B.J.DIVAN, J. -
(1.) THE petitioner is the Orient Club, an unregistered association of persons, through its honorary
secretary, and in this petition the petitioner club has challenged the notice dt. 5th Jan., 1979,
issued by the respondent herein, the WTO Circle IV, Ward K, Ahmedabad, under S. 14(2) of the WT
Act for the asst. year 1978 79. The petitioner prays that this notice of 5th Jan., 1979, should be
quashed and set aside and the respondent should be permanently restrained from taking any
proceedings or making any assessment against the petitioner in pursuance of the said notice.
It is the case of the petitioner that it is a members' club which has been running in Ahmedabad
since 1935. The primary objects of the petitioner club are to organise, promote, encourage and
provide all facilities and convenience for various sports for the use of the members and for such
purpose to have a club house and to afford various facilities to its members. The petitioner is not
registered under any enactment and it is, therefore, an unregistered association of its members
being managed by the managing committee constituted under its constitution. It is a mutual
association for the benefit of the members of the club and, at the time when this special civil
application was filed, the number of members of the petitioner club was more than 2,400. It is the
case of the petitioner that prior to 1st Jan., 1977, the club was carrying on its activities under its
rules as then in force adopted by the members. Under cl. 67 of those rules, all properties of the
club were to remain vested in the club as represented by the managing committee or such other
committee as the said committee or the general body might appoint and members were to have an
interest in the club property only so long as they continued to be members. Such interest was to
be incapable of specific apportionment or enforcement except in a winding up of the club decided
by the members in a general meeting specifically summoned for that purpose. By a resolution
passed at the extraordinary general meeting of the club members, a new constitution was adopted
by the petitioner club w.e.f. 1st Jan., 1977. Since that time the new constitution is in force. Under
the new constitution, the petitioner club has different kinds of members as set out in para. 3 of the
petition. These different categories of members pay different amounts by way of entrance fees
except the members falling within the first three categories of honorary members who do not pay
any entrance fees. All the members of whatever category enjoy equal rights in the management of
the club and in the enjoyment of the facilities and privileges as members. Temporary members,
service members and playing members are not entitled to receive any notice of or attend or vote at
any general meeting of the club or to be elected as office bearers or members of the managing
committee of the club.
(2.) SINCE the commencement of the WT Act, 1957, no notice of any kind under the Act has been served on the petitioner club. However, a notice dt. 5th Jan. 1979, was issued by the respondent s.
14(2) of the WT Act, 1957, for the first time in connection with the asst. year 1978 79, and the petitioner club was called upon to deliver a correct statement of assets and debts on the relevant
valuation date within thirty five days of the notice. The petitioner has not filed any return in
response to the said notice and has in the present proceedings challenged the notice under S. 14
It is the contention of the petitioner that under the WT Act the only assessable entities are
individual, HUF and company while under the IT Act, by way of contrast, every person is an
assessable entity ; and person includes, according to the definition in S. 2(31) of the IT Act, an
individual, HUF, company, firm and association or persons or BOI, whether incorporated or not,
local authority and every artificial juridical person not falling within any of the preceding sub
clauses. The petitioner, therefore, contends that under the WT Act there are only a limited number
of assessable entities as against a larger number of assessable entities under the IT Act. It has
been contended by the petitioner that an association of persons or a BOI, whether incorporated or
not, is not specifically made an assessable entity but a company has been made an assessable
entity under the WT Act. The petitioner has relied upon the provisions of S. 4(1)(b) which provides
for inclusion of the proportionate share of a member of an association of persons where that
particular association of persons holds any assets, but the determination of the share of that
association of persons had to be done in the prescribed manner. Under r. 2 of the WT Rules, the
manner of including the interest of a member of an association of persons has been prescribed and
the residue of the net wealth of the association has to be allocated among the members in
accordance with the agreement of association for the distribution of assets in the event of
dissolution of the association and, in the absence of such agreement, in the proportion in which the
members are entitled to share profits. This is the prescribed manner, according to the petitioner
club, so far as an association of persons is concerned. It is further the case of the petitioner that
there is no question of a representative assessee so far as an association of persons is concerned
looking to the language of S. 21 of the WT Act.
No affidavit in reply has been filed on behalf of the respondent in the present proceedings and Mr.
Raval, the learned counsel for the respondent, has merely relied upon the legal principles of
interpretation of statutes and decided cases for the purpose of persuading us that an association of
persons is covered by the word "individual" occurring in the charging section of the WT Act.
