COMMISSIONER OF WEALTH TAX Vs. KODAIKANAL CLUB

JUDGEMENT

(1.) THE assessee, a members' club, catering exclusively to the social and cultural needs of its members, registered itself during the year 1977 under the provisions of the Societies Registration Act, 1860. Under Section 3 of the Wealth-tax Act, 1957, the three assessable entities are individual, Hindu undivided family and company. In the year 1960, by Section 13 of the Finance Act, 1960, the levy of wealth-tax on the wealth of companies came to be excluded with effect form the assessment year 1960-61. THE assessee-club at its instance got it declared as a company by notification dated September 30, 1982, issued by the Central Board of Direct Taxes under Section 2(h)(iii) of the Wealth-tax Act with retrospective effect from the assessment year 1974-75 and thereby the assessee-club became inexigible to wealth-tax from the assessment year 1974-75 onwards. However, by Section 40 of the Finance Act, 1983, the levy of wealth-tax on closely held companies was revived. Hence, the assessee-club by its representation dated January 31, 1995, requested the Central Board of Direct Taxes to grant exemption from the levy of wealth-tax under Sub-section (6) of Section 40 of the Finance Act, 1983. THE said request was rejected by the Board on March 21, 1986. Again another request was made for exemption under Section 40(6), since the assessee is a deemed company under Section 2(h)(iii) of the Wealth-tax Act and not a closely held company. An alternate request was made to declare the assessee-club as a company under Section 2(17)(iv) of the Income-tax Act and then issue an order under Section 2(18)(ab) of the Income-tax Act declaring the assessee-club as a company, in which the public are substantially interested so as to enable the assessee-club to continue to enjoy the benefit of exemption from wealth-tax as provided by Section 13 of the Finance Act, 1960. This request was also rejected by the Board by its reply dated January 13, 1987.

(2.) FOR the assessment year 1984-85, the assessee filed a return admitting a wealth of Rs. 28,90,000, however contended before the Wealth-tax Officer that the assessee, a member's club being an association of persons not assessable under Section 3 of the Wealth-tax Act and as such its wealth is not exigible to wealth-tax. The Wealth-tax Officer rejected the contention by holding that the status of the assessee is a company, in view of the declaration made to that effect by the Central Board of Direct Taxes under Section 2(h)(iii) of the Wealth-tax Act and cannot be treated as an association of persons. The assessee was liable to wealth-tax as a company.

(3.) MRS. Pushya Sitaraman, learned senior standing counsel appearing for the Revenue, submitted that the Tribunal went wrong in allowing the appeal notwithstanding the fact that the assessee, a members' club obtained an order from the Central Board of Direct Taxes declaring it as a "company" under Section 2(h)(iii) of the Wealth-tax Act. The assessee-club cannot blow hot and cold in the sense taking advantage of the amendment under the Finance Act, 1960, got it declared as a company in order to avail of the benefit of exemption from wealth-tax, cannot wriggle out and now contend that the assessee could not be assessed as a company under Section 40(1) of the Finance Act, 1983. She further contended that as per Section 40(1) of the Finance Act, even an institution or association, which became a company by virtue of a declaration made by the Board under Section 2(h)(iii) and that inasmuch as the assessee cannot be treated as a company in which the public are substantially interested, the Tribunal erred in granting the benefit of exemption from wealth-tax.