New Delhi, September 8: A social club where members get together with no motive of commerce and profit like the 152-year-old colonial Bangalore Club is not liable to pay wealth tax, the Supreme Court held on Tuesday.
A Bench led by Justice Rohinton F. Nariman said the Bangalore Club hardly fits the bill for an “association of persons” out to make a killing profit, The Hindu reported.
Neither was the club one among the many associations created by a person without defining shares and assets in order to escape tax liability.
In fact, to make his meaning all the more clear about the Club’s sheer lack of interest in profits and commerce, Justice Nariman recounts the anecdote of “one Lt. W.L.S Churchill” who ran up a debt of ₹13 at the club. The bill remains unpaid though Churchill became the British Prime Minister. The club has also not bothered to collect.
“The ‘Bill’ never became an ‘Act’. Till date, this amount remains unpaid. Lt. W.L.S. Churchill went on to become Sir Winston Leonard Spencer Churchill, Prime Minister of Great Britain. And the Bangalore Club continues its mundane existence, the only excitement being when the tax collector knocks at the door to extract his pound of flesh,” Justice Nariman wrote in a 33-page judgment.
The judgment was based on an appeal filed by the club against the State High Court’s finding that it has to pay wealth tax. The High Court found it liable under Section 21AA (assessment when assets are held by certain association of persons).
But Justice Nariman, who authored the verdict for a three-judge Bench, disagreed.
“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 … Bangalore Club, being a social club, persons do not band together for any business purpose or commercial purpose in order to make income or profits,” the judgment concluded.
Besides, the club was not formed by one person to escape tax liability. It is neither one of many associations created by a single individual. “In the year of grace 1868, a group of British officers banded together to start the Bangalore Club,” the court said.
The assets of the club are not indeterminate or unknown.
“After winding up, all members get an equal share in the surplus that remains after all debts and liabilities are dealt with, their shares cannot be said to be indeterminate or unknown,” the court noted.