2003 (1) TMI 13 - HC - Income Tax

1. Whether Tribunal was justified in holding that there was a valid partnership in law and consequently the assessee was entitled to registration and continuation of registration? 2. Whether, Tribunal was justified in holding that the letting out godown would amount to carrying on of business within the meaning of the Partnership Act? - In the instant case, there is no such evidence available on record to suggest that the assessee had undertaken any such systematic business activity of construction of godowns and letting them out as business property. - Held that the Assessing Officer rightly assessed the income derived by the assessee as that of the income from the property and not of business. We are of the opinion that the assessee is not entitled for any registration and continuation of the same in terms of section 185(1)(a) - Questions are answered in favour of the Revenue and against the assessee

Summary

Issues:
1. Validity of partnership for registration and continuation of registration for assessment years 1979-80 and 1980-81.
2. Whether letting out godown constitutes carrying on business disregarding previous court decision.
3. Assessment of income derived from letting out godowns as income from property or business.
4. Entitlement to registration under section 185(1)(a) of the Income-tax Act, 1961.

Issue 1:
The Commissioner of Income-tax held that the income from letting out godowns is assessable as income from property, not business, denying registration for the assessment years 1979-80 and 1980-81. The Appellate Tribunal upheld this view for the assessment year 1981-82. The Tribunal considered letting out godowns as exploiting a commercial asset, constituting a business activity under the Partnership Act. The Tribunal ruled in favor of the assessee, granting registration for 1979-80 and continuation for 1980-81.

Issue 2:
The court referred to previous judgments to determine the nature of income derived from letting out godowns. It highlighted the requirement of continuous business activity from year to year for income to be classified as business income. The court emphasized that mere letting out of property without continuous business activity does not qualify as business income under the Income-tax Act.

Issue 3:
The court analyzed the primary objective of the assessee to ascertain whether the income derived should be considered as income from business. It cited a case involving the promotion of small-scale industries where the income from letting out property with infrastructure facilities was deemed akin to business or trading operation. However, in the present case, the court found no evidence of systematic business activity in constructing and letting out godowns, leading to the conclusion that the income should be assessed as income from property, not business.

Issue 4:
The court rejected the assessee's claim for registration under section 185(1)(a) of the Income-tax Act, emphasizing the lack of evidence supporting continuous business activity in constructing and letting out godowns. Consequently, the court ruled in favor of the Revenue, denying registration and continuation of the same for the assessee. The questions referred were answered in favor of the Revenue, with no order as to costs.