1. These appeals by the revenue are directed against the consolidated order of the AAC dated 26-8-1986 relating to the assessment years 1970-71 to 1975-76. The common ground for the years under appeal is as under : On the facts and in the circumstances of the case, the AAC was not justified in holding that the AOP is not an individual and hence not an assessable entity under the provisions of the Wealth-tax Act, 1957.
2. In order to appreciate as how this ground came up to be agitated in appeal before us, we record below the factual background.
3. The assessee, Grand Lodge of India, has been assessed in the status of an 'association of persons' for the purpose of the Income-tax Act, 1961 ('the 1961 Act') since many years. There was no wealth-tax assessment under the Wealth-tax Act, 1957 ('the Act'), however, upon the assessee because neither the assessee had filed any returns voluntarily nor any returns of net wealth had been required to be filed by any statutory notice issued by the WTO under the Act. Nevertheless, the WTO for the first time issued notice under Section 17 of the Act for all the years under appeal. The assessee responded to this notice by filing the wealth-tax returns for all the years simultaneously on 23-4-1979. The net wealth declared in such returns was Rs. 1,79,671, Rs. 3,11,770, Rs. 2,67,420, Rs. 2,67,720, Rs. 2,66,310 and Rs. 1,69,000 respectively for the assessment years 1970-71 to 1975-76 as recorded by the WTO in the impugned assessment orders all framed on 19-11-1984. The revised returns were filed in the status of an AOP. In the letter dated 13-5-1981 addressed to the WTO, Distt. X(7), New Delhi, the assessee pointed out that in good faith and without knowing the exact position under the Act returns relating to the assessment years 1970-71 to 1975-76 were filed in response to notice under Section 17 and the assessee also paid tax under Section 15B of the Act on the basis of the returns as per challan for the first five years dated 19-5-1975 and for the last year dated 7-1-1979. The assessees further stated that they had discussed this matter with their auditor and they have been advised that 'Grand Lodge of India', the name under which the assessee 'association of persons' had been assessed to income-tax, was not liable to wealth-tax because the wealth-tax was leviable only on individuals and HUPs. According to this advice, they pointed out, no wealth-tax was payable by an 'association of persons' and since under the 1961 Act they have been held to be and assessed as an AOP they could not be taxed for the purpose of wealth-tax. The assessee, therefore, filed revised returns for the years on 14-5-1981 declaring nil wealth.
4. The WTO in his impugned assessment orders dated 19-11-1984 considered the contentions of the assessee that an AOP was not a taxable entity under the Act. However, he pointed out that in view of the judgment of the Supreme Court in the case of WTO v. C.K. Mammed Kayi [1981] 129 ITR 307, the word 'individual' mentioned in Section 3 of the Act took in its ambit the BOI and as such the assessee was liable to wealth-tax. The WTO pointed out that the judgment of the Supreme Court mentioned by him has been followed by the Allahabad High Court in the case of Smt. Prem Lata Agarwal v. CWT [1983] 142 ITR 586.
Accordingly, the impugned assessments were raised on the assessee levying wealth-tax on an AOP.5. Thereafter, the matter travelled before the AAC, who relying upon the judgments cited and the submissions made before him came to the conclusion that an AOP does not come within the ambit of the word 'individual' used in Section 3 and, therefore, the WTO was wrong in bringing the assessee to tax for the assessment years under appeal. He directed the WTO to amend the assessments accordingly. Hence, the appeals of the revenue.
