so that the word or phrase is
     interpreted according to the meaning that has previously been
     ascribed to it.”
     Craies further points out that the rule as to words judicially          C
     interpreted applies also to words with well-known legal meanings,
     even though they have not been the subject of judicial
     interpretation. Thus applying these principles in the instant case it
     would appear that when the Court Fees Act uses the word
     “decree” which had a well-known legal significance or meaning,
     then the Legislature must be presumed to have used this term in         D
     the sense in which it has been understood, namely, as defined in
     the Code of Civil Procedure even if there has been no express
     judicial interpretation on this point.”
      23. A recent judgment of this Court namely, Shree Bhagwati
Steel Rolling Mills v. CCE (2016) 3 SCC 643, refers to the same              E
presumption as follows:
     “21. It is settled law that Parliament is presumed to know the law
     when it enacts a particular piece of legislation. The Prevention of
     Corruption Act was passed in the year 1988, that is long after
     1969 when the Constitution Bench decision in RayalaCorpn.               F
     [RayalaCorpn. (P) Ltd. v. Director of Enforcement, (1969) 2
     SCC 412] had been delivered. It is, therefore, presumed that
     Parliament enacted Section 31 knowing that the decision in
     RayalaCorpn. [RayalaCorpn. (P) Ltd. v. Director of Enforcement,
     (1969) 2 SCC 412] had stated that an omission would not amount          G
     to a repeal and it is for this reason that Section 31 was enacted.
     This again does not take us further as this statement of the law in
     Rayala Corpn. [RayalaCorpn. (P) Ltd. v. Director of Enforcement,
     (1969) 2 SCC 412] is no longer the law declared by the Supreme
     Court after the decision in Fibre Board case [Fibre Boards (P)
                                                                             H
506             SUPREME COURT REPORTS                            [2020] 13 S.C.R.


A            Ltd. v. CIT, (2015) 10 SCC 333]. This reason therefore again
             cannot avail the appellant.”
              24. This being the case, it is clear that 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
B     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
C     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. In fact, the nature of these kind of
      clubs has been set out in Cricket Club of India Ltd v. Bombay Labour
D     Union (1969) 1 SCR 600 as follows:
             “What we have to see is the nature of the activity in fact and in
             substance. Though the Club is incorporated as a Company, it is
             not like an ordinary Company constituted for the purpose of carrying
             on business. There are no shareholders. No dividends are ever
E            declared and no distribution of profits takes place. Admission to
             the Club is by payment of admission fee and not by purchase of
             shares. Even this admission is subject to balloting. The membership
             is not transferable like the right of shareholders. There is the
             provision for expulsion of a Member under certain circumstances
             which feature never exists in the case of a shareholder holding
F            shares in a Limited Company. The membership is fluid. A person
             retains rights as long as he continues as a Member and gets nothing
             at all when he ceases to be a Member, even though he may have
             paid a large amount as admission fee. He even loses his rights on
             expulsion. In these circumstances, it is clear that the Club cannot
G            be treated as a separate legal entity of the nature of a Limited
             Company carrying on business. The Club, in fact, continues to be
             a Members’ Club without any shareholders and, consequently, all
             services provided in the Club for Members have to be treated as
             activities of a self-serving institution.”

H                                                                    (at page. 614)
     M/S BANGALORE CLUB v. THE COMMISSIONER OF                               507
          WEALTH TAX & ANR. [R.F. NARIMAN, J.]

