Orient Club Vs. Commissioner of Wealth-tax, Bombay City-ii - Court Judgment

Chandurkar, J.

1. This reference made under s. 27(1) of the W.T. Act, 1957 (hereinafter referred to as 'the Act'), raises a question as to whether a members club is liable to assessment under the Act.

2. The assessee is the Orient Club, Bombay, which was opened on May 1, 1900, and was started with a view 'to provided a first class club to which person of culture and position could be admitted irrespective of race, creed or politics on terms of social equality'. The rues and bye-laws of the club provide for different classes of membership such as, (1) permanent members, (2) life members, (3) temporary members and (4) honorary members. In order to obtain a membership in the club, fees have to be paid. A person can become a life members on payment of a lump sum of Rs. 2,000 and he is not to pay any further subscription. Permanent members have to pay an entrance fee of Rs. 1,000 and the necessary monthly subscription. No fees are payable by honorary members. Temporary members have also to pay fees. The affairs of the club are looked after by a managing committee consisting of a president and fourteen members elected annually at the annual general meeting. The are also trustees of the club and the number of trustees cannot be less than 3. The trustee are elected and can be removed by a vote of majority of not less than two-thirds of the members present at the general meeting of the members of the club and the vote is to be taken by ballot. So far as the property of the club is concerned, if vests in the trustees and cl. 34(d) of the rules of the club reads as follow :

'The property and effects of the club of whatever description shall vest in and shall, when necessary, be transferred to the trustees for the time being who shall in any legal proceedings be deemed sufficiently to represent the club and its members. Under the direction of the managing committee, the trustees for the time being shall act in legal proceedings, effect insurance, invest money, execute mortgages and all deeds to be entered into on behalf of the club, sing any debentures, the issue and form of which may be directed by the committee, and generally transact all business of alike nature in such manner as the committee may, from time to time, determine and direct.'

3. Clause 34(d) thus provides that the trustees have to carry out the directions of the managing committee.

4. We are in this reference concerned with the assessment years 1962-63 and 1963-64, the relevant valuation dates being December 31, 1961, and December 31, 1962. In the proceedings for assessment under the W.T. Act, the contention of the assessee-club before the WTO was that the trustees of the property of the club were not owners of the property or assets of the club and the club was not liable to be assessed to wealth-tax. The WTO, however, took the view that an 'individual' in s. 3 of the Act included a group of persons and that joint trustees were liable to wealth-tax in the statue of an 'individual'. The WTO took the view that the property of the club vested in the trustees who, in any legal proceedings. Were deemed sufficient to represent the club.

5. In the appeal filed by the assessee-club, the contention before the AAC was that s. 21 of the Act, was not applicable in the case of club because there was no trust deed in writing and the trustees were not the owners of the property and further that the Act, did not provided for assessment of an 'association of persons'. The AAC rejected these contentions and held that the absence of the trust deed was not of much significance in view of the provisions in r. 34 which dealt with towers of the trustees and as the rules of the club indicated that the properties or assets of the club were to vest in the trustees, the trustees were assessable to wealth-tax under the provisions of s. 21. The assessment order made by the WTO was thus upheld. The assessee club then went in appeal before the Appellate Tribunal

6. The contention of the assessee-club before the Tribunal was that the trustees who held the property of the club were not owners of the property and the club being an association of person whose identity changed from time to time as the members came in and went out, it could not be known on whose behalf the trustees were holding the assets of the club and those no assessment could, therefore, be made on the trustees. According to the revenue, since the property of the club vested in the trustees the trustees could be assessee under s. 21 and alternatively the trustees formed a group of persons who could be assessed in accordance with the decision of this court in Abhay L. Khatau v. CWT : [1965]57ITR202(Bom) .

7. The Tribunal, however, did not think it necessary to decide the contention as to whether s. 21(1) of the Act applied to the case of the club on the footing that the trustees of the club came within the meaning of the word 'trustees' under s. 21. The Tribunal, however, took the view that the club, which is a group of individuals, is assessable in the status of an individual for wealth-tax. The Tribunal also took the view that the club belonged to the members for the time being on its list of member and those members could deal with the club as they liked. The club was thus identified with its members at a given point of time and the club could not be said to have an existence apart from its members. The view taken by the Tribunal shows, that, according to it, 'in assessing, the club, therefore, is is the members who are assessed and unquestionably the members from a group of individuals'. The Tribunal placed reliance on certain observation of the Supreme Court in CIT v. Sodra Devi : [1957]32ITR615(SC) . The Tribunal thus having upheld the assessment of the club under the Act, the following question has been referred to this court at the instance of the assessee-clu :

'Whether, on the facts and in the circumstance of the case, the assessment of the applicant under the Wealth-tax Act was valid ?'

