The Supreme Court held that Bangalore Club is not liable to pay wealth tax under the Wealth Tax Act, 1957.
The Supreme Court on Tuesday held that the Bangalore Club, established by a group of British officers in 1868, was not liable to pay wealth tax under the Wealth Tax Act, 1957 setting aside the decision of the Karnataka Hight Court.
A bench of Justices R.F. Nariman, Navin Sinha and Indira Banerjee said that the club is a social association of persons, and their aim was not to carry out any commercial activity and to make profits.
“Bangalore Club is an association of persons and not the creation, by a person who is otherwise assessable, of one among a large number of associations of persons without defining the shares of the members so as to escape tax liability. For all these reasons, it is clear that Section 21AA of the Wealth Tax Act does not get attracted to the facts of the present case,” the court said.
The bench further noticed that only three types of persons can be assessed for wealth tax under Section 3 i.e. individuals, Hindu undivided families, and companies. Hence, if Section 3(1) alone were to be looked at, the Bangalore Club neither being an individual, nor a HUF, nor a company cannot possibly be brought into the wealth tax net under this provision.
The bench further noted, “It is clear that in order to be an association of persons attracting Section 21AA of the Wealth Tax Act, it is necessary that persons band together with some business or commercial object in view in order to make income or profits. The presumption gets strengthened by the language of Sec. 21AA (2), which speaks of a business or profession carried on by an association of persons which then gets discontinued or dissolved. The thrust of the provision therefore, is to rope in associations of persons whose common object is a business or professional object, namely, to earn income or profits. Bangalore Club being a social club whose objects have been referred to by the Appellate Tribunal in this case make it clear that persons who are banded together do not band together for any business purpose or commercial purpose in order to make income or profits.”