9911796707
TMI Blog1984 (12) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... in the succeeding years. In the assessment year 1971-72 also, the assessee filed a declaration under section 184(7) of the Act claiming continuation of registration. The Income-tax Officer, however, found that during this year the assessee had derived income only from leasing out its milk spray plant and had done no business. He accordingly required the assessee to explain as to why its registration may not be cancelled. According to the Income-tax Officer, the assessee was not entitled to claim continuation of registration for the assessment year 1971-72, inasmuch as it, not having carried on any business in that year, had ceased to be a genuine firm. The Income-tax Officer after hearing the assessee cancelled its registration. In regard to the income derived by the assessee from leasing out the milk spray plant, he held that this income was from " other sources " and not from business. The order was upheld by the Appellate Assistant Commissioner of Income-tax. The appeal filed by the assessee before the Tribunal was, however, allowed. The Tribunal, after referring to its finding in the appeal against the assessment order for the year 1971-72, held that the assessee had failed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same meanings respectively as in the Partnership Act. He also placed reliance on section 4 of the Partnership Act which, inter alia, provides that " partnership " is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. On this basis, it was urged that carrying on business was a condition precedent for the existence of partnership and since no business was carried on by the assessee in the assessment year 1971-72, the Income-tax Officer was right in cancelling the registration on the ground that there was no genuine firm in existence in that year. As regards the income received by the assessee from leasing out the milk spray plant, reliance was placed by Sri Katju on Explanation I to section 6 of the Partnership Act which provides that sharing of profits or gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners. Counsel for the assessee-opposite party, on the other hand, urged that on the finding recorded by the Tribunal that the assessee continued to be genuine firm even in the assessment year 1971-72, continuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion for the purpose of section 66(1) of the Act. " In order to appreciate the true import of the aforesaid observations, it is necessary to refer to an earlier observation in the same case. While pointing out the difference between the British Statute on the point and section 66(1) of the 1922 Act, it was held (p. 608): " The British statute does not cast, as does section 66(1) of the Act, duty on the assessee to put in an application stating the questions of law which he desires the Commissioners to refer to the court and requiring them to refer the questions which arise out of that order. In Commissioner, of Income-tax v. Arunachalam Chettiar [1953] 23 ITR 180, this court has decided that the requirements of section 66(1) are matters affecting the jurisdiction to make a reference under that section. The attempt of the respondents to equate the position under section 66(1) of the Act with that under the British statute on the ground that the Tribunal has to draw up statement of the case and refer it, and that the court is to decide questions of law raised by it, must break down when the real purpose of a statement in a reference is kept in view. A statement of case is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphasis was only on the point that the income from leasing out of the milk spray plant having been found to be assessable under the head , Other sources " and not as income from business, the assessee was not entitled to the benefit of continuation of registration. The question that the finding of the Tribunal that the assessee continued to be a genuine firm in the assessment year 1971-72 was vitiated in law cannot, therefore, be treated to be involved in the question referred to us by the Tribunal. The submission made by counsel for the Revenue that the assessee was not a genuine firm in the assessment year 1971-72, based on section 4 and Explanation I to section 6 of the Partnership Act, cannot, therefore, be appropritely gone into in this reference. The question which, therefore, really arises for our consideration is whether the assessee which continued to be a genuine firm in the assessment year 1971-72, as found by the Tribunal, was entitled to the benefit of continuation of registration under section 185 of the Act, even though the only income which it derived during that year from the leasing out of the milk spray plant was assessable under the head " Other sources " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new lease partnership and, evidently, they did not want to carry on the business. In our opinion, the asset no longer maintains its character as a commercial asset and it is merely a capital investment from which the owners derive rental income. (b) Another finding of fact is necessary, viz., was the lease only a temporary phase of business ? We find that it was not a temporary phase inasmuch as the partnership never carried on the ginning business. Similarly, we also record the finding that it was not a case when the main business was carried on but a subsidiary portion was let out. The factory was leased out as a whole as an entity. (c) The economic distinction between I business activities and the activity of 'a rentier' needs no elaboration. The assessee-firm since its inception has acted like a ' rentier ' and it has never carried on any business. We would, therefore, record this finding that the 'leasing of the factory' was not, in the circumstances of the case, an activity in the nature of business. (d) If this conclusion is arrived at, then it cannot but be held that the partnership is not entitled to registration because the fundamental requirement of a valid partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of a firm is that there must be business carried on by all the partners. The Income-tax Act divides income under various heads for the purpose of enabling an assessment to be made. The classification of various heads of income under the Income-tax Act is only for the purpose of convenience of administration of that statute, and the concept of business as envisaged under the Income-tax Act cannot be imported into the determination of the question whether a group of individuals, by agreement, carry on business as a firm. Hence, it cannot be stated that whatever is classified under the head " Business ", under the Income-tax Act, would alone constitute business in the sense of the Partnership Act. Whatever may be the head of assessment under the Income-tax Act, so long as what was carried on by the firm could be classified as business in the sense of the Partnership Act, the firm would be entitled to registration provided the other conditions necessary are satisfied. We are in respectful agreement with the principle of law laid down in the aforesaid cases and are accordingly of opinion that the assessee was entitled to the benefit of continuation of registration under section ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
