{"id":235516,"date":"2020-09-08T20:00:46","date_gmt":"2020-09-08T14:30:46","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=235516"},"modified":"2020-09-11T10:53:41","modified_gmt":"2020-09-11T05:23:41","slug":"bangalore-club-not-liable-to-pay-wealth-tax-sc-explains-when-section-21aa-of-wealth-tax-act-applies","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2020\/09\/08\/bangalore-club-not-liable-to-pay-wealth-tax-sc-explains-when-section-21aa-of-wealth-tax-act-applies\/","title":{"rendered":"Bangalore Club not liable to pay wealth tax; SC explains when Section 21AA of Wealth Tax Act applies"},"content":{"rendered":"

Supreme Court<\/strong>: Holding that Bangalore Club is not liable to pay wealth tax under the Wealth Tax Act, 1957, the3-judge bench of RF Nariman, Navin Sinha and Indira Banerjee, JJ has said,<\/p>\n

\u201cBangalore 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.\u201d<\/span><\/strong><\/p>\n

The Court noticed that only three types of persons can be assessed to wealth tax under Section 3 i.e. individuals, Hindu undivided families and companies<\/em><\/strong><\/span>.<\/span> Hence, 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.<\/p>\n

Association of Persons vis-\u00e0-vis Body of individuals <\/strong><\/span><\/h4>\n

The Court held that it cannot be held that being taxed as an association of persons under the Income Tax Act, 1961 the Bangalore Club must be regarded to be an \u2018association of persons\u2019 for the purpose of a tax evasion provision in the Wealth Tax Act as opposed to a charging provision in the Income Tax Act.<\/p>\n

It explained that the definition of \u201cperson\u201d in Section 2(31) of the Income Tax Act, 1961 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 \u2018body of individuals\u2019 which is a wider expression than \u2018association of persons\u2019 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.<\/p>\n

Interpretation of Section 21AA of the Wealth Tax Act<\/strong><\/span><\/h4>\n

Section 21AA was enacted w.e.f. 1 st April, 1981 and for the first time from 1st April, 1981, an association of persons other than a company or cooperative society has been brought into the tax net so far as wealth tax is concerned with the rider that the individual shares of the members of such association in the income or assets or both on the date of its formation or at any time thereafter must be indeterminate or unknown. It is only then that the section gets attracted.<\/p>\n

The Court noticed that Section 21AA was introduced in order to prevent tax evasion and that it 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.<\/p>\n

\u201cThe reason why it was enacted was not to rope in association of persons per se as \u201cone more taxable person\u201d 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 associations of persons so as to evade tax.\u201d<\/span><\/strong><\/p>\n

The Court explained:<\/p>\n