2002 (1) TMI 270 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the CIT(A) to entertain the appeal against the assessment order passed by the Assessing Officer pursuant to an order of revision u/s 263.
2. Maintainability of a single appeal against separate orders passed by the Assessing Officer u/s 143(3) and u/s 185(1)(b).
3. Classification of rental income as 'business income' or 'income from house property'.
4. Entitlement of the assessee-firm to registration u/s 185(1)(b).

Summary:

1. Jurisdiction of the CIT(A):
The CIT(A) was correct in entertaining the appeal against the assessment order passed by the Assessing Officer pursuant to an order of revision u/s 263. The Commissioner had only set aside the assessment with a direction to reframe it, without giving any specific directions to the Assessing Officer. Therefore, the appeal before the CIT(A) was maintainable. This ground of the Revenue was rejected.

2. Maintainability of Single Appeal:
The CIT(A) was correct in holding that a single appeal against separate orders passed by the Assessing Officer u/s 143(3) and u/s 185(1)(b) was valid. The case-law relied upon by the CIT(A) supported this stand. Hence, this ground of the Revenue was also rejected.

3. Classification of Rental Income:
The CIT(A)'s order, which classified the rental income as 'business income', was not sustained. The assessee's activity of constructing and letting out buildings on leasehold lands fell within the ratio of the decision in D.R. Puttanna Sons (P.) Ltd. v. CIT [1986] 162 ITR 468 (Kar.), where it was held that income derived from property constructed on leasehold land should be assessed as 'income from property'. The rental income derived by the assessee was thus assessable under the head 'house property' and not under the head 'business'.

4. Entitlement to Registration:
Despite the rental income being classified as 'income from house property', the assessee-firm was entitled to registration. The activities of the assessee-firm were considered as carrying on business for the purposes of the Partnership Act, as held in CIT v. Admiralty Flats Motel [1982] 133 ITR 895 (Mad.). The Assessing Officer's adoption of the status of the assessee as an unregistered firm implied a concession that the assessee had carried on business. Therefore, the assessee was entitled to the grant of registration.

Conclusion:
The impugned order of the CIT(A) was set aside, and the Assessing Officer was directed to modify the assessment by adopting the status of the assessee as a registered firm. The total income determined by the Assessing Officer at Rs. 1,27,640 was to be assessed in the hands of the assessee in the status of a registered firm. The cross-objections of the assessee were dismissed as infructuous. The Revenue's appeal was allowed, and the assessee's cross-objections were dismissed.