The Supreme Court in a judgement has pronounced that Bangalore Club cannot be held accountable to pay Wealth tax under the Wealth Tax Act quashing the judgement of the Karnataka High Court.
The revenue authority had passed an order to for an assessment but the Income Tax Appellate Tribunal, setting aside the order in this case held that the Bangalore club cannot be held liable under Section 21AA of the Wealth Tax Act. This order of the Income Tax Appellate Tribunal has not been taken into consideration by the Karnataka High Court.
Justice RF Nariman while going through the appeal filed by the club backtracked in 1899 and narrated the history of the club. In the year 1868, the Bangalore club was started by a group of British officers. In 1899 Lt. W.L.S Churchill was put up on the defaulter’s list of the club for not paying a bill amounting to Rs 13. The “Bill” never became an “Act” and the amount has not been paid till date.
Lt. W.L.S Churchill became the Prime Minister of Great Britain and with the Club carrying on with its uneventful existence and "the only excitement being when the tax collector knocks at the door to extract his pound of flesh."
The Court, referring to the provisions of the Wealth Tax Act, observed that the Bangalore Club cannot be held liable under Section 3(1) of the Act, as the club is not a company, not an individual and neither a HUF.
The Court also noted that in order for Section 21AA of the Wealth Tax Act to be applicable it is required that, the group of people who have come together should share a common intention of doing business and making profits and that has been missing behind the creation of the Bangalore Club.
The SC bench comprising of Justices RF Nariman, Indira Banerjee and Navin Sinha held,
“The Bangalore Club is an association of persons and not the creation, by a person who is otherwise assessable, of one among 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.”
Senior Advocate Nikhil Nayyar represented the Bangalore club while the Additional Solicitor General Vikramjit Banerjee represented the Commissioner of Wealth Tax.