      This judgment has been referred to with approval recently in State     A
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, the Ellis Bridge Gymkhana, like the
Bangalore Club, is an unincorporated club.The assessment years involved      B
in this case are from 1970-71 to 1977-78 i.e. prior to Section 21AA
coming into force. Despite the fact that Section 21AA did not apply, this
Court referred to Section 21AA as follows:
      “15. All these provisions go to show that the Wealth Tax Act has
      been drafted on the same lines as the Indian Income Tax Act,           C
      1922. There is great similarity of wording between the various
      provisions of the Wealth Tax Act and corresponding provisions of
      the Indian Income Tax Act, 1922. But in the case of the charging
      Section 3 of the Wealth Tax Act, the phraseology of the charging
      Section 3 of the Indian Income Tax Act, 1922 has not been
      adopted. Unlike Section 3 of the Income Tax Act, Section 3 of the      D
      Wealth Tax Act does not mention a firm or an association of persons
      or a body of individuals as taxable units of assessment.
      16. The position has been placed beyond doubt by insertion of
      Section 21-AA in the Wealth Tax Act itself. This amendment was
      effected by the Finance Act, 1981 with effect from 1-4-1981. It        E
      provides for assessment of association of persons in certain special
      cases and not otherwise.”
      The Court then went on to hold:
      “17. It will be seen that assessment as an association of persons      F
      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. Sub-
      section (2) of Section 21-AA deals with cases of such associations     G
      as mentioned in sub-section (1). That means only association of
      persons in which individual shares of the 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
                                                                             H
508            SUPREME COURT REPORTS                          [2020] 13 S.C.R.


A           will follow the members of an association of persons spoken of in
            sub-section (1) in the case of discontinuance or dissolution.
            xxx xxxxxx
            19. In our view, Section 21-AA far from helping the case of the
            Revenue directly goes against its contention. An association of
B           persons cannot be taxed at all under Section 3 of the Act. That is
            why an amendment was necessary to be made by the Finance
            Act, 1981 whereby Section 21-AA was inserted to bring to tax
            net wealth of an association of persons where individual shares
            of the members of the association were unknown or
C           indeterminate.”
            After referring to the explanatory notes introducing Section 21AA
            in paragraph32, the Court then went on to hold:
            “33. It will appear from this notification that the Central Board of
            Direct Taxes clearly recognised that the charge of wealth tax
D           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
E           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
F           Section 21-AA and association of individuals will be taxed as
            association of persons.”
             26. A perusal of this judgment 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
G     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
      of association of persons without specifically defining the shares of the
      members of such associationsof persons so as to evade tax. In construing
      Section 21AA, it is important to have regard to this object.
H
     M/S BANGALORE CLUB v. THE COMMISSIONER OF                                  509
          WEALTH TAX & ANR. [R.F. NARIMAN, J.]

       27. In K P Varghese v. ITO, 1982 (1) SCR 629, what arose for             A
interpretation before the Supreme Court was in the context of capital
gains – as to whether, to attract the applicability of Sec.52(2) of the
Income Tax Act, understatement of consideration is a prerequisite. On a
purely literal reading of Sec.52(2), it would be clear that no such condition
has been mentioned.However, this Court, after referring to the object of
                                                                                B
the section held:
      “Thus it is not enough to attract the applicability of sub-section (2)
      that the fair market value of the capital asset transferred by the
      assessee as on the date of the transfer exceeds the full value of
      the consideration declared in respect of the transfer by not less
      than 15 per cent of the value so declared, but it is furthermore          C
      necessary that the full value of the consideration in respect of the
      transfer is understated or in other words, shown at a lesser figure
      than that actually received by the assessee. Sub-section (2) has
      no application in case of an honest and bona fide transaction where
      the consideration in respect of the transfer has been correctly           D
      declared or disclosed by the assessee, even if the condition of 15
      per cent difference between the fair market value of the capital
      asset as on the date of the transfer and the full value of the
      consideration declared by the assessee is satisfied.”
                                                        (at page. 652, 653)     E
       28. The 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           F
facts of the present case.
       29. However, the impugned judgment of the High Court relies
solely upon CWT v. Chikmagalur Club(supra). This case dealt with a
club that was registered under the provisions of the Karnataka Societies
Registration Act, 1960. After referring copiously to the Appellate              G
Authority’s orders on facts in this case, the Court went on to hold:
      “10. … 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
                                                                                H
510            SUPREME COURT REPORTS                          [2020] 13 S.C.R.


