2006 (2) TMI 138 - HC - Income Tax

Cancellation of renewal of registration of the firm granted to the petitioner under section 186 by AO - main question raised by the petitioner is that once registration is renewed, the same cannot be withdrawn under section 186 of the Income-tax Act which provides for cancellation of registration only if the firm as registered is not found to be genuine - Even though counsel for the petitioner contended that the construction of a building by two brothers and their family members for the purpose of letting out and the actual letting out of the same is business, the petitioner itself has not made any such claim by returning the income as business income in the returns filed. On the other hand, the petitioner itself conceded income from house property under the specific head of Income provided for that under the Income-tax Act for the assessment of rental income. The argument is therefore prima facie unacceptable. assessee s appeal is dismissed

Summary

Issues:
Challenge to cancellation of renewal of registration under Income-tax Act for assessment years 1990-91, 1991-92, and 1992-93.

Detailed Analysis:
The petitioner, a partnership firm involved in construction and rental business, challenged the cancellation of renewal of registration granted under section 186 of the Income-tax Act for the assessment years 1990-91, 1991-92, and 1992-93. The Assessing Officer cancelled the renewal after observing that the firm was not engaged in any business activities. The Commissioner of Income-tax confirmed this decision. The main contention raised by the petitioner was that once registration is renewed, it cannot be withdrawn unless the firm is found to be not genuine. However, the standing counsel for the Income tax Department relied on a Division Bench decision that stated if a firm is not entitled to registration due to lack of legal existence or being bogus, the renewal can be cancelled under section 186(1) of the Income-tax Act. The court noted that the firm did not show any income from business activities and specifically declared the rental income as income from house property, indicating a lack of business engagement.

The court emphasized that to be considered a genuine firm, engagement in business is essential as per the Partnership Act. The firm must be involved in business activities, as defined by the Act. Despite the petitioner's argument that construction and letting out of a building constitute business, the firm did not declare the income as business income in its tax returns. The court referred to previous decisions by various High Courts, including its own, to support the rejection of the petitioner's claim. The court found no grounds to interfere with the decision of the Commissioner to cancel the renewal of registration. Consequently, the court dismissed the challenge as lacking merit, upholding the cancellation of renewal of registration for the specified assessment years.