These eight appeals by assessee are directed against a consolidated order dated 7-2-1996, for assessment years 1983-84 to 1988-89 and separate order dated 15-9-1999, for assessment year 1991-92 and dated 10-12-1996, for assessment year 1982-83 of CWT(A)-II, Ahmedabad. The common grounds raised by assessee in all these appeals are reproduced below : (1) The learned commissioner (Appeals) has erred in dismissing the appeal preferred by the appellant by holding that the Wealth Tax Officer was justified in taxing the wealth of the appellant by resorting to section 21AA of the Wealth Tax Act, 1957.
(2) The learned commissioner (Appeals) has erred in not dealing with the various judgments and arguments placed before him and has erred in holding against the appellant without dealing with various submissions and contentions placed before him.
(3) Alternatively and without prejudice to what is submitted hereinabove the appellant submits that the learned CWT(A) has erred in not holding that even if the appellant was to be found assessable in the status of AOP he should be assessed to tax at the ordinary rate applicable to AOP with all available statutory deductions and not at the specified rate as set out in section 21AA of the Wealth Tax Act, 1957.
For the sake of convenience, these appeals are disposed of by this common order as below.
The assessee filed the returns of wealth declaring NIL wealth. The assessee claimed status as "Trade Association", whereas in income-tax returns it was claimed as "A0P. It is submitted before assessing officer by the assessee that, constitution of the assessee association was passed in the year 1928 and, strength of the members at the end of different financial years were 269 on 31-3-1981; 262 at 31-3-1982; 262 on 31-3-1983; and 258 on 31-3-1984; that assets of the association were only of movable nature such as investments in Government Securities, co-operative societies, furniture, etc. and there were no immovable properties. During the assessment proceedings, the assessing officer asked the assessee, whether any of its members have ever declared their interest in the assets of the association in their wealth-tax returns.
From the reply of assessee, the assessing officer found that no member had ever approached the assessee for obtaining the value of interest in the wealth of the assessee. The assessing officer concluded that in case where shares of the original members were preserved without any change, then the assessee ought to communicate individual ratio proportionate in the value of the interest of its members in its wealth from year to year. The assessing officer found that the interest of the members of the assessee remained indeterminate and variable from year to year with its varying number or membership. And that besides art. 60 of the association, the case of assessee falls within the provisions of section 21AA of the Wealth Tax Act. He accordingly treated wealth of assessee association as taxable wealth and assessed as under : The learned Commissioner (Appeals) upheld the orders of the assessing officer.
The learned authorised representative, Shri K.H. Kaji, senior advocate appeared on behalf of appellant association and submitted that the assessee association is an unregistered association, it is neither a company, nor a cooperative society nor a society registered under the Societies Registration Act, 1860. While explaining the levy of tax on wealth, Mr. Kaji has argued on the basis of charging section 3 of Wealth Tax Act, section 167A of Income Tax Act and Board Circular No.320, dated 11-1-1982 that wealth-tax is leviable only on Individual, HUF and Company, and the Trade Association is not subject to wealth-tax. In support of his contention he relied upon the judgment of Hon'ble Supreme Court, CWT v. Ellis Bridge Gymkhana (1998) 229 ITR 1 (SC), the judgment of Hon'ble Gujarat High Court in the case of Orient Club v. Wealth Tax Officer (1980) 123 ITR 395 (Guj) and the judgment of Hon'ble Bombay High Court in the case of Orient Club v. CWT (1982) 136 ITR 697 (Bom), These both judgments of High Courts have been approved by the Hon'ble Supreme Court in its judgment (supra). He further submitted that with effect from 1-4-1981, section 21AA is inserted in the Wealth Tax Act, wherein an AOP, other than a company or co-operative society or society and with effect from 1-4-1989, a society registered under the Societies Registration Act, 1860, wherein the Individual Shares of their members in the income or assets or both on the date of its formation or at any time thereafter are indeterminate or unknown, the wealth-tax shall be levied upon such association and society. The learned Authorised Representative submitted that after insertion of section 21AA, the question arose whether the share of members of appellant association is indetermined or unknown, the learned authorised representative pointed out that the reply of this question is available in art. 60 of rules and regulations relating to the Constitution of the Association. And that in accordance with said art. 60 the share of all members is equal, that means share of members are determined. The learned authorised representative relied upon a decision of Hon'ble Gujarat High Court in the case of Padmavati Jaykrishna Trust & Anr. v. CWT (1966) 61 ITR 66 (Guj). The learned authorised representative pointed out that in the said judgment the Hon'ble Gujarat High Court reversed the decision of the Tribunal and held that the number of beneficiaries as also their shares both were known and determinate. In view of that the learned authorised representative contended that in case of appellant association the share of members are known and determinate, therefore section 21AA of the Act is not applicable.