A           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
B
            beyond doubt by the insertion of Section 21AA in the Wealth Tax
            Act itself.”
             For this purpose, paragraph 17 already extracted in the Ellis
      Bridge Gymkhana case (supra) was referred to by the said judgment.
      After referring to paragraph 17, the Court then concluded:
C
            “13. … Now that the scope of Section 21AA of the Act has
            been explained by the Apex Court in Ellies Bridge Gymkhana
            Club’s case-229 ITR 1, we need not dilate much on the scope
            and interpretation of the said Section. It would be suffice to notice
            that assessment as an association of persons can be made only,
D           when the individual shares of the 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
            can be subjected to wealth tax. In the present case, the assessee
            is a club registered under the provisions of the Karnataka Societies
E           Registration Act and had declared ‘nil’ wealth and had claimed
            that it is not susceptible to the provision of wealth Tax Act, since
            it is only an association of persons providing recreation facilities
            to its members. This claim, in our view, is rightly rejected by both
            the assessing authority as well as by the first appellate authority
            on the ground that the assessee is an association of persons and
F           the members are the owners of the assets and the individual shares
            of the members in the owners of the assets and the individual
            shares of the members in the income or assets or both of the
            association on the date of formation or any time thereafter or
            indeterminate or unknown and accordingly, has subjected the
G           assessee to wealth tax.”
            30. What will be noticed is that the High Court in Chikmagalur
      Club (supra) only referred to paragraph 17 and omitted to refer to paras
      19, 32 and 33 of the Ellis Bridge Gymkhana judgment (supra) which
      have been referred to by us hereinabove. If all these paragraphs would
H     have been referred to, what would have been clear is that a social club
     M/S BANGALORE CLUB v. THE COMMISSIONER OF                                   511
          WEALTH TAX & ANR. [R.F. NARIMAN, J.]

like the Chikmagalur Club could not possibly be said to be an association        A
of persons regard being had to the object sought to be achieved by
enacting Section 21AA, which is a Section enacted in order to prevent
tax evasion. As has been pointed out by us hereinabove, the Section was
not introduced to add one more category to the category of taxable
persons – that could have been done by amending the charging section
                                                                                 B
i.e. Section 3(1) of the Wealth Tax Act. Further, the High Court judgment
is completely oblivious of the line of judgments starting with Indira
Balakrishna’s case (supra) by which “association of persons” must
mean persons who are banded together with a common object – and, in
the context of a taxation statute, common object being a business object
being to earn income or profits. This judgment does not refer to Indira          C
Balakrishna (supra) and the judgments following it at all. For all these
reasons, the judgment in CWT v. Chikmagalur Club (supra) not being
correctly decided, is overruled. Equally, the High Court judgment which
rests solely upon the decision in Chikmagalur Club’s case(supra) has
no legs to stand.
                                                                                 D
        31. We now come to some of the points raised by the learned
Additional Solicitor General, Shri Banerjee. The submission that Section
21AA(2) which deals with dissolution of an association of persons and
the fact that on dissolution under Rule 35 of the Bangalore Club, members
get an equal share would show first, that the Bangalore Club is an
association of persons; and second, that the member’s share in its income        E
and assets are indeterminate or unknown, is an argument which has to
be stated to be rejected.First and foremost, sub-section (2) begins with
the words “any business or profession carried on” by an association of
persons. No business or profession is carried on by a social members
club. Further, the association of persons mentioned in sub-section (1)           F
must be persons who have banded together for a business objective – to
earn profits – and if this itself is not the 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 remaining after all debts and
liabilities of the club has been discharged, shall be divided equally amongst
all categories of members of the club. This would show that “at any time         G
thereafter” within the meaning of Section 21AA(1), the members’ shares
are determinate in that on liquidation each member of whatsoever category
gets an equal share.
      32. The judgments cited by Shri Nikhil Nayyar in so far as this
aspect is concerned, have no direct relevance.The judgment in CWT v.             H
512             SUPREME COURT REPORTS                          [2020] 13 S.C.R.


