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Issues Involved:
1. Whether the income received from the managing contractor by leasing out the colliery was a business income. 2. Whether the continuation of registration to the firm was correct in law. Summary: Issue 1: Income Classification The primary issue was whether the income received from the managing contractor by leasing out the colliery should be classified as "business income" or "income from other sources." The Tribunal had held that the income was business income. However, the High Court referred to the Supreme Court's decision in New Savan Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7, which distinguished between letting out a business as a whole and letting out commercial assets. The High Court found that the agreement in question created a lease of the entire business rather than just commercial assets. The terms of the agreement indicated that the managing contractor had full control over the colliery operations, bore all expenses, and paid a guaranteed income to the proprietors, which was akin to rent. Consequently, the income was classified as "income from other sources" and not "business income." Issue 2: Continuation of Registration The second issue was whether the continuation of the firm's registration was correct. The Tribunal had allowed the continuation of registration. However, the High Court held that since the income was not from business, there was no partnership in law as per s. 4 of the Partnership Act. Without a business, there could be no partnership, and thus, the registration of the firm could not be continued. The Tribunal's decision to allow the continuation of registration was therefore incorrect. Conclusion: Both questions were answered in the negative, in favor of the Revenue and against the assessee. The income received from the managing contractor was not business income, and the continuation of the firm's registration was not lawful. The reference was disposed of with costs of Rs. 500 payable by the assessee to the Department.
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