In alternative submissions, the learned authorised representative stated that under the facts of the case members were having no share at all in the wealth of the appellant association, therefore, on this reason also section 21AA is not applicable. In support of his contention he relied upon a decision of Tribunal Pune Bench in Asstt.
CWT v. Club of Mahabaleshwar (1993) 45 TTJ (Pune) 610 : (1993) 44 ITD 520 (Pune) and judgment of Hon'ble Andhra Pradesh High Court in the case of CWT v. George Club (1991) 191 ITR 368 (AP).
The learned Departmental Representative supported the orders of revenue authorities and contended that the judgments cited by the learned authorised representative relating to the clubs, they are not related to trade association, therefore the judgments are not applicable in the case under consideration. He vehemently argued that "not mentioning of share" does not mean "no share". He further argued that section 21AA requires specific clause about the determination of share of members at the time of formation of the association itself and if such shares are indeterminate or unknown on the date of its formation or at any time thereafter, section 21AA is clearly applicable. The learned Departmental Representative submitted that in the case under consideration shares of members are determinate only on dissolution of association, therefore, before this the shares are indeterminate or unknown. He further submitted that shares were indeterminate and unknown on the valuation date. In the light of these facts the assessing officer has correctly applied section 21AA, the learned Departmental Representative argued. It is also contention of the learned Departmental Representative that section 21AA of the Act is similar to section 167B of the Income Tax Act and the appellant has been assessed in that section under the Income Tax Act, therefore, the assessee association is assessable under section 21AA of the Act. In respect of Circular No. 320, dated 11-1-1982, the learned Departmental Representative submitted that "the provisions of new section 167A of the Income Tax Act will not be attracted" means the tax on association etc. where the members are not entitled to any share in the income of the association, will be taxed by ordinary rate and not at the maximum marginal rate, it is not the intention of the circular that section 167A is not applicable. on those association.
8. In rejoinder, the learned authorised representative submitted that there is fundamental difference between section 167A of the Income Tax Act and section 21AA of the Wealth Tax Act, as in Income Tax Act AOP falls under the meaning of person whereas in the Wealth Tax Act there is no such position, the Wealth Tax Act never taxed AOP'as entity, but it is tax due to section 21AA, only on the condition that members' share are indeterminate or unknown. In this respect the authorised representative submitted that the Hon'ble Supreme Court has discussed this issue elaborately in the judgment of Ellis Bridge Gymkhana (supra).
We have considered the rival contentions of both the parties, perused the records and gone through the decisions cited by the learned authorised representative. The legislature in its wisdom while enacting the Wealth Tax Act, 1957, brought within its ambit individual, HUF and company as units of assessment. It will not be right to presume that the legislature was unaware of the wording of the charging section of the Indian Income Tax Act when the Wealth Tax Act was enacted. The legislature must be presumed to have known the large number of cases that were heard and decided on the scope of the charging section under the Income Tax Act and the meaning ascribed to "association of persons" therein. The legislature decided to exclude firms, AOP and BOI from the ambit of the Wealth Tax Act. What has been specifically left out by the legislature cannot be brought back within the ambit of the charging section. AOP has been brought to tax under the Wealth Tax Act through section 21AA with effect from 1-4-1981. The said section reads as under : "Section 21AA(1): Where assets chargeable to tax under this Act are held by an AOP, other than a company or co-operative society or society registered under the Societies Registration Act, 1860 or under any law corresponding to that Act in force in any part of India and the individual share 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, the wealth-tax shall be levied upon and recovered from such 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, and at the maximum marginal rate." (1) Assets chargeable to tax are held by an AOP other than a company or a co-operative society, and after 1-4-1989, by a society registered under the Societies Registration Act.