8. Mr. Dastur appearing on behalf of the assessee has argued that the assessee-club is a members club and the members of the club constitute an association of persons and since an association of persons as such is not assessable under the said Act, the members, club is not chargeable under the said Act. It is argued that under s. 3 read with s. 2(m) of the W.T. Act, wealth-tax can be charged only in respect of assets belonging to an individual, HUF or a company, and the members club being an association of personal, it cannot be treated as an individual for the purposes of the Act.

9. Mr. Joshi appearing on behalf of the revenue has not disputed the fact that in the case of a members club the property of the club belongs to the members of the club for the time begin and that the trustees in whom the property vests are not owners of the property. What is, however, argued is that the club is a group of individuals under an agreement and though a members club is not incorporated, it has a corporate identity. The argument which is advanced before us on behalf of the revenue is with regard to the word 'individual' which has been constructed to include a body of individuals. The argument is that the members of a members club form a body of individuals and, therefore, having regard to the corporate identity of the members who form the club, these members, having constituted a body of individuals, could be treated as a distinct and independent entity, viz., 'individual' for the purpose of s. 3 of the Act. In support of the contention that 'individual' includes as body of individuals or a group of individuals, the learned counsel for the revenue has placed reliance primarily on two decisions of the Supreme Court in Banarsi Dass v. WTO : [1965]56ITR224(SC) and WTO v. C. K. Mammed Kayi : [1981]129ITR307(SC) . The learned counsel for the revenue has also placed reliance on another decision of the Supreme court in Trustees of Gordhandas Govindram Family Charity Trust v. CIT : [1973]88ITR47(SC) . We may point out that the learned counsel for the assessee his brought to our notice a decision of the Gujarat High Court in Orient Club v. WTO : [1980]123ITR395(Guj) which was a case of a members club and in which the questions of the liability of members of a club under the Act was considered and the Divisions Bench of the Gujarat High Court has held that a members club is an association of persons and an association of persons is not an assessable entity covered by the word individual under s. 3 of the Act.

10. In order to decide whether the assessee-club has been rightly held to be liable to wealth-tax under the Act, it is necessary to first refer to certain provisions of the Act. Section 3 of the Act is the charging section and it reads as follows'

'Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the or rate specified in Schedule I.'

11. Section 3 thus reference to the taxable units or taxable entitled contemplated by the Act. The three taxable units are, an individual, an HUF and a company. Net wealth referred to in s. 3 has been defined in s. 2(m) of the Act as meaning,

'the amounts by which the aggregate value computed in accordance with the provisions of the Act of all the assets, where ever located, belonging to the assessee on the valuation date, including assets, required to be included in his net wealth as on that date this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than-....'

12. The words 'including assets required to be included in his net wealth ' have reference to the provisions of s. 4 which is headed as 'Net wealth to include certain assets'. It is now well settled that when the definition of 'net wealth' referred to the assets wherever located belonging to the assessee on the valuation date, the reference is to ownership of the assets as will be clear from the decision of the Supreme Court in CWT v. Bishwanath Chatterjee : [1976]103ITR536(SC) in which, dealing with the meaning of the words 'belonging to the assessee', the Supreme Court observed as follows (p. 539 :

'The expression 'belong' has been defined as follows in the Oxford English Dictionary :- 'To be the property or rightful possession of.'

13. So it is the property of a persons, or that which is in his possession as of right, which is liable to wealth-tax. In other words, the liability to wealth-tax arises out the ownership of the asset, and not otherwise. Mere possession, or joint possession, unaccompanied by the right to, or ownership of property would, therefore, not bring the property within the definition of 'net wealth', for, it would not then be an asset 'belonging' to the assessee.

