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Issues Involved:
1. Whether the activities of the assessee constituted a business. 2. Whether the assessee was validly constituted as a partnership. Issue-Wise Detailed Analysis: 1. Whether the activities of the assessee constituted a business: The Tribunal found that Budhmal Jain had been taking on lease a large number of godowns and letting them out for storing goods and commodities. The number of godowns let out each year varied from 30 to 40, and the terms of tenancy and rates of letting out varied. The assessee had to obtain licenses for hazardous goods storage, incur insurance charges, engage brokers for procuring customers, and hire staff for maintenance and rent collection. The Tribunal concluded that the nature of the property, the nature of the assessee's lease, and the nature of the sub-letting constituted business activities. The Tribunal observed that there was an organized and continuous exercise of activity necessary to enable the assessee to make the most of the godowns and earn profits. The High Court agreed with the Tribunal's conclusion, noting that the activities carried on by the assessee were business activities. The court referenced the Supreme Court decision in Karanpura Development Co. Ltd. v. Commissioner of Income-tax, which held that transactions of acquiring leases and granting sub-leases were in the nature of trading within the objects of the company and not mere enjoyment of property as a landowner. The court emphasized that the intention of the assessee was apparent from the deed of partnership, and the activities went beyond mere management of existing property. 2. Whether the assessee was validly constituted as a partnership: The Income-tax Officer initially refused the assessee's application for registration, arguing that the assessee was merely deriving income from letting out properties and did not constitute a business. The Appellate Assistant Commissioner upheld this order, noting that the income in the hands of Budhmal arising from his activities was being assessed as income from other sources. However, the Tribunal found that the activities of the assessee constituted a business and thus the assessee was validly constituted as a partnership. The High Court upheld the Tribunal's decision, stating that there was sufficient material before the Tribunal to conclude that the activities carried on by the assessee were business activities. The court referenced the Indian Partnership Act, noting that the sharing of profits or gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners. However, in this case, the activities of the assessee went beyond mere sharing of profits and involved organized and continuous business activities. The High Court also distinguished the facts of this case from the case of Sunil Krishna Paul v. Commissioner of Income-tax, where it was held that a mere common interest or sharing of profits does not constitute a partnership. The court noted that in the present case, the original owner, Budhmal, had constituted the partnership with Nirmal Kumar, who did not come in as a co-owner but acquired rights under the deed of partnership. Conclusion: The High Court answered the question in favor of the assessee, affirming that the activities of the assessee constituted a business and that the assessee was validly constituted as a partnership. There was no order as to costs.
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