1992 (7) TMI 21 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in holding that the assessee was not doing business by merely investing in shares.
2. Whether the Tribunal was justified in refusing registration to the firm on the ground that the assessee was not carrying on any business.

Detailed Analysis:

Issue 1: Whether the Tribunal was justified in holding that the assessee was not doing business by merely investing in shares.

The Tribunal's decision was based on the assessment that the assessee-firm's activities did not constitute a business. The firm, constituted by a deed of partnership on April 20, 1975, claimed its business was investment in shares and finance. However, the Assessing Officer and the Inspecting Assistant Commissioner found no evidence of business activities. The firm did not have a trade license, a bank account, or business expenses like rent or electricity. The only transactions were the purchase of shares worth Rs. 11,19,875 from companies controlled by the partners on a single day, April 23, 1975. These transactions were deemed not to constitute investment or dealing in shares, as they lacked the profit motive essential for a business. The Tribunal upheld this view, noting that the firm's activities were limited to acquiring and holding shares, with no intention to sell or make a profit. Citing precedents like Bhogilal H. Patel v. CIT and P. J. Udani v. CIT, the court emphasized that mere acquisition of shares without a profit motive does not constitute a business.

Issue 2: Whether the Tribunal was justified in refusing registration to the firm on the ground that the assessee was not carrying on any business.

The Tribunal also upheld the refusal of registration under section 185 of the Income-tax Act, 1961. The firm's claim for registration was rejected because it did not conduct any business activities. The firm borrowed Rs. 11,20,000 from Gazanund Bisweswarlal and Co., but the income-tax authorities found this transaction to be fake, as the lending concern's sources of funds could not be verified. The Tribunal noted that the partnership deed's objects, such as lending money or accepting deposits, were not acted upon. The court referred to the Supreme Court's decision in Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd., emphasizing the need to look beyond the form and examine the substance of transactions. The Tribunal concluded that the partnership was a device to reduce tax liability, and without any business activity, the firm could not be registered. The court affirmed the Tribunal's decision, stating that the firm did not meet the criteria for registration as it did not carry on any business or have a profit motive.

Conclusion:

The High Court affirmed the Tribunal's decisions on both issues. The court held that the firm's activities did not constitute a business, and without carrying on any business, the firm was not entitled to registration. The judgment emphasized the importance of a profit motive and actual business activities in determining the nature of a firm's operations. The court found no error in the Tribunal's conclusions and answered both questions in the affirmative, against the assessee. There was no order as to costs.