Sec. 3 of the WT Act is the charging section and at the relevant time was in these terms :
"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, HUF and company at the rate or rates specified in the Schedule I."
It may be pointed out that though a company as defined by the WT Act in S. 2(h) is an assessable entity, by virtue of the provisions of the Finance Act, 1960, for the asst. year 1960 61 onwards,
wealth tax is suspended so far as the assets of a company are concerned. Therefore, for all
practical purposes, since commencment of the asst. year 1960 61 onwards, only an individual and
HUF are assessable entities under the WT Act. Mr. Raval's efforts have been to persuade us to hold
that an association of persons which consists of individuals is covered by the word "individual"
occurring in S. 3 of the WT Act. In CIT vs. Sodra Devi (1957) 32 ITR 615, the Supreme Court
considered the meaning of the word "individual" occurring in S. 16(3) of the Indian IT Act, 1922.
The Bench of the Supreme Court consisted of three learned judges and Bhagwati and Kapur JJ.
delivered the majority judgment. At page 620, Bhagwati J. speaking for the majority, observed :
"......the word '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 incorporated by a Baronetcy Act." Relying upon the observation that the word "individual" is wide enough to include a group of persons forming a unit, Mr. Raval contended that an association of persons which forms a unit and is a group of persons is covered or included in the word " individual" occurring in S. 3 of the WT Act. It must also be pointed out that S. K. Das J. who delivered the minority decision in Sodra Devi's case (supra) observed at page 634 of the report : "It is not disputed before us that the word 'individual' occurring in ss. 3, 4A, 48 and 55 means either a male or a female ; nor has it been disputed before us that, according to the ordinary accepted meaning of the word, it means a single human being as opposed to I society , 'family', etc., and that a single human being may be of either sex. Learned counsel appearing for the assessees in the two appeals have pointed out, however, that the word 'individual' has not the same width of meaning in Sub S. (3) of S. 16 as it has in the other provisions; for example in S. 3, the word 'individual' has been held to include a corporation created by a statute, e. g., a university or a bar council or the trustees of a baronetcy trust incorporated by a Baronetcy Act." The question before us is not whether the word "individual" which occurs in singular in S. 3 of the WT Act does not mean " individuals" in plural. By virtue of the General Clauses Act, a singular word would include the plural and therefore the word " individual" in S. 3 would also include "individuals". It is by thus interpreting the word "individuals" that the High Courts in India and the Supreme Court have, in the light of the, provisions of ss. 5 amd 21 of the WT Act, interpreted the word "individual" to include trustees of a trust. The Supreme Court pointed out in the case of Gordhandas Charity Trust (1973) 88 ITR 47, that because of the indications given in ss. 5 and 21 of the WT Act, trustees of a trust were liable to be assessed under the WT Act in respect of the assets held by them and that though they were an association of persons or a body of persons, because of the indications given in ss. 5 and 21, the word "individual" would cover such a body of persons as well. The whole body of decisions starting from the Calcutta High Court decision in Suhaskini Karuri's case (supra) and the Bombay High Court decision in Abhay L. Khatau's case (supra), turned upon the meaning of the word "individual" in the context of a body of trustees and it emerges from a consideration of Gordhandas Charity Trust's case (supra) that trustees were considered to be covered by the word "individual", because "individual" means a BOI and there are indications that in ss. 5 and 21 of the WT Act this particular BOI, namely, trustees of a trust, are sought to be covered and are meant to be covered by the WT Act. The question that we have to ask ourselves is whether any ordinary association of persons other than trustees of a trust is sought to be covered by the language of the provisions of the WT Act and whether there are any indications one way or the other, as regards such an association of persons.
