2015 (4) TMI 192 - HC - Income Tax

Registration of firm under u/s 186 (1) cancelled - Genuity of firm questioned - same property belonging to husbands was surreptitiously transferred to their wives through the camouflage of a firm to evade tax - ITAT holding that a genuine firm was in existence - Held that - Nothing has been brought before us to show that letting out immovable property on rent will never constitute a business and income derived from letting out immovable property i.e. rent would not constitute a business income at all. The learned counsel for Revenue could not disputes that a partnership firm may carry out business of leasing out property on rent and earn income therefrom as a business income. He also could not dispute that existence of firm as such is not doubted and the brood proposition is not correct. As proposition, it cannot be said that there would not be any business activity in leasing out a building and collecting rent therefrom so as to bring the profits within the ambit of income from business in profession. In the present case, the Tribunal as a last court of fact has recorded a specific finding in favour of assessee and in the absence of anything to show that the same is perverse or contrary to record or based on misreading, we do not find any reason to take a different view.Tribunal was justified in law in holding that the assessee firm is entitled to registration. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Income Tax Appellate Tribunal was justified in holding that a genuine firm existed without appreciating that the property was transferred to evade tax.
2. Whether the Tribunal was justified in holding that the assessee firm is entitled to registration.

Detailed Analysis:

Issue 1: Existence of a Genuine Firm
The court examined whether the Income Tax Appellate Tribunal was justified in holding that a genuine firm existed. The appellants argued that the property was transferred to the wives of the original owners through the firm to evade tax. The court noted that the partnership firm was constituted according to the Partnership Act, 1932, and fulfilled all requisite formalities. The firm was initially granted registration under the Income Tax Act, 1961, but this was later canceled by the Assessing Officer, who argued that the firm was not carrying on any business but merely deriving rental income from property.

The court found no evidence to show that letting out immovable property on rent could never constitute a business. The Tribunal observed that the firm was actually in existence and engaged in business activities as per the partnership deed, which included leasing property and collecting rent. The court referenced several precedents, including Universal Plast Limited vs. Commissioner of Income Tax and Sultan Brothers Private Ltd. v. Commissioner of Income Tax, which supported the view that leasing property and collecting rent could be considered a business activity. The court concluded that the Tribunal's finding that a genuine firm existed was not perverse or contrary to the record.

Issue 2: Entitlement to Registration
The second issue was whether the Tribunal was justified in holding that the assessee firm was entitled to registration. The Tribunal found that the firm was engaged in business activities as per the partnership deed, which included leasing property and collecting rent. The court noted that the Tribunal is the final fact-finding authority, and its decision can only be challenged if it is palpably perverse.

The court referenced several judgments, including Commissioner of Income Tax vs. Mukundray K. Shah and Commissioner of Income Tax v. P. Mohanakala, which emphasized that the High Court should not interfere with the Tribunal's findings unless they are shown to be perverse. The court found that the Tribunal's findings were based on material available on record and were not perverse. Therefore, the Tribunal was justified in holding that the assessee firm was entitled to registration.

Conclusion:
The court answered both substantial questions of law in favor of the assessee and against the revenue. The appeal was dismissed, and no order as to costs was made.