1982 (1) TMI 133 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee firm was entitled to continuation of registration for the assessment year 1977-78.
2. Whether the business of the assessee firm was in existence during the relevant assessment year.
3. Whether the interest income received by the assessee firm should be assessed as income from business or income from other sources.

Issue-wise Detailed Analysis:

1. Entitlement to Continuation of Registration:
The primary issue in the departmental appeal was whether the AAC erred in directing the ITO to grant continuation of registration to the assessee firm. The assessee had filed Form No. 12 for continuation of registration for the assessment year 1977-78. The ITO initially refused the continuation of registration on the grounds that the business had not commenced during the relevant year. However, the AAC held that the assessee fulfilled the requisite conditions under section 184(7) for continuation of registration, as there was no change in the constitution of the firm or the shares of the partners as per the deed of partnership. The Tribunal upheld the AAC's decision, stating that the assessee was entitled to continuation of registration as the conditions laid down in section 184(7) were satisfied.

2. Existence of Business:
The ITO argued that the business must be in existence in the relevant year and since no cars were sold by the assessee, the business had not commenced. The AAC and the Tribunal, however, found that the business was brought into existence by obtaining the dealership of M/s Maruti Limited and depositing Rs. 4,00,000. The Tribunal noted that the business of the partnership firm, as per the deed, was to deal in motor cars, scooters, and accessories. Although the actual sale of cars did not occur due to M/s Maruti Limited not manufacturing any cars, the intention to carry on business was evident. The Tribunal relied on the judgment of the Madhya Pradesh High Court in (1981) 127 ITR 727 (MP), which held that the intention to carry on business is essential, and the mere fact that no business was carried on in the relevant previous year does not negate the existence of the firm.

3. Assessment of Interest Income:
The ITO assessed the interest income received from M/s Maruti Limited as income from other sources, arguing that no business was carried on by the assessee. The Tribunal disagreed, stating that the deposit of Rs. 4,00,000 with M/s Maruti Limited was a commercial asset of the assessee and the interest income should be assessed as business income. The Tribunal referred to the Bombay High Court's decision in (1979) 120 ITR 897 (Bom.), which held that interest income on deposits made for business purposes should be assessed as business income. The Tribunal concluded that the business was in existence, and the interest income was rightly assessable as business income.

Conclusion:
The Tribunal dismissed the departmental appeal, upholding the AAC's order to continue the registration of the assessee firm for the assessment year 1977-78. The Tribunal found that the business of the assessee firm was in existence, the firm was genuine, and the interest income should be assessed as business income. The Tribunal emphasized the importance of the intention to carry on business and the fulfillment of conditions under section 184(7) for the continuation of registration.