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TMI Blog1986 (5) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... Associates' having its principal place of business at Himayatnagar for the purpose of constructing godowns on the site at Karmanghat, Hyderabad, belonging to the first party, viz., R. Nalinidevi and for leasing out the godowns to the (FCI) on any other party. Clause 3 of the partnership deed again reiterates the purpose of the partnership as construction of godowns and leasing them out to the FCI or any other party and for any other business or businesses as may be agreed upon mutually from time to time. Clause 4 of the partnership deed states that the firm should be deemed to have commenced from 4-4-1977. Clauses 5 and 6 of the partnership deed state that a portion of land bearing Sl. Nos. 55 and 56 at Karmanghat village, Hyderabad East Taluk, belonging to Smt. Nalinidevi valuing Rs. 10,000 shall be treated as an asset of the partnership firm and also the value of the said site of Rs. 10,000 should be treated as capital contribution of Smt. Nalinidevi. Clause 7 states that the capital required for construction of the said godowns shall be invested by parties 2 to 6 in proportion to their profit-sharing ratio mentioned in clause 9. Clause 9 says the profit and loss sharing ratio w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roof floor and water tight with slanting proofing to allow free flow of rain water so as to prevent damage being done to the stocks due to seepage and leakage of water. The godown walls shall be smoothly plastered and they should be whitewashed once in a year. The plinth level of hired godowns shall be more than one foot above the road level and the surrounding ground level shall not be in a low lying area allowing accumulation of rain/flood waters. The godowns shall be away from canals, streams and flood water, channels, nallas and shall be well ventilated. There should also be proper road and drainage arrangement. If during the period of lease, the flooring in godown is found sinking or the roof/walls of the godown is/are found to be damaged resulting in leakage/seepage of water inside the godown or the shutters/doors of the godown are found to be damaged by rust/moths, etc., it will be the liability of the lessors to reconstruct the flooring of the godown, repair the roof/walls of the godown is well as the shutters/doors thereof as the case may be to make the place structurally sound and storageworthy. In case the requisite action as above is not taken by the lessors within a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s v. CIT [1983] 37 CTR (Bom.) 9 held that income derived from letting out of godowns was income derived from property as the assessee-firm never actually utilised the godowns for its business purposes. He also held that following certain other decisions house-owning, however, profitable cannot be a business or trade under the Income-tax Act, 1961 ('the Act') where income is derived from house property by exercise of property rights. It is the nature of operations and not the capacity of the owner that must determine whether the income is from property or from trade. Therefore, he had computed the income as income from house property granted allowable deductions under section 24 of the Act and computed net income from house property at Rs. 1,10,718. 6. Aggrieved against the said assessment dated 19-5-1984 the assessee went in appeal before the Commissioner (Appeals). The learned Commissioner (Appeals) by his impugned orders virtually confirmed the ITO's reasoning. The learned Commissioner followed the Bombay High Court decision in Maharashtra Fertilizers Chemicals' case. In that case the assessee was a registered firm carrying on business in the manufacture and sale of manure mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and constructed some units on the said plot of land in conformity with the rules and permitted the vaults to be used by the film distributors on payment of monthly charge. Vault-holder was given a key of the vault but the key of the entrance, which permitted access to the vaults, remained in the exclusive possession of the company. The company also rendered services to the vault-holders such as fire services for which it paid an annual amount to the municipality, railway booking offices in the premises free of charge for the convenience of vault-holders for despatch and receipt of film parcels and a canteen and a telephone. It maintained regular staff for running the aforesaid services and the entire staff of the Indian Motion Pictures Distributors Association was also paid Rs. 800 for the part-time services rendered by them. In fact the vault-holders were held to be licence holders from the assessee-company by the Bombay High Court. The said view of the Bombay High Court was confirmed by the Hon'ble Supreme Court in National Storage (P.) Ltd.'s case. None of the additional services agreed to be rendered by the assessee-company to the vault-holders were present in the facts before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount to carrying on business but is incidental only to ownership. Therefore, they held that no partnership existed and also it is not entitled to registration. 12. A case similar to the facts before us is already disposed of by this Tribunal Bench 'B' in K. Rama Reddy Sons v. ITO [1985] 14 ITD 108. In that case also the assessee-firm was constituted with the object of constructing godowns as per the specifications and plans of the FCI to suit their requirements and leased them out to them. In pursuance of the agreement the assessee constructed four godowns as per the specifications and plan of the FCI and leased them out to FCI. The terms of the lease agreement provide that the assessee had also to render services by providing electricity, water supply, approach road, fencing, etc., and the assessee also undertook to repair the said godowns. The assessee claimed the activity of letting out the godowns constituted a business activity. The ITO disallowed the claim and computed the income under section 22 of the Act. The Commissioner upheld the ITO's order. The Tribunal ultimately confirmed the order of the Commissioner (Appeals) and treated the income derived by the assessee as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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