6. It was contended by the revenue before us that the WTO was justified in taking the status of the assessee as an individual in view of the judgment of the Supreme Court referred to by him in his impugned assessment orders. It was contended that even if the assessee had shown the status as an AOP, because the notice had been issued by the WTO on the basis of the assessee being assessed with him as an AOP, it is not material because he could change the status as he did in view of the judgment of the Patna High Court in CGT v. Maharaja Kumar Kamal Singh [1986] 162 ITR 352. Reliance was placed upon the judgment of the Allahabad High Court in the case of Smt. Prem Lata Agarwal (supra) in which the judgment of the Hon'ble Supreme Court in the case of C.K.Mammed Kayi (supra) has been considered. It was further contended that Section 21AA, introduced into the Act, with effect from 1-4-1981 is only clarificatory in nature and does not affect the impugned assessments, which are validly made by the WTO. It was thus contended that taking into consideration the provisions of Section 21AA read with Section 4(1)(b) of the Act and the ratio of the judgments relied upon by the revenue, the learned AAC erred in holding that the AOP does not come within the ambit of the word 'individual' and hence is not an assessable entity under the provisions of the Act. His order may, therefore, be set aside and the order of the WTO restored in its place.
7. The assessee, on the other hand, relied upon the judgments in the case of Royal Calcutta Turf Club v. WTO [1984] 148 ITR 790 (Cal.) ; Willingdon Sports Club v. C.B. Patel, Third Addl. WTO [1982] 137 ITR 83 (Bom.) ; Orient Club v. CWT [1982] 136 ITR 697 (Bom.) and Orient Club v. WTO [1980] 123 ITR 395 (Guj.). The assessee also pointed out that there are judgments in favour of the revenue in State Bank of India Officers Association v. CWT [1986] 158 ITR 23 (Mad.) and Coimbatore Club v. WTO [1985] 153 ITR 172 (Mad.) but in the interpretation of a taxing statute in view of the judgment of the Supreme Court when there are two reasonable views possible, the one that favours the citizen should be adopted.
8. We have carefully considered the rival submissions. We have also very carefully gone through the relevant provisions of statutory law along with the judgments cited by the rival sides. Besides the catena of cases they have referred to, we have gone through the Supreme Court judgments in the cases of V. Venugopala Ravi Varma Rajah v. Union of India [1969] 74 ITR 49 ; CWT v. Bishwa nath Chatterjee [1976] 103 ITR 536 and CIT v. Vegetable Products Ltd. [1973] 88 ITR 192.
9. Before we proceed to determine the issue before us, we think it necessary to clarify certain concepts under the 1961 Act as taxable entities insofar as, they are relevant for these appeals. These entities, which we have in mind are an 'association of persons' and a 'body of individuals'. The Hon'ble Supreme Court in the case of G.Murugesan & Bros. [1973] 88 ITR 432 clarified that for forming an 'association of persons', the members of the association must join together for the purpose of producing the income. An 'association of persons' can be formed only when two or more individuals voluntarily combine together for a certain purpose. Hence, volition on the part of an association of persons is an essential ingredient. It is always open to its members to withdraw from the association. No one can be compelled to continue as a member of the association. No particular form need be observed for withdrawing from an association.
10. On the other hand, even if there is a 'body of individuals' it may not be an 'association of persons' within the meaning assigned to this term under the 1961 Act. In the case of individuals receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference, the Court points out that two or 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. These circumstances do not by themselves go to show that they acted as an 'association of persons'.
11. Now, we find that the Hon'ble Supreme Court in the case of V.Venugopala Ravi Varma Rajah (supra) while considering the charge of tax under the Expenditure-tax Act, 1957, inter alia, observed that under the charging section tax is imposed on individuals and HUFs. An undivided family which consists of Hindus alone may be treated as a unit of assessment : an undivided family whose members are not Hindus will be assessed to tax as an individual. This observation was made by the Court in the context of liability to tax of the Mappilla families governed by the Maru Makkathyam law residing in a small part of the country and forming numerically a small community. The Court held so, taking into consideration, the long course of legislative history in matters of taxing income, wealth, etc., regarding undivided families.
