3. Commissioner
of Income Tax, Karnal (Haryana) vs. Carpet India, Panipat (Haryana) (2020)
424 ITR 316 (SC) Date of order: 27th August, 2019
Export – Deduction u/s 80HHC – Supporting manufacturer –
The computation of deduction in respect of supporting manufacturer is
contemplated by section 80HHC(3A), whereas the effect to be given to such
computed deduction is contemplated u/s 80HHC(1A) – The supporting manufacturers
cannot be treated on par with the direct exporter for the purpose of deduction
u/s 80HHC
M/s Carpet
India (P) Ltd., the assessee, a partnership firm, was deriving income from the
manufacturing and sale of carpets to M/s IKEA Trading (India) Ltd. (Export
House) as a supporting manufacturer.
The
assessee filed a ‘Nil’ return for A.Y. 2001-2002 on 30th October,
2001, inter alia stating the total sales at Rs.
6,49,83,432 with total export incentives of Rs. 68,82,801 as Duty Draw Back
(DDB). It claimed deduction u/s 80HHC amounting to Rs. 1,57,68,742 out of the
total profits of Rs. 1,97,10,927 at par with the direct exporter.
On
scrutiny, the A.O., vide
order dated 25th February, 2004, allowed the deduction u/s 80HHC to
the tune of Rs. 1,08,96,505 instead of Rs. 1,57,68,742 as claimed by the
assessee while arriving at the total income of Rs. 57,18,040.
Being
aggrieved, the assessee preferred an appeal before the Commissioner of Income
Tax (Appeals) which was allowed vide
order dated 12th August, 2004 while holding that the assessee was
entitled to the deduction of export incentives u/s 80HHC at par with the
exporter.
The
Revenue went in appeal before the Income Tax Appellate Tribunal as well as
before the High Court but the same got dismissed vide
orders dated 23rd February, 2007 and 13th May, 2008,
respectively, leading it to approach the Supreme Court by way of special leave.
According
to the Supreme Court, the short but important question of law that arose before
it was whether in the facts and circumstances of the case, a supporting
manufacturer who receives export incentives in the form of duty draw back
(DDB), Duty Entitlement Pass Book (DEPB), etc., is entitled to deduction u/s
80HHC at par with the direct exporter.
The Court
noted that it was evident that the total income of the assessee for the A.Y.
concerned was Rs. 1,97,10,927 out of which it claimed deduction to the tune of
Rs. 1,57,68,742 u/s 80HHC which was partly disallowed by the A.O. Deduction was
allowed only to the extent of Rs. 1,08,96,505. However, the assessee had
claimed deduction at par with the direct exporter u/s 80HHC which had been
eventually upheld by the High Court.
According
to the Supreme Court, the whole issue revolved around the manner of computation
of deduction u/s 80HHC in the case of a supporting manufacturer. On perusing
various provisions of the Act, the Court observed that it was clear that
section 80HHC provides for deduction in respect of profits retained from export
business and, in particular, sub-section (1A) and sub-section (3A) provide for
deduction in the case of a supporting manufacturer. The ‘total turnover’ has to
be determined as per clause (ba) of the Explanation, whereas ‘Profits of the
business’ has to be determined as per clause (baa) of the Explanation. Both
these clauses provide for exclusion and reduction of 90% of certain receipts
mentioned therein, respectively. The computation of deduction in respect of the
supporting manufacturer is contemplated by section 80HHC(3A), whereas the
effect to be given to such computed deduction is contemplated u/s 80HHC(1A). In
other words, the machinery to compute the deduction is provided in section
80HHC(3A) and after computing such deduction, such amount of deduction is
required to be deducted from the gross total income of the assessee in order to
arrive at the taxable income / total income of the assessee as contemplated by
section 80HHC(1A).
