9911796707
TMI Blog1986 (2) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessable under the head 'Business'? (2) Whether, on the facts and in the circumstances of the case, for the assessment year 1975-76, the Tribunal was justified in holding that the status of the assessee would be that of a registered firm and not that of an association of persons ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that for the assessment year 1975-76, the Commissioner was not correct in cancelling the registration which had been allowed by the Income-tax Officer? The assessee was a registered firm. It was principally engaged in sole agency business for sale of foreign liquors of McDowell Co. Ltd. For the assessment year 1975-76, the Income-tax Officer passed an ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee from the transferee-company was really its business income in allowing the user of its business asset for the period and the activity in earning income by way of royalty falls within the concept of business of the assessee-firm. It was also found that the firm had been in existence for several years, it had continued to be in existence during the assessment year 1975-76 and hence the Commissioner was not justified in directing cancellation of its registration. The income received by the assessee by way of dividend on the shares of the transferee-company held by it was, however, held to be income falling under the head "Other sources". The Tribunal in paragraph 8 of its order noticed that for the prior assessment year 1974-7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered firm treating the income received by way of royalty as income from profits and gains of business and the income by way of dividend as income from 'Other sources ' during the relevant accounting period. Counsel for the Revenue strongly urges that on transfer of the sole agency business for the sale of the products of McDowell and Company, the assessee-firm was not carrying on any business, the income derived by way of royalty is not its business income and the firm itself had ceased to exist in the eye of law. According to the learned counsel, in the absence of a business, there cannot be a partnership or a firm. Counsel relies on the decision of a Division Bench of the Madras High Court in K. Viswanathan v. Namakchand Gupta, AI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal. The relevant portion of the agreement is extracted by the Tribunal in paragraph 6 of its order. Counsel for the Revenue relies on clauses (1) and (2) of annexure agreement in support of his proposition that the assessee can no longer be treated as a firm for the reason that it has ceased to carry on the sole agency business in the products of McDowell and Company Ltd. Clauses (1) and (2) of annexure E agreement are extracted below: " (1) The Vendors shall sell and the Company shall purchase as going concern assets and rights and undertake to discharge liabilities both assets and liabilities described in schedule and also the right to carry on business as sole selling agents of McDowells, Shertallai, with the right to car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take the view that the income received by way of royalty cannot be reckoned as profits or gains of business of the assessee. The Tribunal has already held that the dividend received can only be treated as income from " Other sources ". It should, therefore, be held that during the relevant accounting period, the assessee had no business income. We are not, however, prepared to accept the contention raised by counsel for the Revenue based on the decision of the Madras High Court in Viswanathan's case, AIR 1955 Mad 536, that the firm has ceased to exist during the relevant accounting period. The mere fact that for any particular period, a firm had no business income does not mean that the firm itself had ceased to exist. The firm was very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quor sold cannot, however, be treated as the profits or gains of business of the assessee-firm. In New Savan Sugar and Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7, the Supreme Court considering the question whether the income by way of royalty received by a company on lease of its factory and machinery can be assessed as profits and gains of business within the meaning of section 10 of the Indian Income-tax Act, 1922, stated at page 14 : " The primary condition for the application of section 10 of the Act is that the tax is payable by an assessee under the head 'Profits and gains of business' in respect of business carried on by him. When an assessee does not carry on business at all, section 10 cannot be applicable and the income that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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