ORIENT CLUB Vs. WEALTH TAX OFFICER

JUDGEMENT

(1.) THE petitioner is the Orient Club, an unregistered association of persons, through its honorary secretary, and in this petition the petitioner club has challenged the notice dt. 5th Jan., 1979, issued by the respondent herein, the WTO Circle IV, Ward K, Ahmedabad, under S. 14(2) of the WT Act for the asst. year 1978 79. The petitioner prays that this notice of 5th Jan., 1979, should be quashed and set aside and the respondent should be permanently restrained from taking any proceedings or making any assessment against the petitioner in pursuance of the said notice. It is the case of the petitioner that it is a members' club which has been running in Ahmedabad since 1935. The primary objects of the petitioner club are to organise, promote, encourage and provide all facilities and convenience for various sports for the use of the members and for such purpose to have a club house and to afford various facilities to its members. The petitioner is not registered under any enactment and it is, therefore, an unregistered association of its members being managed by the managing committee constituted under its constitution. It is a mutual association for the benefit of the members of the club and, at the time when this special civil application was filed, the number of members of the petitioner club was more than 2,400. It is the case of the petitioner that prior to 1st Jan., 1977, the club was carrying on its activities under its rules as then in force adopted by the members. Under cl. 67 of those rules, all properties of the club were to remain vested in the club as represented by the managing committee or such other committee as the said committee or the general body might appoint and members were to have an interest in the club property only so long as they continued to be members. Such interest was to be incapable of specific apportionment or enforcement except in a winding up of the club decided by the members in a general meeting specifically summoned for that purpose. By a resolution passed at the extraordinary general meeting of the club members, a new constitution was adopted by the petitioner club w.e.f. 1st Jan., 1977. Since that time the new constitution is in force. Under the new constitution, the petitioner club has different kinds of members as set out in para. 3 of the petition. These different categories of members pay different amounts by way of entrance fees except the members falling within the first three categories of honorary members who do not pay any entrance fees. All the members of whatever category enjoy equal rights in the management of the club and in the enjoyment of the facilities and privileges as members. Temporary members, service members and playing members are not entitled to receive any notice of or attend or vote at any general meeting of the club or to be elected as office bearers or members of the managing committee of the club.

(2.) SINCE the commencement of the WT Act, 1957, no notice of any kind under the Act has been served on the petitioner club. However, a notice dt. 5th Jan. 1979, was issued by the respondent s. 14(2) of the WT Act, 1957, for the first time in connection with the asst. year 1978 79, and the petitioner club was called upon to deliver a correct statement of assets and debts on the relevant valuation date within thirty five days of the notice. The petitioner has not filed any return in response to the said notice and has in the present proceedings challenged the notice under S. 14 (2). It is the contention of the petitioner that under the WT Act the only assessable entities are individual, HUF and company while under the IT Act, by way of contrast, every person is an assessable entity ; and person includes, according to the definition in S. 2(31) of the IT Act, an individual, HUF, company, firm and association or persons or BOI, whether incorporated or not, local authority and every artificial juridical person not falling within any of the preceding sub clauses. The petitioner, therefore, contends that under the WT Act there are only a limited number of assessable entities as against a larger number of assessable entities under the IT Act. It has been contended by the petitioner that an association of persons or a BOI, whether incorporated or not, is not specifically made an assessable entity but a company has been made an assessable entity under the WT Act. The petitioner has relied upon the provisions of S. 4(1)(b) which provides for inclusion of the proportionate share of a member of an association of persons where that particular association of persons holds any assets, but the determination of the share of that association of persons had to be done in the prescribed manner. Under r. 2 of the WT Rules, the manner of including the interest of a member of an association of persons has been prescribed and the residue of the net wealth of the association has to be allocated among the members in accordance with the agreement of association for the distribution of assets in the event of dissolution of the association and, in the absence of such agreement, in the proportion in which the members are entitled to share profits. This is the prescribed manner, according to the petitioner club, so far as an association of persons is concerned. It is further the case of the petitioner that there is no question of a representative assessee so far as an association of persons is concerned looking to the language of S. 21 of the WT Act. No affidavit in reply has been filed on behalf of the respondent in the present proceedings and Mr. Raval, the learned counsel for the respondent, has merely relied upon the legal principles of interpretation of statutes and decided cases for the purpose of persuading us that an association of persons is covered by the word "individual" occurring in the charging section of the WT Act. Sec. 3 of the WT Act is the charging section and at the relevant time was in these terms :

(3.) THE decision in V. Venugopala Ravi Varma Rajah vs. Union of India (1969) 74 ITR 49 (SC), turned upon the challenge to the provisions of the Expenditure tax Act on the ground of discrimination between HUFs and Muslim Mappilla families of Kerala. Both the HUFs and Mappilla families are governed by Marumakkattayam law but because of the HUFs being specifically mentioned in the Expenditure tax Act it was contended that the incidence of expenditure tax was heavier in the case of an HUF than in the case of Mappilla family which was not a family of Hindus. The Supreme Court pointed that under the charging section of the Expenditure tax Act, tax was imposed on individual an HUF and undivided family which consists of Hindus alone may be treated as unit or an association and members of an undivided family whose members were not Hindus will be assessed and taxed as individuals. In the concluding paragraph of the judgment of the Supreme Court which dealt with purely the question of discrimination between HUF and Mappilla family, at page 57, Shah J., as he then was, speaking for the Supreme Court, observed :