Bangalore Club not liable to pay wealth tax: SC

The Supreme Court on Tuesday held that the Bangalore Club, established in 1868 by a group of British officers, was not liable to pay wealth tax since it was a social banding together of persons whose object was not to carry out any business or commercial activity and to make income or profits.

A bench of Justices R F Nariman, Navin Sinha and Indira Banerjee said that the Bangalore Club is an association of persons and not the creation, by a person who is otherwise assessable. It is of one among a large number of associations of persons without defining the shares of the members so as to escape tax liability.

The top court explained that only three types of persons can be assessed to wealth tax i.e. individuals, Hindu undivided families and companies.

"It is clear that 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," it said.

The court set aside the Karnataka High Court's judgement of January 23, 2007 that had determined the question in favour of revenue. It disagreed with the reasoning that rights of the members are not restricted only to user or possession, but definitely as persons to whom the assets of the the Club belonged to.

The court also rejected a contention of the tax department that Section 21AA of the Wealth Tax Act, would be attracted on the Club for being an association of persons.

It said the thrust of the provision is to rope in associations of persons whose common object is a business or professional object, namely, to earn income or profits.

However, the Club's objects were to provide for its members, social, cultural, sporting, recreational and other facilities; to promote camaraderie and fellowship, to run the Club for the benefit of its members from out of the subscriptions and contributions of members etc, the court noted.

List of defaulters

The court noted in the year 1899, one Lt W L S Churchill was put up on the Club’s list of defaulters, for an amount of Rs 13 for an unpaid bill of the Club.

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, it pointed out.