A     Rama Varma Club 226 ITR 898 and CWT v. George Club 191 ITR
      368 are both judgments in which no part of the assets is to be distributed
      even on liquidation to any of the members of these clubs. Thus, it was
      held in these cases that the members do not have any share in the income
      or assets of the club at all.The same cannot be said in the facts of this
      case inasmuch as under Rule 35 the members of the Bangalore Club
B
      are entitled to receive surplus assets in the circumstances stated in Rule
      35 - equally on liquidation. However, the result remains the same – viz.,
      that even if it be held that the Bangalore Club is an association of persons,
      the members’ shares being determinate do not attract Section 21AA.
              33. Shri Banerjee then relied upon the judgment in Bangalore
C     Club v. CIT(2013) 5 SCC 509 only in order to point out that the Bangalore
      Club was taxed as an AOP under the Income Tax Act and cannot and
      should not therefore, escape liability under the Wealth Tax Act (an allied
      and cognate Act). First and foremost, the definition of “person” in Section
      2(31) of the Income Tax Act would take in both an association of persons
D     and a body of individuals. For the purposes of income tax, the Bangalore
      Club could perhaps be treated to be a ‘body of individuals’ which is a
      wider expression than ‘association of persons’ in which such body of
      individuals may have no common object at allbut would include a
      combination of individuals who had nothing more than a unity of interest.
      This distinction has been made by the Andhra Pradesh High Court in
E     Deccan Wine and General Stores v. CIT 106 ITR 111 at pages 116,
      117. Quite apart from this, to be taxed as an association of persons
      under the Income Tax Act is to be taxed as an association of persons
      per se.We have already seen that Section 21AA does not enlarge the
      field of tax payers but only plugs evasion as the association of persons
F     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 an association of persons under
      the Income Tax Act, the Bangalore Club must be regarded to be an
      ‘association of persons’ for the purpose of a tax evasion provision in the
      Wealth Tax Act as opposed to a charging provision in the Income Tax
G     Act. One last argument of Shri Banerjee needs to be addressed.
      According to the learned ASG, the fact that the membership of the club
      is a fluctuating body of individuals would necessarily lead to the conclusion
      that the shares of the members in the assets or the income of the club
      would be indeterminate. In CWT v. Trustees of H.E.H. Nizam’s
H     Family108 ITR 555 (1977), this court had to construe Sec. 21 of the
     M/S BANGALORE CLUB v. THE COMMISSIONER OF                               513
          WEALTH TAX & ANR. [R.F. NARIMAN, J.]

Wealth Tax Act. Sec. 21(1) & (4) which are relevant for our purpose          A
are set out hereinbelow:
      “21. (1) In the case of assets chargeable to tax under this Act,
      which are held by a court of wards or an administrator-general or
      an official trustee or any receiver or manager or any other person,
      by whatever name called, appointed under any order of a court to       B
      manage property on behalf of another, or any trustee appointed
      under a trust declared by a duly executed instrument in writing,
      whether testamentary or otherwise (including a trustee under a
      valid deed of wakf), the wealth-tax shall be levied upon and
      recoverable from the court of wards, administrator-general, official
      trustee, receiver, manager or trustee, as the case may be, in the      C
      like manner and to the same extent as it would be leviable upon
      and recoverable from the person on whose behalf or for whose
      benefit the assets are held, and the provisions of this Act shall
      apply accordingly.
      xxx xxxxxx                                                             D

      (4) Notwithstanding anything contained in this section, where the
      shares of the persons on whose behalf or for whose benefit any
      such assets are held are indeterminate or unknown, the wealth-
      tax shall be levied upon and recovered from the court of wards,
      administrator-general, official trustee, receiver, manager, or other   E
      person aforesaid as if the person on whose behalf or for whose
      benefit the assets are held were an individual for the purposes of
      this Act.”
      34. The argument made in this case was that, as the members of
the Nizam’s family trust who are beneficiaries thereof would be a            F
fluctuating body of persons, the beneficiaries must be said to be
indeterminate as a result of which Sec. 21(4) of the Act would apply and
not Sec. 21(1). This was repelled by this Court stating:
      “This immediately takes us to the question as to which of the two
      sub-sections, (1) or (4) of Section 21 applies for the purpose of      G
      assessing the assessees to wealth tax in respect of the beneficial
      interest in the remainder qua each set of unit or units allocated to
      the relatives specified in the Second Schedule. Now it is clear
      from the language of Section 3 that the charge of wealth tax is in
      respect of the net wealth on the relevant valuation date, and,
                                                                             H
514      SUPREME COURT REPORTS                          [2020] 13 S.C.R.