The Supreme Court observed that in Commissioner of Income Tax, Thiruvananthapuram vs. Baby
Marine Exports (2007) 290 ITR 323 (SC) which was relied upon by the authorities below, the question of law
involved was ‘whether the export house premium received by the assessee is
includible in the “profits of the business” of the assessee while
computing the deduction u/s 80HHC?’ The said case mainly dealt with the issue
related to the eligibility of export house premium for inclusion in the
business profit for the purpose of deduction u/s 80HHC. In the instant case,
the main point of consideration was whether the assessee firm, being a
supporting manufacturer, is to be treated at par with the direct exporter for
the purpose of deduction of export incentives u/s 80HHC after having regard to
the peculiar facts of the case.
The Court
noted that while deciding the issue in Baby
Marine Exports (Supra), a two-Judge Bench of the
Supreme Court held that the export house premium could be included in the
business profit because it was an integral part of the business operation of
the assessee which consisted of sale of goods by it to the export house.
The
aforesaid decision was followed by another Bench of two Judges of the Supreme
Court in Special Leave to Appeal (Civil) No. 7615 of 2009, Civil Appeal No.
6437 of 2012 and Ors. Commissioner of Income Tax, Karnal vs. Sushil Kumar Gupta
decided on 12th September, 2012. The
question considered in the aforesaid case was ‘whether 90% of export benefits
disclaimed in favour of a supporting manufacturer have to be reduced in terms
of Explanation (baa) of section 80HHC while computing deduction admissible to
such supporting manufacturer u/s 80HHC(3A)?’
This
question was answered in favour of the assessee and against the Department
following the judgment in the case of CIT
vs. Baby Marine Exports [2007] 290 ITR 323.
According
to the Supreme Court, these two cases were not identical and could not be
related with the deduction of export incentives by the supporting manufacturer
u/s 80HHC.
The Court
was not in agreement with these decisions and as Explanation (baa) of section
80HHC specifically reduces deduction of 90% of the amount referable to sections
28(iiia) to (iiie), hence it opined that these decisions required
reconsideration by a larger Bench since this issue had larger implication in
terms of monetary benefits for both the parties.
The larger
Bench of the Supreme Court, after noting the provisions of section 80HHC,
observed that given the statutory scheme it was clear that the exporter stands
on a completely different footing from the supporting manufacturer as the
parameters and scheme for claiming deduction relatable to exporters u/s
80HHC(1) read with (3) are completely different from those of supporting
manufacturers u/s 80HHC(1A) read with (3A) thereof.
The larger
Bench extracted the reasons for reference from the order of the division Bench
and noted the following substantial question of law framed for its
reconsideration:
‘Whether
in the light of the peculiar facts and circumstances of the instant case,
supporting manufacturer who receives export incentives in the form of duty draw
back (DDB), Duty Entitlement Pass Book (DEPB), etc. is entitled for deduction
u/s 80HHC?’
The larger
Bench of the Supreme Court agreed with the reasoning and analysis of the
referring judgment, namely, that Baby Marine
Exports (Supra) dealt with an issue related to
the eligibility of export house premium for inclusion in business profit for
the purpose of deduction u/s 80HHC. Whereas in the present appeals the point
for consideration was completely different, that is, whether the assessee being
a supporting manufacturer is to be treated on a par with the direct exporter
for the purpose of deduction of export incentives u/s 80HHC. The larger Bench
of the Supreme Court, therefore, answered the question referred to it by
stating that Baby Marine Exports (Supra)
dealt with an entirely different question and could not be relied upon to
arrive at the conclusion that the supporting manufacturers are to be treated on
par with the direct exporter for the purpose of deduction u/s 80HHC.
Consequently, the decision in CIT vs. Sushil Kumar
Gupta (CA No. 6437/2012) decided on 12th September, 2012
was overruled.
This being
the case, it allowed these appeals in favour of the Revenue and set aside the
impugned judgment(s).