The Hon'ble Court again in the case of C.K. Mammed Kayi (supra) relying upon its judgment in the case of V. Venugopala Ravi Varma Rajah (supra) held that the expression 'individual' in Section 3 includes within its ambit Mappilla Maru Makkathyam Tarwads and they are well within the purview of the taxing provisions of the enactment. Thus, it would be seen that the observations of the Court that the term 'individual' in Section 3 includes 'body of individuals' were in specific reference to consideration of extending the provisions of the Act for charging tax from Mappilla Maru Makkathyam Tarwads. In these two cases, the issue whether an 'association of persons' can be treated as an individual for wealth-tax purposes was not before the Court.
12. In the case of Orient Club (supra) the Gujarat High Court after considering the Supreme Court judgment in the case of V. Venugopala Ravi Varma Rajah (supra) held that under Rule 2(1) of the Wealth-tax Rules, 1957 read with Section 4(1)(b), the Legislature has given clear indication that an 'association of persons' is not an assessable entity covered by the word 'individual' in Section 3. According to the Court Section 3 does not cover either a 'body of individuals' or 'association of persons'. The Court went further to clarify that there is no other provision in the said Act, which makes an 'association of persons' as an assessable entity.
13. The Bombay High Court in the case of Orient Club (supra) went into the issue whether an 'association of persons' was liable to wealth-tax under the Act. In the process the Hon'ble Court clarified the concepts of 'body of individuals' and ' association of persons'. According to the Court, 'body of individuals' is a recognized concept in taxation and is of a very wide amplitude and the concept is entirely different from the concept of an 'association of persons', which is of a restricted nature. According to the Hon'ble Court the definition of a 'person' in the 1961 Act clearly brings out this difference. Therefore, the difference between these two concepts is well recognized for the purpose of taxation and when Section 4 refers to an 'association of persons' it cannot be equated with or treated as a 'body of individuals'. In doing so, the Hon'ble Court distinguished the Supreme Court judgment in the case of C.K. Mummed Kayi (supra).
14. In the case of Willingdon Sports Club (supra), the Hon'ble Bombay High Court followed their judgment in the case of Orient Club (supra) and emphasized that an 'association of persons' is not an individual as contemplated by the charging provisions of Section 3 and as such, an unincorporated members club is not liable to wealth-tax under Section 15. The Hon'ble Calcutta High Court in the case of Royal Calcutta Turf Club (supra), held following the Gujarat and Bombay High Courts in the cases mentioned above that a members club, being an association of persons, would not be an individual entity for the purpose of the Act and as such it is not chargeable to wealth-tax in view of the specific provisions of the charging Section 3.
16. Thus, it is clear from what is stated above that there is a school of thought amongst the judiciary of the country taking into consideration the judgment of the Hon'ble Supreme Court in the case of C.K. Mammed Kayi (supra) and the provisions of the Act that an 'association of persons' cannot be taxed for the assessment years under appeal as an 'individual'. On the other hand, there is another school of thought as would be clear from the following judgments which believes that the same judgment of the Hon'ble Supreme Court in the case of C.K. Mammed Kayi (supra) justifies the decision that an 'association of persons' is taxable under the Act as an 'individual'.
17. We may first have a look at the judgment of the Madras High Court in the case of Coimbatore Club (supra). In this judgment, the Hon'ble Court held that the expression 'individual' occurring in Section 3 will include within its scope a plurality of individuals or BOIs forming a single collective unit knit together by ties of common aims and joint interest without any profit motive but owning property. Thus, the petitioner-club was held to be subject to the provisions of the Act as an 'individual'. In doing so, the Hon'ble Madras High Court did not follow the judgments of the Gujarat High Court and the Bombay High Court. On the other hand, it referred to a large number of other judgments. In another case of State Bank of India Officers Association (supra) the Madras High Court followed their judgment in the case of Coimbatore Club (supra) after referring to judgment of the Gujarat High Court in the case of Orient .Club (supra).