14. The word 'assessee' has been defined in s. 2(c) of the Act and the main part of the definition excluding the inclusive part refers to 'a person by whom wealth-tax or any other sum of money is payable under this Act.' It is also necessary to refer to the definition of company in s. 2(h) of the Act and so far as the present case is concerned, only cl. (ii) of the inclusive part is material. The relevant part of the definition reads as follow :

'(h) 'Company' means a company formed and registered under the Companies Act, 1956 (1 of 1956), and includes-....

(iii) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which the Board may, having regard to the nature and objects of such institution, association or body, declare by general or special order to be a company :

Provided that such institution, association or body shall be deemed to be a company only for the such assessee year or assessment year (whether commencing before the April 1, 1975, or on or after that date) as may be specified in the declaration.'

15. Under s. 3 of the Act, a company is treated as a taxable as a taxable unit and having regard to the extended meaning of the word 'company', and institution, association or body could be subjected to wealth-tax provided, of course, the Board, which means the Central Board of Direct Taxes, declares, it by a general or special order to be a company for the purpose of the Act. The Parliament has, therefore, it fit to include an institution, association or body, which is bound to consist of more than one individual, with the definition of a company in the event of a general or special order being issued by the CBDT.

16. It is also necessary to make a reference to certain clause in s. 4(1) where the legislature has brought out a distinction between an association of persons and an individual. In s. 4(1) it is provided as follow :

'In computing the net wealth of an individual, there shall be included as belonging to that individual -

(a) the value of assets which on the valuation date are held -...

(iii) by a person or association of person to whom such asserts have been transferred by the individual, directly, or indirectly otherwise than for adequate consideration for the immediate or deferred benefit of the individual, his or here spouse or minor child (not being a married daughter) or both, or

(iv) by a person or association of person to whom such assets have been transferred by the individual otherwise than under an irrevocable transfer,.....

(b) where the assessee is a partner in a firm or a member of an association of persons (not being a co-operative housing society) the value of his interest in the firm or association determined in the prescribed manner.'

17. Sub-clauses (iii) and (iv) of s. 4(1)(a) reproduced above will indicate that an association of persons contemplated by these clauses is independent of the individual which is treated as a taxable unit.

18. Clause (b) reproduced above will indicate that the interest of a person in the partnership firm in which he is a partners, or in the association of persons of which he is a member, has to be determined in the prescribed manner and the manner is specified in r. 2 which has the marginal heading 'Valuation of interest in partnership or association of persons'. If we now refer to r. 2, which prescribed the manner of the evaluation of the interest of an assessee in a partnership or an association of persons, if first contemplates the determination of the net wealth of the firm or the association on the valuation date.

19. It then provides that the portion of the net wealth of the firm or association as is equal to the amount of its capital shall be allocated among the partners or members in the proportion in which the capital has been contributed by them, and the residue of the net wealth of the firm or association shall be allocated among the partners or members in accordance with the agreement of the partnership or association for the distribution of assets in the event of dissolution of the firm association, or, in the absence of such agreement, in the proportion in which the partners or members are entitled to shares profits. Rule 2(1) then provides that the sum total of the amounts so allocated to a partner of members shall be treated as the value of the interest of that partner or member in the first or association.

20. The provisions of s. 4(1)(b) read with r. 2 will indicate the though the Act and the Rules contemplate that the interest of a partner in a partnership firm and of a member of an association of persons is to be included in the net wealth of that 'individual', i.e. the partner or the member of the association of persons, as the case may be, an association of persons as such is not treated as a taxable unit under the Ac : it is the partner or a member of an association of person as an individual who alone is treated as a taxation unit. Reading the provisions of ss. 3 and 4 and the definition of 'company' in s. 2(h) of the Act, the position which emerges appears to be that while a firm or association of persons is not treated as a taxable unit and the member of an association of persons or a partner in the case of a partnership firm is individually taxable as a taxable unit, some institutions, associations, or bodies which may be included within the definition of 'Company' by virtue of a general or special order to be made by the CBDT, could be treated as a taxable unit only when they fall within the extended definition of the word 'company'. We are not called upon in the present case to decide what would be the nature of the limitations, association or body which were contemplated to be included within the definition of company, but it is apparent that if the institution, association or body contemplated by the extended definition of company were to be treated as a taxable unit for the purpose of s. 3, then this would be something different from a partnership firm or an association of persons which was contemplated by the provisions of s. 4(1)(b).