4. Bangalore Club vs. The Commissioner of Wealth Tax and Ors. Civil
Appeal Nos. 3964-71 of 2007 Date of
order: 8th September, 2020
Wealth
tax – Club – In a social club persons who are banded together do not band
together for any business or commercial purpose in order to make income or
profits – Not an Association of Persons – Section 21AA was enacted not to rope
in association of persons per se
as ‘one more taxable person’ to whom the Act would apply – The object was to
rope in certain assessees who have resorted to the creation of a large number
of associations of persons without specifically defining the shares of the
members of such associations so as to evade tax – Club was not created to
escape tax liability – Shares of members were not indeterminate – Section 21AA
was not attracted
The
question before the Supreme Court for determination in the appeals for the
assessment years 1981-82 and 1984-85 up to 1990-91 was whether Bangalore Club
was 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 was not registered
as a society, a trust or a company. The A.O. came to the conclusion that the
rights of the members were not restricted only to use or possession, but
definitely as persons to whom the assets of the Club belonged. After referring
to section 167A inserted into the Income Tax Act, 1961, and after referring to
Rule 35 of the Club Rules, the A.O. concluded that the number of members and
the date of dissolution were 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 an
order dated 25th October, 2000, the CIT (Appeals) dismissed the
appeal against the aforesaid order.
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 members.
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.’
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).’
After
setting out section 21AA of the Wealth Tax Act, the Tribunal then referred to
the Court’s judgment in CIT vs. Indira Balkrishna
(1960) 39 ITR 546 and held: ‘From the facts of the case, it is clear that members who have
joined here have not joined to earn any income or to share any profits. They
have joined to enjoy certain facilities as per the objects of the club. The
members themselves are contributing to the receipts of the club. The members
themselves are contributing to the receipts of the club (sic) and what is the difference between the Income and Expenditure can
be said to be only surplus and not income of the Assessee-club. It is an
accepted principle that principle of mutuality is applicable to the Assessee
club and hence not liable to income-tax also. At the most, this may be called
the “Body of Individuals” but not an AOP formed with an intention to
earn income.’
The
Tribunal then referred to a CBDT Circular dated 11th January, 1992
explaining the pari materia provision
of section 167A in the Income Tax Act and therefore inferred, from a reading of
the aforesaid Circular, that section 21AA would not be attracted to the case of
the Bangalore Club. It was held, on a reading of Rule 35, that since members
are entitled to equal shares in the assets of the Club on winding up after
paying all debts and liabilities, the shares so fixed are determinate, also
making it clear that section 21AA would have no application to the facts of the
present case.
As a
result, the Appellate Tribunal allowed the appeal and set aside the orders of
the A.O. and the CIT (Appeals).
Against
this order, by a cryptic order of the High Court, the decision in CWT vs. Chikmagalur Club (2005) 197 ITR 609 (Kar.)
was stated to cover the facts of the present case, as a result of which the
question raised was decided in favour of the Revenue by the impugned order
dated 23rd January, 2007. A review petition filed against the
aforesaid order was dismissed on 19th April, 2007.
The
Supreme Court, after noting the provisions of section 3 of the Wealth Tax Act,
observed that only three types of persons can be assessed to wealth tax u/s 3,
i.e., individuals, Hindu undivided families and companies. Therefore, if
section 3(1) alone were to be looked at, the Bangalore Club neither being an
individual, nor an HUF, or a company, could not possibly be brought into the
wealth tax net under this provision.
The Court
further noted that by the Finance Bill of 1981, section 21AA was introduced
into the Wealth Tax Act. The Explanatory notes on the introduction of this
section were as follows:
‘21.1
Under the Wealth Tax Act, 1957, individuals and Hindu Undivided Families are
taxable entities but an association of persons is not charged to wealth tax on
its net wealth. Where an individual or a Hindu Undivided Family is a member of
an association of persons, the value of the interest of such member in the
association of persons is determined in accordance with the provisions of the
Rules and is includible in the net wealth of the member.
21.2
Instances had come to the notice of the Government where certain assessees had
resorted to the creation of a large number of associations of persons without
specifically defining the shares of the members therein with a view to avoiding
proper tax liability. Under the existing provisions, only the value of the
interest of the member in the association which is ascertainable is includible
in his net wealth. Accordingly, to the extent the value of the interest of the
member in the association cannot be ascertained or is unknown, no wealth tax is
payable by such member in respect thereof.