18. From the position of law emanating from the above discussion it becomes clear that there is a difference of opinion among the High Courts as to whether 'association of persons' is taxable as an 'individual' or as a 'body of individuals' in the status of 'individual' under the Act. There is a very important thing to be noted about all these judgments, however, is that they draw support from the judgment of the Supreme Court in the case of C.K. Mammed Kayi (supra) but none of these judgments deals with a case where an 'association of persons' taxed so under the 1961 Act was required to pay wealth-tax" under the 1957 Act after assessment in the status of 'individual'. The judgments of the various Courts to which we have adverted to and from which we have taken abstracts supra dealt only with either clubs or 'association of officers' of a bank. It is, therefore, too much to say that these judgments decide on the basis of the Supreme Court judgment in the case of C.K. Mammed Kayi (supra) that an 'association of persons' not mentioned in Section 3 by the Legislature is taxable as an 'individual' because the Supreme Court in the said case has held that the term 'individual' includes a 'body of individuals'. In our considered opinion, those observations of the Hon'ble Supreme Court were in the context of the issue before them and did not give any basis to draw the conclusion on which the WTO has built up his impugned assessment.
19. As is also clear from the legal authorities discussed above that the concepts of an 'association of persons', 'body of individuals' and an 'individual' are well settled for income-tax assessments and cannot be taken in the manner so operating in the scheme of the wealth-tax as well. We have to go on the premise that the Legislature in preference to taxability of an 'association of persons' under the 1961 Act with due deliberation refrained from making an 'association of persons' as a taxable entity by omitting the mention thereof in charging Section 3.
20. It is well settled rule of construction of interpretation of a fiscal statute that nothing should be added and nothing should be subtracted and the Act should be interpreted as it is. Since the word 'association of persons' is not mentioned in Section 3, it cannot be added by implication so as to bring 'association of persons' to charge under the Act in the status of 'individual'.
21. The assessments before us relate to the assessment years 1970-71 to 1975-76. For these assessments relevant dates of valuation are 31st of March of the respective assessment year. They all fall prior to 1-4-1981. The Legislature inserted, by the Finance Act, 1981 with effect from 1-4-1981, Section 21AA. This section provides that where assets chargeable to tax under this Act are held by an 'association of persons', other than a company or a co-operative society, 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 formulation or at any other time thereafter are indeterminate or unknown, the wealth-tax shall be levied upon and recovered from such association in 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 purpose of this Act. It is important to note that this is effective from 1-4-1981.
22. The assessments under appeal before us were framed on 19-11-1984.
In the historical background of this case, stated supra, we have indicated till the impugned assessment came to be raised by the WTO, no notice, whatsoever, had been issued to the assessee for taxing it under the provisions of the Act. The revenue contended before us that Section 21AA is clarificatory in nature. This does not stand to reason because there is no mention about the section being clarificatory in nature in the Act itself. Even otherwise, the section shows that it is only when certain preconditions are satisfied that the assessment can be raised and the tax can be recovered from an 'association of persons' as if it was an 'individual'. These conditions are that 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 formation or at any time thereafter are indeterminate or unknown. There is no such finding in this case that this condition is satisfied. Therefore, this section is not applicable to the case before us because, firstly, it was not on the statute book for the relevant assessment years under appeal and secondly, the conditions precedent for its application have not been shown to exist. Therefore, even under this section, the assessments of the WTO cannot be justified. This we state only to deal with the contentions made by the revenue because we do not believe otherwise that this section has any retrospective operation. This is more so because there is express legislative intendment that Section 21 AA will be in operation with effect from 1-4-1981.
23. From what is stated above, it can at best be said that on the issues raised by the WTO in the impugned assessment orders there is a possibility of two reasonable views in the interpretation of the statute being adopted by a judicial mind. This is a fiscal statute.
Hence, we must follow the guidelines laid down by the Supreme Court in the case of Vegetable Products Ltd. (supra) that in such a situation a view that favours the citizen should be preferred. But we would like to record that our own view is in accord with the view of the Gujarat and Bombay High Courts.
24. To our mind, therefore, the learned AAC was justified in cancelling the assessments as these were not made in accordance with law. His orders are confirmed.