A     therefore, the question in regard to the applicability of sub-section
      (1) or (4) of Section 21 has to be determined with reference to
      the relevant valuation date. The Wealth Tax Officer has to
      determine who are the beneficiaries in respect of the remainder
      on the relevant date and whether their shares are indeterminate
      or unknown. It is not at all relevant whether the beneficiaries may
B
      change in subsequent years before the date of distribution,
      depending upon contingencies which may come to pass in future.
      So long as it is possible to say on the relevant valuation date that
      the beneficiaries are known and their shares are determinate, the
      possibility that the beneficiaries may change by reason of
C     subsequent events such as birth or death would not take the case
      out of the ambit of sub-section (1) of Section 21. It is no answer
      to the applicability of sub-section (1) of Section 21 to say that the
      beneficiaries are indeterminate and unknown because it cannot
      be predicated who would be the beneficiaries in respect of the
      remainder on the death of the owner of the life interest. The
D
      position has to be seen on the relevant valuation date as if the
      preceding life interest had come to an end on that date and if, on
      that hypothesis, it is possible to determine who precisely would be
      the beneficiaries and on what determinate shares, sub-section (1)
      of Section 21 must apply and it would be a matter of no
E     consequence that the number of beneficiaries may vary in the
      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 the correct approach in the application of sub-
      section (1) of Section 21, but we find that this has also been the
      general consensus of judicial opinion in this country in various
F
      High Courts during the last about thirty years. The first decision
      in which this view was taken was rendered as far back as 1945
      by the 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 the Calcutta High Court in Suhashini
G     Karuri v. WTO [(1962) 46 ITR 953 (Cal)] the 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
      Tribhuwandas Trust [(1967) 69 ITR 527 (Bom)] and the Gujarat
      High Court in Padmavati Jaykrishna Trust v.CIT [(1966) 61 ITR
H
     M/S BANGALORE CLUB v. THE COMMISSIONER OF                                  515
          WEALTH TAX & ANR. [R.F. NARIMAN, J.]

      66, 73-4 (Guj)]. The Calcutta High Court pointed out in Suhashini         A
      Karuri case:
      “The share of a beneficiary can be said to be indeterminate if at
      the relevant time the share cannot be determined but merely
      because the number of beneficiaries vary from time to time, one
      cannot say that it is indeterminate.”                                     B
      The same proposition was formulated in slightly different language
      by the Bombay High Court in Trustees of Putalibai R.F. Mulla
      Trust case [(1967) 66 ITR 653, 657-8 (Bom)]:
      “The question whether the shares of the beneficiaries are
      determinate or known has to be judged as on the relevant date in          C
      each respective year of taxation. Therefore, whatever may be
      the position — as to any future date, so far as the relevant date in
      each year is concerned, it is upon the terms of the trust deed
      always possible to determine who are the sharers and what their
      shares respectively are.”                                                 D
      The Gujarat High Court also observed in Padmavati Jaykrishna
      Trust case [(1966) 61 ITR 66, 73-4 (Guj)] :
      “. . . in order to ascertain whether the shares of beneficiaries and
      their numbers were determinate or not, the Wealth Tax Officer
      has to ascertain the facts as they prevailed on the relevant date         E
      and therefore any variation in the 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 the law and
      we have no doubt that in order to determine the applicability of          F
      sub-section (1) of Section 21, what has to be seen is whether on
      the relevant valuation date, it is possible to say with certainty and
      definiteness as to who would be the beneficiaries and whether
      their shares would be determinate and specific, if the event on the
      happening of which the distribution is to take place occurred on
                                                                                G
      that date. If it is, sub-section (1) of Section 21 would apply: if not,
      the case will be governed by sub-section (4) of Section 21.”
       35. It is thus clear that 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 cited hereinabove. Given that as on that particular date, there would
                                                                                H
516             SUPREME COURT REPORTS                          [2020] 13 S.C.R.


A     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(supra), 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.
B            36. For all these reasons, the impugned judgment and the review
      judgment are set aside. The appeals are allowed with no order as to
      costs.
      Divya Pandey                                                  Appeals allowed


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