21. With these legal provisions, it is now necessary to consider what would be the status of a non-proprietary members club and whether, as contemplated on behalf of the revenue, it must be treated as an individual, company, a body of individual or whether it must be regard as an association of persons, as contended for by Mr. Dastur on behalf of the assessee. In so far as the unincorporated members club is concerned, the legal position now appears to be well settled. An unincorporated members club is a society or persons each of whom contributes to the funds out of which the expenses of conducting the society are paid. The contribution is generally made by means of nice fees or subscriptions of both. The society is not a partnership use the members are not associated with a view to share the profits. It is not recognised as having any legal existence apart from the members of which it is composed. Every club is government by rules which generally specify the purposes for which it is instituted and make provisions as to the admission of members, payment of entrance fees and subscriptions, resignation and expulsion of members, the management of the affairs of the club, ordinary and extraordinary general meetings of members, alteration of the rules and making new rules, etc. The rules of the club from part of the contract among members in the case of a members club, and the right and the duties of the a members as between themselves and the internal arrangement for carrying it on, depends upon the rule. Members are entitled to enjoy the use of the club premises, if any, and other privileges, of the society in accordance with the rules, so long as they duly pay the subscription and continue to be members. In an unincorporated members club, there are usually trustees appointed in pursuance of the provision in the rules in whom the property and assets of the club are vested in trust for the member for the time being and who are given power to invested the funds of the club, sometimes at their own discretion and sometimes according to the directions of the committee. In a non-proprietary club, the members for the time being are jointly entitled to all the property and funds and it is only on dissolution that the individual interest of the members become capable of realisation.

'On the dissolution of a members club, the property and assets are sold and realised, and after the discharge of the debts and liability of the club the surplus is divisible equally amongst the members for the time being, other than the honorary members, subject to any provision in the rules to the contrary.' (See Halsbury's Laws of England, 4th Edn., Vol. 6, Paras 209,217, 220, 232, 247, 256 and 261). A members club is thus a voluntary association resulting from persons coming together in accordance with the rules and bye-laws of the club for enjoying certain facilities or for certain purpose and, as pointed out in Daly's Club Law, 7th Edn., p. 1, a club is 'an association of individuals in way that involves to some degree the factors of the free choice (which connotes a power of exclusion) permanence. Corporate identity and the pursuit as a common aim of some joint interest other than the acquisition of gains.' It may be pointed out at this stage that the learned counsel for the revenue has emphasised the concept that a club has a corporate identity, in aid of the argument that it can be treated as an individual. But as pointed out in Daly's Club Law, the corporate identity of a members club or an unincorporated members' club is not to be confused with corporate status. A club is thus not a juristic entity, but is merely an association of persons who come together for social intercourse and recreation and not for gain and to borrow the words of Starke J., in Watson v. J & A. G. Johanson Ltd. 55 CLR 63 'the club is not a juristic entity; it is not even a partnership, it is simply a voluntary association of a number of persons for the purposes of affording its members and their friends facilities for social intercourse and recreation, and the usual privileges, advantages and accommodation of a club. The property acquired for or arising from the conduct of the club, though vested in trustees, belongs to the general body of members. The interest, however, of each member in the general assets of the club exists only during membership, and is not transmissible : it is a right of admission to any enjoyment of the club continues.'

22. Thus, so far as the property of the club is concerned, though in common parlance it is said to be owned by the club, the club, not being a juristic entity and not having any corporate status, is really incapable of owning the property. Even though members for the time being own the property, their right merely consists off the enjoyment of the property because the right of ownership is not transmissible and it can only materialise at the time when the club as a body will stand dissolved. If the membership of a club be obtained only voluntarily and on becoming a member, and the rules of the club become part of the conduct of members inter se in the case of an unincorporated club, then it is obvious that the club becomes an association of persons.