21.3
In order to counter such attempts at tax avoidance through the medium of
multiple associations of persons without defining the shares of the members,
the Finance Act has inserted a new section 21-AA in the Wealth Tax Act to
provide for assessment in the case of associations of persons which do not
define the shares of the members in the assets thereof. Sub-section (1)
provides that where assets chargeable to wealth tax are held by an association
of persons (other than a company or a co-operative society) and the individual
shares of the members of the said association in income or the assets of the
association on the date of its formation or at any time thereafter, are
indeterminate or unknown, wealth tax will be levied upon and recovered from
such association in the like manner and to the same extent as it is leviable
upon and recoverable from an individual who is a citizen of India and is
resident in India at the rates specified in Part I of Schedule I or at the rate
of 3 per cent, whichever course is more beneficial to the Revenue.’
After
noting the provisions of section 21AA, which was enacted w.e.f. 1st
April, 1981, the Supreme Court observed that for the first time, from 1st
April, 1981, an association of persons other than a company or co-operative
society had been brought into the tax net so far as wealth tax was concerned,
with the rider that the individual shares of the members of such association in
the income or assets or both on the date of its formation or at any time
thereafter must be indeterminate or unknown. It was only then that the section
was attracted.
According
to the Supreme Court, the first question that arose was as to the meaning of
the expression ‘association of persons’ which occurs in section 21AA.
It
referred to its earlier judgment, where the expression ‘association of persons’
occurred in the Income Tax Act, 1922, a cognate tax statute, in CIT vs. Indira Balkrishna (Supra), wherein
it was held that an association of persons must be one in which two or more
persons join in a common purpose or common action, and as the words occur in a
section which imposes a tax on income, the association must be one the object
of which is to produce income profits or gains. According to the Supreme Court,
the aforesaid decision correctly laid down the crucial test for determining
what is an association of persons within the meaning of section 3 of the Income
Tax Act.
The
Supreme Court noted that under the Act an Explanation had been added to the
definition of ‘person’ contained in section 2(31) w.e.f. 1st April,
2002, sub-clause (v) of which includes ‘an association of persons or a body of
individuals, whether incorporated or not’. Therefore, after 1st
April, 2002, the ratio of the
aforesaid judgments had been undone by this Explanation insofar as income tax
was concerned.
The Court,
after referring to the plethora of judgments and the relevant principle of
construction in Craies on Statute Law,
6th Edn., at p. 167, viz.,
that where the Legislature uses in an Act a legal term which has received
judicial interpretation, it must be assumed that the term is used in the sense
in which it has been judicially interpreted, unless a contrary intention
appears, observed 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. The presumption gets strengthened by the language of section 21AA(2)
which speaks of a business or profession carried on by an association of
persons which then gets discontinued or dissolved. The thrust of the provision,
therefore, is to rope in associations of persons whose common object is a
business or professional object, namely, to earn income or profits.
From the
objects of the Bangalore Club being a social club, it was clear that the
persons who had banded together did not band together for any business or
commercial purpose in order to make income or profits. The Court noted the
nature of these kinds of clubs from its judgment in Cricket Club of India Ltd. vs. Bombay Labour Union (1969) 1 SCR
600.
The Court
also noted its judgment in CWT vs. Ellis Bridge Gymkhana
(1998) 229 ITR 1 (SC). In this case, the Ellis Bridge
Gymkhana, like the Bangalore Club, was an unincorporated club. The assessment
years involved in this case were from 1970-71 to 1977-78, i.e., prior to
section 21AA coming into force. Despite the fact that section 21AA did not
apply, the Court referred to section 21AA. It was held that an association of
persons cannot be taxed at all u/s 3 of the Act. That is why an amendment was
necessary to be made by the Finance Act, 1981 whereby section 21AA was inserted
to bring to tax the net wealth of an association of persons where individual
shares of the members of the association were unknown or indeterminate.