(2) That individual shares of its member in the income or asset, on the date of its formation or at any time thereafter are indeterminate and unknown.
As regards the first condition there is no dispute between the parties.
The crux of the controversy is in above condition No. (2). The learned authorised representative contended that in the instant case share of members are determinate. It is provided in clause 60 of the rules and regulations of the association that at the time of winding up of the association, all cash, movable and immovable properties of the association, shall be equally distributed amongst the ordinary members who are on the register of the association. Can it be said on the basis of this clause that share of members are determinate for the purpose of section 21AA. The Hon'ble Gujarat High Court has examined the term "individual shares of members-indeterminate or unknown" with reference to sections 21(1) and 21(4) of the Wealth Tax Act in the case of Padmavati Jay Krishna Trust & Anr. v. CWT (supra). In the said case, the terms of the trust deed were that the income from the trust properties was payable to the daughter-in-law of the settlor for her life and thereafter the corpus was to he divided and distributed in equal shares amongst the male children of the settlor's son. Under the facts of that case, whether it would be possible to say that the number of the. beneficiaries and their shares were indeterminate. Under the deed of trust dated 30-12-1945, the trustees are to hold the trust property in the trust to pay the income thereof to said Padmavati during her life time and, on the happening of the event, i.e., her death, in trust for the male child or children of Jaykrishna for their use and benefit absolutely in equal shares to the intent and effect that the share of each male child shall be a vested interest in such child so that in case any such child were to predecease said Padamavati, the representative of such predeceased child would take the share which he would have taken had he been alive, to be divided, paid and transferred to them when the youngest of the said male children attains the age of majority. There can be no doubt that under these clauses, though said Padmavati was entitled to a life interest and the distribution of corpus was postponed till the youngest of the male children attained majority, the deed created a vested interest in each of the male children in the trust properties so that if any one of them were to predecease said Padmavati, his interest would devolve on his legal representative. The share of each such male child in the corpus being equal, it is not possible to say that the settlor did not specify the shares or that the shares were unknown or indeterminate. But the Tribunal was of the view that, though in the assessment year 1958-59 said Padmavati had two sons, both of them being alive, the possibility of the said Jaykrishna having more sons in future could not be eliminated and therefore it would not be possible to say how many sons there would be at the time of the death of said Padmavati. On this reasoning, the Tribunal held that the number of beneficiaries was uncertain for their number was capable of ascertainment only on the happening of the event set out in clause (b), namely, the death of said Padmavati. The Hon'ble Gujarat High Court held that the construction placed by the Tribunal on sub-sections (1) and (4) of section 21 was not a correct construction. The Hon'ble High Court were of the opinion that the number of beneficiaries as also their shares were both known and determinate.