23. The concept of an association of persons, though in the context of the provisions of s. 3 of the Indian I.T. Act, 1922, fell for consideration before the Supreme Court in CIT v. Indian Balkrishna : [1960]39ITR546(SC) . The observation made therein indicate what an association of persons will generally mean. The Supreme Court referred with approval to the observation of the Calcutta High Court in In re B. N. Elias : [1935]3ITR408(Cal) in which Derbyshire C.J. has pointed out that the word 'associate' means, according to the Oxford Dictionary.' to join in common purpose, or to join in an action'. Having referred to this definition, the Supreme Court pointed out that an association of persons must be one in which two or more persons who in a common purpose or common action. The further observation, that in the context of the taxing provision in the I.T. Act, the association must be one the object of which is to produce income, profits or gains, would not be relevant for our purpose. Referring to the observation in the same case by another judge of the Calcutta High Court Costello J., the following observations were quoted with approval (p. 551 of 39 ITR :

'It may well be that the intention of the legislature was to hit combinations of individuals who were engaged together in some joint enterprise but did not in law constitute partnerships... When we find.... that there is a combination of persons formed for the promotion of joint enterprise... then I think no difficulty arises whatever in the way of saying that... these persons did constitute an association.....'

24. Though in the case of an association of persons as a taxable entity under the I.T. Act, the association must be one, the object of which is to produce income, profits or gains, it is immaterial for the purposes of the W.T. Act as to whether such an association was formed with a view to earn wealth, but since the tax under the W.T. Act is charged on the net wealth, an association of persons relevant for the purpose of the W.T. Act must be an association of persons which owns wealth, though such an association may not have expressly come into being with the object of owning wealth. Having regard to the manner in which an unincorporated members club comes into being and the manner in which the membership of the club is acquired, there can be little doubt that such a club is an association of person. The members of such a club come to own wealth-as an incidence of membership when they joint the club though the object of joining the club is not be acquisition of wealth, not is their activity directed at an acquisition of wealth. It is an incidence of membership that if and when the club is dissolved and if they continue to be members on the date of dissolution, the property of the club will be distributed among the members for the time being.

25. As already pointed out, an association or persons is not treated as a taxable unit or a taxable entity under s. 3 of the Act. But it is vehemently contended by Mr. Joshi on behalf of the revenue that members of a club formed a body individuals and a body of individuals could be treated as an 'individual' which, is a taxable unit or entity referred to in s. 3 of the Act. Now, 'body of individual' is a recognised concept on taxation and is of very wide amplitude and the concept is entirely different from the concept of an 'association of persons' which is of a restricted nature. The history of taxing statues in India highlights this difference between a 'body of individual' and an 'association of person' because, if there was no difference between the two concepts, redundancy would have to be attributed to the Legislature when it enacts a taxing statute specifying a 'body of individuals' and an 'association of persons' as separate taxable entities. The definition of a 'persons' in the I.T. Act, 1961, clearly brings out this difference. Section 2(31) of the I.T. Act, 1961, which defines a persons, provides that it includes -

'(i) an individual,

(ii) a Hindu undivided family,

(iii) a company,

(iv) a firm,

(v) an association of persons or a body of individuals, whether incorporated or not....'

26. The difference between the two concepts, viz., an 'association of persons' and a 'Body of individuals' is, therefore, well recognised for the purpose of taxation. Therefore, when s. 4 of the Act refers to an association of persons it cannot be equated with or treated as a 'body of individuals'. The further argument that a 'body of individual' should be treated as an 'individual' for the purposes of s. 3 really does not then survive.

27. It is no doubt true, there is the authority of the decision of the Supreme Court for the proposition that an 'individual' may also mean a 'body of individuals' but merely on that account to hold that wherever in a statute 'individual' is mentioned, it must be construed as including a 'body of individuals', would not be justified. The meaning of the word 'individual' in s. 4 would have to be ascertained after considering the scheme of the Act, the other provisions of the Act and the context in which that word has been used.

