9911796707
TMI Blog1999 (11) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as a genuine firm and also entitled to business activity which gives rise to business income ?" The facts as stated by the Tribunal are that a piece of land admeasuring 11,578.80 sq. ft. situated in the cantonment area of Belgam City was originally taken on lease for a period of about 90 years by Sutaria Automobiles Pvt. Ltd., after making an agreement with the Governor General of India on February 24, 1948. This property was sub-leased in favour of the assessee, Shah Brothers, as per lease deed dated July 30, 1979. The assessee is a firm whose main business activity was that of leasing out of land, putting up a structure thereon and to let them on hire. It has been collecting the annual rent from the properties and apportioni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... num was payable. According to the Assessing Officer, the directors of Sutaria Automobiles Pvt. Ltd. were either the partners of the firm or were closely related to the partners. It was found that the assessee firm has not carried on any activity and no business was done. The deduction towards interest, salary and wages were claimed. It was considered to be a case of diversion of income and accordingly the registration which was granted was cancelled. The status was adopted as an unregistered firm and the income was directed to be taxed under the head of "Property income". The appeal preferred before the Deputy commissioner of Income tax (appeals) was allowed. Before the Tribunal, the Revenue contended that it was a colourable planning by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prospective customers and to carry on other business or businesses, including agency business and to act as agents, dealers, etc. It shall be further open for all the parties hereto to carry on such other business or businesses as may be mutually agreed upon from time to time." The Tribunal observed that for the purpose of granting registration under the Income-tax Act, the validity of the partnership has to be decided independent of the source of the income of the firm. Taking into consideration the object with which the firm was constituted, that is the nature of the business, directions were given to grant the registration. In this regard it is observed that the Deputy Commissioner of Income-tax (Appeals) while deciding the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e validity of the partnership has to be decided independent of the sources of income of the firm. The Deputy Commissioner of Income-tax (Appeals) found that the assessee wanted to do business and somehow it could not do the same and, therefore, 'we cannot treat the appellant as an unregistered firm because of the only reason that it did not do any business. As submitted by the appellant's representative, if we cannot treat a firm for not doing any business then an unregistered firm also cannot remain without doing any business'. The decisions cited by the learned Departmental Representative are not exactly on the point. On the other hand, the decision of the Tribunal in ITA No. 788/Bang. of 1987, dated June 27, 1991, is clearly on the point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs to Sutaria Automobiles Pvt. and not to the assessee-firm. Had that been the position, the Department would have assessed that income as an association of persons and in view of section 26 the co-owner could have been assessed in proportion of their share in the income from such rental income. The various considerations for genuineness of the firm which are germane to the issue are as to : (1) whether the partners are non-existent (2) whether constitution of such firm is forbidden by any statute ; (3) whether a minor has been made as full-fledged partner ; and (4) whether division of the profits is not in accordance with the instrument of the partner ship ; (5) existence of agency against partners. There may be other like reasons by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A firm is not in existence if it is bogus or not genuine. A finding has been recorded by the Tribunal that the firm is genuine. The assessee has made further constructions in furtherance of its object to carry on business as per deed of partnership. The income received therefrom may be by way of rent but was for commercial consideration. As such we are of the view that the Appellate Tribunal was right in law in holding that the assessee firm is required to be considered as a genuine firm and also entitled to registration. In S. G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700, it was considered that the activity of taking a property on lease, setting up a market thereon and letting out shops and stalls in the market is a busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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