1983 (12) TMI 119 - AT - Income Tax

Issues Involved:
1. Refusal of registration by the Income Tax Officer (ITO).
2. Determination of whether the assessee's activities constituted a "business."
3. Validity of the partnership firm and its entitlement to registration under the Income-tax Act, 1961.

Issue-Wise Analysis:

1. Refusal of Registration by the Income Tax Officer (ITO):
The ITO denied registration to the assessee for the assessment years 1978-79 and 1979-80, treating the concern as an unregistered firm. The reason cited was that the assessee did not carry on any business during the relevant periods and only received rental income from leasing godowns. Consequently, the ITO assessed the firm as an unregistered entity.

2. Determination of Whether the Assessee's Activities Constituted a "Business":
The assessee appealed to the Appellate Assistant Commissioner (AAC), arguing that leasing out godowns constituted a business activity. The AAC agreed, stating that leasing commercial assets like godowns is a business activity. The AAC directed the grant of registration for both assessment years, considering the godowns as commercial assets used for business purposes.

The revenue contested this decision, arguing that merely receiving rent did not constitute a business activity. The departmental representative emphasized that without business activity, no firm existed to which registration could be granted.

The assessee's counsel countered that the firm was validly constituted for earning income through various activities, including leasing godowns. The firm had been engaged in constructing a hotel and had let out sheds as godowns in the interim. These activities, according to the counsel, were business activities, and the firm was validly in existence.

3. Validity of the Partnership Firm and Its Entitlement to Registration:
The Tribunal examined the partnership deeds and the activities of the firm. The initial partnership deed dated 9-10-1975 indicated that the firm was established for various business activities, including construction and running of a hotel, and leasing buildings for shops or godowns. Subsequent deeds in 1977 and 1978 expanded the partnership and reiterated the business objectives.

The Tribunal referenced Section 2(23) of the Income-tax Act, 1961, and Section 4 of the Indian Partnership Act, 1932, which define a partnership as an agreement to share profits from a business carried on by all or any of the partners. The Tribunal noted that the term "carrying on business" in the Indian Partnership Act is used broadly, encompassing all steps taken for business activities.

The Tribunal found that the firm had validly come into existence, with partners contributing property and capital, and engaging in construction and leasing activities. The property brought in by the partners became the firm's property under Section 14 of the Indian Partnership Act. The Tribunal emphasized that profits earned using the firm's property, even if by a partner, are considered the firm's income under Section 16 of the Indian Partnership Act.

The Tribunal concluded that the firm satisfied the requirements of Section 4 of the Indian Partnership Act and was entitled to registration under the Income-tax Act, 1961. There was no evidence that any procedural requirements for registration under Section 185 of the Income-tax Act were unmet.

Conclusion:
The Tribunal upheld the AAC's decision to grant registration to the assessee for the assessment years 1978-79 and 1979-80, dismissing the revenue's appeals. The Tribunal confirmed that the assessee's activities constituted a business, and the firm was validly constituted and entitled to registration.

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