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TMI Blog1962 (8) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... re as follows: Hindustan Sugar Mills (which will hereafter be referred to as the sugar mills) is a public limited company. Its managing agents were Bachhraj Co. Private Limited. Four of the directors of the managing agents' company were also directors of the sugar mills. The sugar mills had appointed the Upper India Commission Agents Ltd. to be their selling agents in December, 1947, and the said selling agents continued up to the assessment year 1953-54. In October, 1951, the sugar mills decided to terminate the selling agency of the Upper India Commission Agents Ltd. and informed the selling agents of their intention, requesting them, however, to continue work as agents till a new agent was appointed by the sugar mills. Thereafter, on the 1st September, 1952, by a deed of partnership executed on the said date, the assessee firm was constituted consisting of five partners and admitting a minor to the benefits of the partnership. Two of the partners of this assessee partnership firm were the regular employees of Bachhraj Trading Corporation Private Ltd. and Jivanlal Sons Private Ltd., who were the sister concerns of the managing agency company. Two other partners, who we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed that its income should be taxed on the basis of the income from the business of a registered firm. The Income-tax Officer treated the assessee firm as an association of person in receipt of income taxable under section 12 as income from other sources. The Income-tax Officer rejected the assessee's application for registration on the ground that the assessee firm was not a genuine firm. In the appeals which the assessee firm filed against the orders of the Income-tax Officer, the Appellate Assistant Commissioner upheld the view taken by the Income-tax Officer and dismissed the appeals. In the appeals before the Tribunal, there was a difference of opinion between the two Members who constituted the Bench of the Tribunal which heard the assessee's appeals. According to the Accountant Member, the profits were assessable under section 10 as profits of business and the assessee was a firm which was carrying on business and was entitled to registration under section 26A. According to the Judicial Member, it was very doubtful whether the activity of the assessee could be business in the strict sense of the word used in the Income-tax Act and also whether it could be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, which had been maintained by the assessee firm, were prepared at the close of each year from the entries contained in the books of the sugar mills and/or of the subagents. It was urged that there was no activity carried on by the assessee firm which could be called a business activity and the assessee firm, though styled as a firm, was merely an association of persons in receipt of income which could appropriately fall under section 12 of the Indian Income-tax Act. Majority of the Members of the Tribunal did not accept this contention. It is difficult to understand the stand taken by the department that the assessee firm had come into existence for the purpose of assisting the Upper India Company in its taxation problem. There is nothing on the record which shows that the persons constituting the assessee firm had any connection or relation with the Upper India Company, nor is there any evidence to show that the Upper India Company were responsible for bringing into existence the assessee firm. There was no doubt connection and relationship between the members of the assessee firm and the directors of the sugar mills or the directors of the managing agents of the sugar mills an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... srs. Hardayal Nevatia, their broker in Bombay. Thereafter, it has done nothing further in the matter of selling the mills' products, not even supervising or controlling the sub-agents or the brokers appointed by it. It is evident on the record, says Mr. Joshi, that none of the partners of the assessee firm was in a position to take any active interest in the work as selling agents of the sugar mills and, in fact, none of them has been even aware in the least of any of the transactions carried on by the selling agents or the brokers. In the vast business which has resulted in the commission accruing to the selling agents of more than a couple of lakhs of rupees, the only books and ledgers maintained by the assessee are the tiny note books of about 5 to 6 pages, entries wherein are copied from the books of the mills or of the sub-agents. The activities of the assessee, in these circumstances, according to Mr. Joshi, cannot be regarded as a business activity even within any wide sense of the term which can be given to it within the meaning of the Income-tax Act. We find it difficult to accept the contention which has been raised before us by Mr. Joshi. It is no doubt true that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w these observations help him. As we have already pointed out, there is a systematic or organised course of activity or conduct involved in the present case also. The work of selling sugar constitutes that organised course of activity or conduct. The question to be considered is whether that organised course of conduct has been carried out by the assessee or not. As we have already observed earlier, the fact that the assessee itself has not put through the transactions, but has done them though their sub-agents and brokers, will not mean that the systematic and organised course of conduct with the purpose of earning profit has not been carried out by the assessee. The observations in Lala Indra Sen's case [1940] 8 I.T.R. 187 which occur at page 203 of the report, are to the same effect. It is observed there: The word 'business', however, is also used in another and a very different sense, as meaning an active occupation or profession continuously carried on and it is in this sense that the word is used in the Act with which we are here concerned. In view of what we have already stated in connection with the observations referred to us by Mr. Joshi in the other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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