28. It must be pointed out that the Supreme Court, in the cases relied upon by the learned counsel for the revenue, was not constructing the meaning of the word 'individual' which is used to indicate a taxable unit in the W.T. Act, nor was the Supreme Court construing the meaning of that word in the context of the provisions of the W.T. Act. The Supreme Court was construing the meaning of the word 'individual' as it occurs in entry 86 of List I of Scch. VII of the Constitution of Indian and was, therefore, concerned with the width of the legislative filed which should be covered by that word. It is well known that the principles governing the construction and scope of a legislative entry to determine the width of the legislative filed would be wholly different than in the construction of a word occurring in a statue. Apart from the fact that this principle is well recognised, we may refer to the observations of the Supreme Court in Mammed Kayi's case : [1981]129ITR307(SC) , in which the Supreme Court has observed as follows (p. 312 :

'It cannot be disputed that the canon of construction applicable to entries in the three Legislative Lists occurring in a Constitution would be difference from the canon of construction that would apply to terms or expressions used in a taxing statue. The object of an entry in any legislative list is to demarcate as wide a legislative held as possible by the use of compendious words or expressions while the rule of constructions applicable to a taxing statue must ensure that 'the subject is not to be taxed unless the language of the stature clearly imposes the obligation [Per Lord Simonds in Russell v. Scott [1948] AC 422 '.

29. To the same effect are the observation of the Supreme Court in Banarsi Dass case : [1965]56ITR224(SC) , in which the observation of Gwyer C.J. in Atigua Begum's case [1940] FCR 110 that 'none of the items in the List is to be read in a narrow or restricted senses, and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it', were quoted with approval.

30. Banarsi Dass' case : [1965]56ITR224(SC) appears to be the first case in which the Constitutional validity of the W.T. Act was put in issue on the ground that Parliament was incompetent to enact a legislation in respect of wealth-tax on HUFs, which was a group of individual. Entry 86 in List I of Sch. VII reads 'taxes on the capital valued of the assets, exclusive of agricultural land, individuals and companies; taxes on the capital of companies', which refers only to individual and companies. The contention before the Supreme Court was that the word 'individual' used in entire 86 cannot take in HUF and that the taxes which parliament can levy can be levied only on individual and not on groups of individual and on companies. The contention of the revenue in that case was that the word 'individual' used in entry 86 was wide enough to take within its sweep groups of individuals and, as such HUF fell within the scope of the area covered by entry 86. Repelling the challenge, the Supreme Court held that it was not easy to understand why the word 'individuals' could not take in is sweep groups of individual like HUFs. The Supreme Court found it impossible to assume that while thinking of levying taxes on the capital value of assets, HUFs. Could possible have been intend to be left out. The following observations may be reproduced (p 230 of 56 ITR :

31. It is hardly necessary to emphasise that groups of individual the capital valued of whose assets would be subjected to the payment of wealth-tax, would naturally be groups of individuals who form a unit and who own the said assets together.... Ordinarily, individuals would be treated as such and the capital value of their separate assets would be taxed; but if individual form groups and such groups own capital assets, it is difficult to say why the power to levy taxes on such capital assets should be held to be outside the scope to entry 86.'

32. when the distinction between 'individual' and 'Hindu undivided family', apparent on the legislative history in the matter of taxes, in legislation, was pointed out to the Supreme Court, the Supreme Court observed as follows (p. 231 of 56 ITR :

'Assuming that the legislative history in the matter of tax legislative supports the distinction between individuals and Hindu undivided families, we do not see how the said consideration can have a material bearing on the construction of the word 'individuals' in entry 86. The tax legislation may, for convenience or other valid reasons, have made a distinction between individuals and Hindu undivided families; but it would not be legitimate to suggest that the words 'individuals' occurring in an organic document like the Constitution must necessarily receive the same construction.'

'The Constitution-makers were fully aware that the Hindu citizens of this country normally form Hindu undivided families and if the object was to levy taxes on the capital value of the assets, it is inconceivable that the word 'individuals' was introduced in the entry with the object of excluding from its scope such a large and extensive area which would be covered by Hindu undivided families.'

33. These observations will, therefore, clearly indicate that the Supreme Court was merely convened in Banarsi Dass case : [1965]56ITR224(SC) , with the scope and width of the word 'individuals' in so far as the legislative competence of the Legislature was concerned, in respect of the legislation under entry 86.