Similar controversy has been examined by the Hon'ble Supreme Court in the case of CWT v. Trustees of Nizam's Family Trust (1977) 108 ITR 555 (SC). The facts of the said case are as under : In the year 1950, the late Nawab Sir Mir Osman Ali Khan Bahadur, the Nizam of Hyderabad and Berar, created several trusts, out of which, we are concerned in this case with the trusts known as the 'Family Trust', the 'Housing Accommodation Trust' and the 'Step-sisters Trust'. It was agreed before the Tribunal and it was also agreed before us that the deeds of trusts are more or less similar and that it would be sufficient if the provisions of the Family Trust are referred to. By the deed of trust dated 6-5-1950, which created the 'family Trust' the late Nizam transferred a corpus of Rs. 9 crores in Government securities to the trustees constituted by him. The corpus was to be notionally divided into 175 equal units. Five of the units were to constitute a 'Family Trust Expenses Fund'. The remaining 166-1/2 units were allotted to the relatives mentioned in the schedule II in the manner specified in the Schedule, the number of units allocated to each individual relative being mentioned there. The Sch. II was divided into two parts. In Part I of the Sch. II were mentioned his wife, Laila Bagum, her five sons and two daughters and his another wife, Jani Begum, and her minor son. In Part II of the Schedule II were mentioned the other wives, sons, daughters, daughters-in-law, sons-in-law, would-be-sons-in-law and certain ladies of rank. None of the beneficiaries mentioned in the Sch. II whether in Part I or Part II, was to be entitled to the corpus of the units allotted to him or her.
Each was entitled to be paid the income from the units allocated to him or her and provision was made for the manner in which the units were to devolve after his or her death. The scheme of devolution generally was that after his or her death the corpus of the units allocated to him or her would descend to his or her issue or remoter issue per stirpes, a son taking twice the share of a daughter. In the case of units allocated to Laila Begum and Jani Begum a special provision was made.
Their respective units were to descend to their respective children, specified in Part I of the Sch. II The children were, however, not entitled to get the corpus of the units but were entitled only to the income from such units. After the death of the children their children or remoter issues were to be entitled to the corpus as in the case of units allocated to relatives mentioned in Part II'.
The Honble Supreme Court has held that under the above facts of the case the shares are determinate and known. The relevant observations of Honble, Supreme Court are reproduced as below : 'This immediately takes us to the question as to which of the two sub-sections (1) or (4), of section 21 applied for the purposes of assessing the assessee 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 Schedule II 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, 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 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 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 owner of the life interest. The position has to be seen on the relevant valuation date as if the proceeding 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 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 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 Rehman v. CIT (1945) 13 ITR 189 (Pat) and since then this view has been followed by the Calcutta High Court in Suhashini 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 (Bom) and CWT v. Trustees of Mrs. Hansabai Tribhuwandas Trust (1968) 69 ITR 527 (Bom) and the Gujarat High Court in Padmavati Jaykrishna Trust v. CWT (supra). The Calcutta High Court pointed out in Suhashini Karuri's case (supra) : '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 varies from time to time, one cannot say that it is indeterminate.' The same proposition was formulated in slightly different language by the Bombay High Court in Trustees of Putlibai R.F Mulla Trust's case (supra) : 'The question whether the shares of the beneficiaries are determinate or known has to be judged as on the relevant date in 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.' The Gujarat High Court also observed in Padmavati Jaykrishna Trust's case (supra) : ..... 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 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 the correct statement of the law and we have no doubt that in order to determine the applicability of 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 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.
Now, in the present case it is clear from the provisions of the trust deed that, in the case of each set of unit or units, it is possible to say with certainly and definiteness on each relevant valuation date as to who would be the beneficiaries and in what specific shares, if the respective relative mentioned in the Sch. 11 to whom such set of unit or units is allocated under the trust deed were to die on that date. " It is pertinent to mention here that the Explanation 1 is enacted to section 21(4) of the Wealth Tax Act, 1957 with effect from, 1-4-1980 to undo the effect of aforesaid judgment of Honble Supreme Court but similar Explanation has not been inserted in section 21AA. Thus it further fortified that the ratio of aforesaid judgment of Honble Supreme Court is applicable in relation to section 21AA of the Wealth Tax Act.
In the light of above discussion and in accordance with the above view of the Hon'ble Supreme Court and Hon'ble Jurisdictional High Court, the shares of the members of Ahmedabad Cotton Merchants Association are determinate and known and it is possible to say with certainty and definiteness on each relevant valuation date that the shares of the ordinary members are equal, as if the said association was to wind up on that date. The shares of members are determinate and known, therefore, we are of the considered opinion that section 21AA is not applicable in case of the assessee.