A perusal
of this judgment would show that section 21AA had been introduced in order to
prevent tax evasion. It was not enacted to rope in an association of persons per se as ‘one more taxable person’ to
whom the Act would apply. The object was to rope in certain assessees who have
resorted to the creation of a large number of associations of persons without
specifically defining the shares of the members so as to evade tax. In
construing section 21AA, it is important to have regard to this object.
The
Supreme Court concluded that the Bangalore Club was an association of persons
and not the creation, by a person who was otherwise assessable, of one among a
large number of associations of persons without defining the shares of the
members so as to escape tax liability. It is clear, therefore, that section
21AA of the Wealth Tax Act did not get attracted to the facts of the present
case.
But the
Court noted that the impugned judgment of the High Court had relied solely upon
CWT vs. Chikmagalur Club (Supra). This case
dealt with a club that was registered under the provisions of the Karnataka
Societies Registration Act, 1960. The High Court had relied upon the
pronouncement of the Supreme Court in the case of the Commissioner of Wealth Tax vs. Ellis Bridge Gymkhana (Supra)
to conclude that the assessee was an association of persons and the members
were the owners of the assets and the individual shares of the members in the
ownership of the assets and the individual shares of the members in the income
or assets or both of the association on the date of formation or any time
thereafter was indeterminate or unknown and, accordingly, the assessee was
subjected to wealth tax.
The Supreme
Court observed that the High Court in Chikmagalur
Club (Supra) had only referred to paragraph 17 and
omitted to refer to paragraphs 19, 32 and 33 of the Ellis Bridge Gymkhana judgment (Supra). Had
all these paragraphs been referred to, it would have been clear that a social
club like the Chikmagalur Club could not possibly be said to be an association
of persons, regard being had to the object sought to be achieved by enacting
section 21AA, a section enacted in order to prevent tax evasion. Further, the
High Court judgment was completely oblivious of the line of judgments starting
with Indira Balkrishna’s case (Supra) by which
‘association of persons’ must mean persons who are banded together with a
common object – and, in the context of a taxation statute, common object being
a business, the object being to earn income or profits. This judgment did not
refer to Indira Balkrishna (Supra) and the
judgments following it at all. For all these reasons, the Supreme Court held
that the judgment in CWT vs. Chikmagalur Club
(Supra) was not correctly decided, and hence was
overruled. Consequently, the High Court judgment which rests solely upon the
decision in the Chikmagalur Club
case had no legs to stand on.
Thereafter,
the Supreme Court referred to some of the points raised by the Additional
Solicitor-General. According to the Court, the submission that section 21AA(2)
which deals with dissolution of an association of persons and the fact that on
dissolution under Rule 35 of the Bangalore Club, members get an equal share,
would show, first, that the Bangalore Club was an association of persons; and
second, that the members’ share in its income and assets was indeterminate or
unknown, was an argument which had to be rejected.
The
Supreme Court held that first and foremost, sub-section (2) begins with the
words ‘any business or profession carried on’ by an association of persons. No
business or profession was carried on by a social members’ club. Further, the
association of persons mentioned in sub-section (1) must be persons who have
banded together for a business objective – to earn profits – and if this itself
is not the case, then sub-section (2) cannot possibly apply. Insofar as Rule 35
was concerned, again what was clear was that on liquidation any surplus assets
remaining after all debts and liabilities of the club had been discharged shall
be divided equally amongst all categories of members of the club. This would
show that ‘at any time thereafter’ within the meaning of section 21AA(1), the
members’ shares were determinate in that on liquidation each member of
whatsoever category got an equal share.
The
judgments cited by the assessee’s counsel in CWT
vs. Rama Varma Club 226 ITR 898 and CWT vs. George Club 191 ITR 368 were both
judgments in which no part of the assets was to be distributed even on
liquidation to any of the members of these clubs. Thus, it was held in these
cases that the members did not have any share in the income or assets of the
club at all. The same were not the facts in this case inasmuch as under Rule 35
the members of the Bangalore Club were entitled to receive surplus assets in
the circumstances stated in Rule 35 – equally on liquidation. However, the
result remained the same, viz.,
that even if it be held that the Bangalore Club was an association of persons,
the members’ shares being determinate, section 21AA was not attracted.