34. It is no doubt true that in the concluding portion of the judgment in Banarsi Dass case, a reference has been made to an earlier decision of the Supreme Court in CIT v. Sodra Devi : [1957]32ITR615(SC) in which the Supreme Court was really dealing with the meaning of the words 'any individual' and 'such individual' occurring in s. 16(3) of the Indian I.T. Act, 1922. In that context, while referring to the general meaning which could be given to the word 'individual', the Supreme Court has observed as follows (p. 620 of 32 ITR :

'Whereas, the word 'individual' is narrower in its connotation being one of the units for the purpose of taxation than the word 'assessee', the words 'individual' has not been defined in the Act and there is authority for the proposition that the word 'individual' does not mean only a human being but is wide enough to include a group of persons forming a unit. It has been held that the word 'individual' includes a corporation created by a statute, e.g. a university or a bar council, or the trustees of a baronetcy trust incorporate by a Baronetcy Act.'

35. Now it is difficult for use to see how these observation can be any relevance in so far as the construction of the scheme of the W.T. Act is concerned. Where a particular word has been used in a statue, while it may be one of the principles of construction that the word must be given its natural grammatical meaning, it is also equally well established that whether a particular meaning can be gave to a word or not has to be ascertained on the scheme of the Act and in the context and the purpose of which the said word has been used. We are dealing with a taxing statute and it is a well-known canon of construction of taxing statues that unless a object falls well within the for corners of the stature, the subject cannot be taxed. It is on this principle that the meaning of the word 'individual' will have to be determined when it is used in s. 3 to indicate a taxable unit or an entity. Therefore, the general observations made in Sodra Devis's case : [1957]32ITR615(SC) cannot be of any assistance to the revenue. It may, however, be pointed out that so far as Sodra Devi's case was concerned, the words 'individual' used in s. 16(3) was itself found to have been used in a restricted sense.

36. The decision in Mammed Kayi's case : [1981]129ITR307(SC) was also concerned with a challenge to the constitutionality of the W.T. Act. That decision was concerned with the taxability of Mappilla Marumakkathayam towards which undoubtedly were undivided families but were non-Hindus and the question was whether a non-Hindu undivided family was covered by the word 'individual' in s. 3 of the Act. By a majority judgment of the Full Bench of the Kerala High Court, demand notices and assessment made in respect of the towards were quashed. The argument on behalf of the revenue was that the expression individual in s. 3 of the Act took in a body or group of individual like a Mappilla Marumakkathayam towards for being assessed to wealth-tax. The further argument was that such construction was in accordance with the long legislative practice obtaining in the taxing and assessed in the status of individual, the legislative practice having been judicially recognised in the decision of the Supreme Court in V. Venugopala Ravi Varma Rajah v. Union of Indian : [1969]74ITR49(SC) .

37. The Supreme Court has in Ravi Varma Rajah's held that the term 'individual' would include a body or a group of individual like a Marumakkathayam tarwad and that there was no warrant for suffering that the two terms 'individual' and 'Hindu undivided family' had been used in antithesis to each other because, s. 3 being a charging provisions, it was merely concerned with specifying different assessable units for purpose of assessment of wealth and the imposition of the levy. If the decision in Mammed keyi's case : [1981]129ITR307(SC) is carefully read, it is difficult to spell out a general proposition from that decision that the word 'individual' in s. 3 of the W.T. Act includes all groups of individuals. The decision, in our view, appears to be an authority for the limited proposition that 'the term individual' in section 3 includes group of individuals like Marumakkathayam tarwad'. This is also clear from the concluding portion of the judgment which reads as follows(p. 314 :

'For all these reason we hold that the term 'individual' in s. 3 of the Act includes within its ambit Mappilla Marumakkathayam tarwads and they are well within the purview of the taxing provisions of the enacting.'

38. Earlier, the Supreme Court has also observed that the specific mentioned of an HUF in s. 3 does not result in the exclusion of group of individual who form a unit only by reason of their birth like a Mappilla tarwad from the operation of the section.

