The main legal point established in the judgment is that Section 21AA of the Wealth Tax Act applies to associations of persons formed with a business or commercial objective to earn income or profits, and the individual shares of the members must be indeterminate or unknown for the provision to be applicable.

JUDGMENT

R.F. Nariman, J.

In the year of grace 1868, a group of British officers banded together to start the Bangalore Club. In the year of grace 1899, one Lt. W.L.S. Churchill was put up on the Club's list of defaulters, which numbered 17, for an amount of Rs.13/- being 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. 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.

2. Fast forward now from British India to free India and we come to assessment years 1981 -82 and 1984-85 upto 1990-91. The question for determination in these appeals is whether Bangalore Club is liable to pay wealth tax under the Wealth Tax Act. The order of assessment dated 3rd March, 2000, passed by the Wealth Tax Officer, Bangalore, referred to the fact that Bangalore Club is not registered as a society, a trust or a company. The assessing officer, without further ado, "after a careful perusal" of the rules of the Club, came to the conclusion that the rights of the members are not restricted only to user or possession, but definitely as persons to whom the assets of the Club belong. After referring to Section 167A, inserted into the Income Tax Act, 1961, and after referring to Rule 35 of the Club Rules, the assessing officer concluded that the number of members and the date of dissolution are all uncertain and variable and therefore indeterminate, as a result of which the Club was liable to be taxed under the Wealth Tax Act. By a cryptic order dated 25th October, 2000, the CIT (Appeals) dismissed the appeal against the aforesaid order. On the other hand, by a detailed order passed by the Income Tax Appellate Tribunal, Bangalore dated 7th May, 2002, the Appellate Tribunal first referred to the Objects of the Bangalore Club, which it described as a "social" Club, as follows:

"1. To provide for its Members, social, cultural, sporting, recreational and other facilities;

2. To promote camaraderie and fellowship among its members.

3. To run the Club for the benefit of its Members from out of the subscriptions and contributions of its member.

4. To receive donations and gifts without conditions for the betterment of the Club. The General Committee may use its discretion to accept sponsorships for sporting Areas

5. To undertake measures for social service consequent on natural calamities or disasters, national or local.

6. To enter into affiliation and reciprocal arrangements with other Clubs of similar standing both in India and abroad.

7. To do all other acts and things as are conducive or incidental to the attainment of the above objects.

Provided always and notwithstanding anything hereinafter contained, the aforesaid objects of the Club, shall not be altered, amended, or modified, except, in a General Meeting, for which the unalterable quorum shall not be less than 300 members. Any resolution purporting to alter, amend, or modify the objects of the Club shall not be deemed to have been passed, except by a two thirds majority of the Members present and voting thereon."

3. The Tribunal then set out Rule 35 of the Club Rules, which stated as follows:

"RULE 35 APPOINTMENT OF LIQUIDATORS:

If it be resolved to wind up, the Meeting shall appoint a liquidator or liquidators and fix his or their remuneration. The liquidation shall be conducted as nearly as practicable in accordance with the laws governing voluntary liquidation under the Companies Act or any statutory modifications thereto and any surplus assets remaining after all debts and liabilities of the Club have been discharged shall be divided equally amongst the Members of the Club as defined in Rules 6.1(i), 6.1(ii), 6.1 (iii), 6.2(i), 6.2(ii), 6.2(iii), 6.2(vii), 6.2(viii) and 6.2(ix).

4. After setting out Section 21 AA of the Wealth Tax Act, the Tribu