(3.) THE decision in V. Venugopala Ravi Varma Rajah vs. Union of India (1969) 74 ITR 49 (SC), turned upon the challenge to the provisions of the Expenditure tax Act on the ground of discrimination
between HUFs and Muslim Mappilla families of Kerala. Both the HUFs and Mappilla families are
governed by Marumakkattayam law but because of the HUFs being specifically mentioned in the
Expenditure tax Act it was contended that the incidence of expenditure tax was heavier in the case
of an HUF than in the case of Mappilla family which was not a family of Hindus. The Supreme Court
pointed that under the charging section of the Expenditure tax Act, tax was imposed on individual
an HUF and undivided family which consists of Hindus alone may be treated as unit or an
association and members of an undivided family whose members were not Hindus will be assessed
and taxed as individuals. In the concluding paragraph of the judgment of the Supreme Court which
dealt with purely the question of discrimination between HUF and Mappilla family, at page 57, Shah
J., as he then was, speaking for the Supreme Court, observed :
"Parliament in the present case having made the Expenditure tax Act applicable to Hindus governed by the law of the joint family, but not including Mappilla families who are governed by the Mappilla Marumakkattayam Act has not made any discrimination and the charging section is not liable to be struck down on the ground that the Mappilla family may have to pay tax at a lower rate, whereas an HUF ; by reason of the amalgamation of, the expenditure of all the members of the family, may have to pay tax at a higher rate. Members of Mappilla family would, according to this decision, of the Supreme Court, be left to pay expenditure tax not on the basis of aggregation but on the basis of the expenditure of the individual members of the family, not on the aggregate of a expenditure, but on expenditure of each individual member of the family. This decision on the question of what is meant by the word"
individual " was in the above context and certain observations were made while considering the
question of challenge on constitutional grounds and is hardly of any assistance to us in interpreting
the, word" individual "in the context of the WT Act.
Mr. Raval also relied upon the decision of the Supreme Court in Banarsi Dass vs. WTO (1965) 56
ITR 224. There the validity of the WT Act in relation to HUF, was challenged on the ground that the
word" individuals" in Entry 86 of List I of Sch VII covered an HUF and it was contended before the
Supreme Court that the constitutional entry merely covered tax on individuals and not on groups of
individuals land on companies. It was contended that an HUF consists of different coparceners who
are, no doubt, individuals, but inasmuch as the impugned provision purported to levy wealth tax
on the capital value of the assets of the HUF as such, the tax was not levied on individuals but on
groups of individuals and, therefore, was outside the scope of Entry 86. The Supreme Court in
Banarsi Dass' case (supra) applied the well known principle that the entries in Sch. VII confer
powers of the widest amplitude on the Legislature and that these constitutional entries in Sch. VII
have to be given the widest scope at the time of considering the validity of any piece of legislation.
The Supreme Court held in Banarsi Dass' case (supra) that the word "individuals" in Entry 86, List I
of Sch. VII took within its sweep groups of individuals like HUFS. This interpretation of the word
"individuals" rendered in the context of interpretation of entries in the Seventh Schedule in the
Legislative List cannot help us in deciding the much narrower question where the approach has to
be from a different angle altogether, namely, interpretation of the provisions of the WT Act.
The decision of the Full Bench of the Kerala High Court in Kerala Financial Corporation vs. WTO
(1971) 82 ITR 477 turned upon the question whether the definition of the word "individual" in S. 3
of the WT Act was restricted to human beings alone. Following the earlier decision of the Supreme
Court in Andhra Pradesh State Road Transport Corporation vs. ITO (l964) 52 ITR 524, the Full
Bench hold that the word "individual" in S. 3 of the WT Act was not restricted to human beings and
included a corporation similar to the Kerala Financial Corporation constituted under a Central,
Provincial or State Act. It may be pointed out that these decisions, one of the Supreme Court in
Andhra Pradesh State Road Transport Corporation's case (supra) and the other in Kerala Financial
Corporation's case (supra) are in line with the observations in Sodra Devi's case (supra) and the
word "individual" therefore can be interpreted to mean a juridical person as well. After the decision
of the Supreme Court in Andhra Pradesh State Road Transport Corporation's case, Parliament has
amended the definition of the word "company" in S. 2(h) of the WT Act. A new definition was
substituted for the earlier definition by the Finance Act, 1975, w.e.f. 1st April, 1975. By virtue of
this definition substituted in 1975, a company means a company formed and registered under the
Companies Act 1956, and includes, by cl. (ii), a corporation established by, or under a Central,
State or Provincial Act. It thus means that by the latest enactment of Parliament, a corporation
established by or under Central, State or Provincial Act, which till that moment was looked upon as
an individual is now considered to be a company and by virtue of the suspension since asst. yr.
1960 61 of the provisions of the WT Act in the case of a company, such a corporation is not liable to be assessed to wealth tax. What is more important for the purposes of our judgment is that by
s. 2(h)(iii), " company" also includes 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. Therefore, it means that qua an association of persons or a body of persons, whether
incorporated or not, it is open to the Board of Direct Taxes to declare by special or general order
that such association or body is a company and then by virtue of the inclusive definition in S. 2(h)
(iii), it will be treated as a company for all purposes of the WT Act and will become an assessable