1982 (12) TMI 83 - AT - Income Tax

Summary

Issues: Valid partnership for business activity, Definition of business activity

Issue 1: Valid partnership for business activity
The appeal was filed by the revenue against the order of the AAC, which held that there was a valid partnership as the firm was engaged in business activities. The assessee firm was formed in 1977 for activities such as purchasing land, developing and selling properties, renting or leasing properties. The firm purchased land, constructed a godown, and rented it out to the Food Corporation of India, generating income returned as 'business income.' The ITO denied registration, stating the firm was not constituted for business activities but only to earn income from property. The AAC reversed the ITO's decision, emphasizing that the firm's activities constituted a business. The Tribunal agreed, stating that the organized activity of purchasing land, arranging finances, constructing properties, and renting them out qualified as a business activity. The Tribunal rejected the argument that earning rental income was different from engaging in business activities, emphasizing that the firm's actions fell within the definition of business activity as per the Indian Partnership Act. The Tribunal upheld the AAC's decision, concluding that the firm's activities constituted a valid partnership engaged in business activities.

Issue 2: Definition of business activity
The main issue in the case was whether the activities of the assessee firm amounted to a business activity. The Tribunal analyzed the nature of the firm's operations, which included purchasing land, constructing properties, and renting them out. The Tribunal agreed with the assessee's representative that 'business' encompassed various trades, occupations, and professions, not limited to industrial or commercial endeavors. The Tribunal highlighted that any organized activity conducted for gain or profit could be classified as a business activity. The Tribunal differentiated the firm's actions from mere property rental, emphasizing that the firm's systematic approach of purchasing land, arranging finances, constructing properties, and renting them out constituted a business activity. The Tribunal dismissed the revenue's appeal, affirming that the firm's activities aligned with the definition of business activity and upheld the validity of the partnership for engaging in such business activities.