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TMI Blog1982 (2) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... tty Janakamma 0-20 ps 4. Yelisetty Balamanemma 0-20 ps 5. Yelisetty Deva Rajamma 0-20 ps The firm was evidenced by an instrument of partnership dated 31-1-1977. 3. The ITO stated that according to the partnership deed the object of the firm was to construct godowns and to let out the same to the Government or private parties on rent and to divide the rent received among the partners. 4. The ITO then went on to state that income from letting out of the godowns was clearly assessable under section 22 of the Income-tax Act, 1961 ("the Act"), under the head "Income from house property" and not under section 28 of the Act as profit from business. For that he stated that the site on which the godown was constructed belonged only to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the FCI for construction of the godown ; (b) Y. Bhadrayya acquired a loan from the Canara Bank with the recommendation of the FCI on his own account and not on behalf of the firm ; (c) Y. Bhadrayya entered into an agreement on 16-12-1977 with FCI on his own account and the rent was to be paid by FCI to Bhadrayya ; and (d) the rent received was credited to loan account with the Canara Bank which was in Bhadrayya's own name and he had drawn certain amounts for personal use. After making a reference to the elements of partnership, viz., that there must be an agreement entered into by all partners concerned, that the agreement must be to share the profits of a business, and that the business must be carried on by all or any of the persons c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority for the proposition that he was canvassing, viz., that in the present case the letting out of the godown amounted to business. 10. The learned counsel submitted that there were several decisions under the Income-tax Act itself where exploitation of a commercial asset was held to be business, and reference in this regard was made to the decision of the Patna High Court in Ray Talkies v. CIT [1974] 96 ITR 499 and that of the Orissa High Court in Narasingha Kar Co. v. CIT [1978] 113 ITR 712. It was contended that in the latter case where certain rooms were constructed and let out, it was held by the Court that there was a business carried on. 11. The learned counsel then took us through the partnership deed and submitted that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship Act. He also relied on the arguments put forth by the ITO in support of the proposition that there was no genuine firm in existence. He, therefore, pleaded that the order of the ITO be upheld. 13. The learned counsel for the assessee submitted in reply that even if income was assessable in the present case under the head "Income from house property", nevertheless, there would still be a business. As a last alternative, he submitted that all the partners would have to be construed in any event as co-owners and only the appropriate share income could be assessed in the hands of each person, even if it was held that there was no business carried on, but he submitted that this was purely an alternative contention. 14. We have considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Edulji's case is direct authority for the proposition that where two owners of buildings let the same out to tenants, a partnership could be formed because it tantamounts to business. There is also the decision of the Orissa High Court in Narasingha Kar Co.'s case, which supports the proposition canvassed that the term "business" as used in the partnership Act is of very wide import. It is now settled law after the decision of the Supreme Court in Chugandas Co. which refers to the earlier case on the point, that even if income is assessed under a particular head under the Income-tax Act other than the head "Profits and gains of business or profession", still such income may arise out of business. 16. Having regard to the aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pacity initially. The firm has considered the construction of the godown as construction by itself. In these circumstances, even assuming that FCI was unaware of the formation of the partnership, since there is no contravention of any statutory requirement nor is there any action on the part of the assessee which is opposed to public policy, it cannot be said that the formation of a partnership for exploiting the godown is in any manner vitiated. 18. We are unable to agree with the authorities below that the firm in question which was duly evidenced by a partnership deed was not genuine. Each of the partners had contributed capital either in kind or by way of money. We, therefore, come to the conclusion that in the present case there was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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