39. Some support was sought to be dawn from a decision of the Supreme Court in Trustees of Gordhandas Govindram Family Charity Trust v. CIT : [1973]88ITR47(SC) . The argument of the Mr. Joshi was that the trustees under a trust deed have been treated as 'individuals' for the purpose of W.T. Act and, therefore, the word 'individual' in s. 3 will also take in the members of a club. In Gordhandas Charity Trust case, the Supreme Court approved the view taken by the Calcutta High Court in Suhashini Karuri v. WTO : [1962]46ITR953(Cal) and a decision of this court in Abhay L. Khatau v. CWT : [1965]57ITR202(Bom) . In Suhashini Karuri's case, the Calcutta High Court has taken the view that the joint trustees must be taken to be a single unit in law and not as an association of person, and there was nothing wrong in treating such a unit as an individual holding property and becoming assessable under s. 3 of the W.T. Act for the purses of wealth-tax. In Abhay, L. Khatau's case, this court took the same view and it was held that join trustee are regarded as a unit for the purpose of taxation and they can be assessed to wealth-tax in the status of an individual in respect of the properties held by them as trustees and they cannot be treated as an association to person and exempted from wealth-tax on the ground that an association of persons is not an entity as mentioned in the charging section of the W.T. Act. The basis of these two decisions is that where there are more than one trustee, the co-trustees are charged as if it were a collective unit and that is why they have been regarded as a unit for the purpose of taxation and thus covered by the word individual. As already pointed out, this view was quoted with approval and was confirmed by the Supreme Court. The judgment does not seem to discuss any further the meaning of the word 'individual'. Therefore, merely because co-trustees have been treated as a singly unit, it does not necessarily follow that an association of person formed by the members of a club must also be treated as an 'individual'

40. Some reference was made by Mr. Joshi to a decision of the Mysore High Court in Sarjerao Appasaheb Shitole v. WTO : [1964]52ITR372(KAR) , where again the constitution validity of the Act was challenged and it was held that the word 'individual' in entry 86, List I, includes undivided families also, as an undivided family is only a collection of individuals and parliament has power to impose wealth-tax on undivided families under entry 86. The particular observation on which reliance was placed. Where the Division Bench of the Mysore High Court observed as follows. is (p. 379 :

'There is no doubt that the preponderance of judicial opinion is in favour to the view that the word 'individual' includes a 'group of individual' kind together either by agreement or by an involuntary association brought about by their mere birth.'

41. Though these observation refer to an 'individual' as including persons kind together by an agreement, they will have to be considered in the light of the fact that s. 4 specifically refers to an 'association of persons' as contradistinguished from an 'individual' which is treated as a taxable unit, and they cannot be of any assistance to the revenue for the contention that the members of the club should be treated as a body of individual deals, and therefore, they were a taxable unit liable to be taxed as an 'individual'. We have already to two decision of the Supreme Court, which have no doubt given a wider meaning to the word 'individual' but even that width was limited by a consideration of the meaning with reference to a Hindu or non-Hindu undivided family. In any case, of the learned judges intended to lay down that 'group of individual', who constitute an association of person as in the case of a club is covered by the word 'individual'. It would not be possible for us to agree with that view having regard to the provisions of the W.T. Act to which we have made reference earlier.

42. We are supported in the view, which we have taken, by the decision of the Gujarat High Court in Orient Club's case : [1980]123ITR395(Guj) . We may point out that the Orient Club referred in that case is different from the one before us before us but that was also a non-proprietary members club and the Gujarat High Court held that such a club did not fall within the terms 'individual' in s. 3. The relevant observation of the court are as follows (p. 403 :

'It is, therefore, clear that under r. 2(1) of the W.T. Rules, 1957, read with s. 4(1)(b), the Legislative has given clear indication that an association of person is not an assessable entity covered by the word 'individual' in s. 3 of the W.T. Act. Just as ss. 5 and 21 give a positive indication that the word 'individual' covers trustees of a trust, similarly s. 2(h)(iii) and s. 4(1)(b) read with r. 2 of the W.T. Rules, give a negative indication that association of persons but that the particular species of association of persons is specifically covered by virtue of the indications given in ss. 5 and 21 by the word 'individual' and that by virtue of the negative indication given by ss. 2(h)(iii) and 4(1)(b) read with r. 2, an association of person or a body of individuals, apart from trustees, is not covered by the word 'individual' in s. 3. That is the only possible conclusion that one can reach in the light of the provisions of the W.T. Act and the indications given by the W.T. Act.'

43. The Gujarat High Court thus held that the petitioner-club in that case which was an association of person was not an individual for the purposes of the W.T. Act and hence not an assessable entity as an 'individual' nor was there any provisions in the W.T. Act which makes an association of persons like the petitioner-club an 'individual'.

44. In the view which we have taken, the question referred to us must be answered in the negative and in favour of the assessee. The assessee to get costs of this reference.