The
Supreme Court then referred to the judgment in Bangalore
Club vs. CIT (2013) 5 SCC 509 relied upon by the
Additional Solicitor-General only in order to point out that the Bangalore Club
was taxed as an AOP under the Income Tax Act and could not and should not,
therefore, escape liability under the Wealth Tax Act (an allied and cognate
Act). The Supreme Court held that first and foremost, the definition of
‘person’ in section 2(31) of the Income Tax Act would take in both an
association of persons and a body of individuals. For the purposes of income
tax, the Bangalore Club could perhaps be treated as a ‘body of individuals’
which is a wider expression than ‘association of persons’ in which such body of
individuals may have no common object at all but would include a combination of
individuals who had nothing more than a unity of interest. This distinction had
been made by the Andhra Pradesh High Court in Deccan
Wine and General Stores vs. CIT 106 ITR 111 at
pages 116 and 117. Apart from this, to be taxed as an association of persons
under the Income Tax Act is to be taxed as an association of persons per se. But, as held earlier, section
21AA does not enlarge the field of taxpayers but only plugs evasion as the
association of persons must be formed with members who have indeterminate
shares in its income or assets. For all these reasons, the argument that being
taxed as an association of persons under the Income Tax Act, the Bangalore Club
must be regarded to be an ‘association of persons’ for the purpose of a tax
evasion provision in the Wealth Tax Act as opposed to a charging provision in
the Income Tax Act, cannot be accepted.
Further,
according to the ASG, the fact that the membership of the club is a fluctuating
body of individuals would necessarily lead to the conclusion that the shares of
the members in the assets or the income of the club would be indeterminate. The
Supreme Court observed that in CWT vs. Trustees of
H.E.H. Nizam’s Family 108 ITR 555 (1977), it had
to construe section 21 of the Wealth Tax Act. The argument made in that case
was that, as the members of the Nizam’s family trust who are beneficiaries
thereof would be a fluctuating body of persons, hence the beneficiaries must be
said to be indeterminate as a result of which section 21(4) of the Act would
apply and not section 21(1). This was repelled by the Court stating that it was
clear from the language of section 3 that the charge of wealth tax was in
respect of the net wealth on the relevant valuation date and, therefore, the
question in regard to the applicability of sub-section (1) or (4) of section 21
had to be determined with reference to the relevant valuation date. The Wealth
Tax Officer had to determine who were the beneficiaries in respect of the
remainder on the relevant date and whether their shares were indeterminate or
unknown. It was not at all relevant whether the beneficiaries may change in
subsequent years before the date of distribution, depending upon contingencies
which may come to pass in future. So long as it was possible to say on the
relevant valuation date that the beneficiaries are known and their shares are
determinate, the possibility that the beneficiaries may change by reason of
subsequent events such as birth or death would not take the case out of the
ambit of sub-section (1) of section 21. The share of a beneficiary can be said
to be indeterminate if at the relevant time the share cannot be determined, but
merely because the number of beneficiaries vary from time to time one cannot
say that it is indeterminate. The Court also referred to other judgments on the
issue.
The
Supreme Court therefore held that what had to be seen in the facts of the
present case was the list of members on the date of liquidation as per Rule 35
cited hereinabove. Given that as on that particular date there would be a fixed
list of members belonging to the various classes mentioned in the rules, it was
clear that, applying the ratio
of the Trustees of H.E.H. Nizam’s Family (Supra),
such list of members not being a fluctuating body, but a fixed body as on the
date of liquidation, would again make the members ‘determinate’ as a result of
which section 21AA would have no application.
For all
the above reasons, the impugned judgment and the review judgment were set aside
by the Supreme Court and the appeals were allowed with no order as to costs.
Note. The
following preamble of the judgment makes for interesting reading:
‘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.’
