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TMI Blog1985 (5) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... essed under the head " Business ". For the assessment year 1967-68 also the partnership firm filed return showing income from colliery as income from " Business ". Along with the return, the assessee filed an application under s. 184(7) of the I.T. Act. The Income-tax Officer (herein after called " the ITO ") held that consequent upon the execution of the agreement of April 5. 1965, the income of the firm had ceased to be income from " Business " and was assessable under the head " Other sources " and not under the head " Business ". In his view, the agreement of April, 1965, created a sub-lease in favour of the managing contractor. The assessee had, therefore, ceased to do business in colliery operations. The stand of the assessee was that its income was liable to be assessed under the head "Income from business" under s. 28 of the I.T. Act. The ITO rejected the application of the assessee under s. 184(7) of the Act to be treated as a firm and assessed it as unregistered firm. The assessee filed an appeal against the rejection of his application for continuation of registration of the firm as also against the assessment orders. The ground common to both sets of appeals was that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : 5. Learned counsel for the assessee then submitted on the basis of some observations of the Punjab High Court in the case of Naukarchand Chananram v. Commissioner of Income-tax [1971] 82 ITR 189, that it mattered little whether the partnership was for the purpose of earning profit within the meaning of section 10 of the Indian Income-tax Act, 1922, corresponding to section 28 of the Act, or whether it was deriving income from some other sources under section 12 of the old Act, corresponding to section 56 of the Act. In my opinion, this argument is in the teeth of the definition of 'partnership' given in section 4 of the Indian Partnership Act, 1932, as also against various forms prescribed for applying for registration or for filing of declarations. It is also against the decision of the Calcutta High Court, with which I respectfully agree in the case of Sunil Krishna Paul v. Commissioner of Income-tax [1966] 59 ITR 457. " From the above, it is obvious that the reliance placed by the Tribunal on the case of Nauharchand Chananram [1971] 82 ITR 189 was misplaced. If a firm is not carrying on business, it cannot be a partnership, for partnership is the relation between persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement in the Khas Benedih Colliery were the following : (i) The proprietor described the second party as " The Agent". (ii) The principals or the proprietor appointed the agent for carrying on the colliery works and coal business of the Khas Benedih Colliery. (iii) The agent was authorised to take charge of the colliery, coal land, surface lands, quarries, inclines, machinery, colliery sidings, buildings, offices, bungalows, dhowrahs, structures, tools, plants, fixtures, and furniture, etc. During the term of the agency, the agent was to have full charge and control over the mines, quarries, inclines, etc., of the colliery as also of its development and work in raising, despatching and selling of coal and coke without any hindrance, interference, interruption or objection whatsoever on the part of the Principals. (iv) The agent was to carry on the colliery works and the coal business by investing his own finance and the principals were not to be called upon to provide for any finance for the business. (v) The agent had full liberty to purchase new machineries and instal the same in the colliery and to electrify the mine. The agent was empowered to appoint st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it fell short of the minimum guaranteed amount already paid by the agent to the principals, the agent was not required to pay further amount towards the guaranteed profit or profits. (xi) The principals or their representative Would be at liberty to stay in the entire portion of the proprietor's bungalow and the agent was to provide all facilities including supply of free electricity or water for their stay there. (xii) The principals had executed and registered a general power of attorney in favour of the agent. (xiii) By the power of attorney the agent was authorised to operate the bank accounts in the name and style of " Khas Benedih Colliery Any cheque or pay order of Khas Benedih Colliery received by the principals had to be forthwith handed over to the agent. (xiv) The agent was bound to enter or cause to be entered in proper books of account, the true and correct statements of raisings and despatches of coal and was to offer all such account books and statements to the principals for inspection during all reasonable hours. (xv) The agreement could not be terminated within three years from the date of the agreement. (xvi) The principals were enjoined not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the second party to the deed as " managing contractor ". (ii) The agreement was to last for ten years. Managing contractor was given full power and authority to search for, get quarry, win and dig coal by all accepted and recognised mode of coal mining. (iii) The managing contractor was entitled at its own cost to instal such machinery and to bring such chattels and utensils at the colliery as he may in his discretion think fit and proper for the purpose of working of the colliery. (iv) The managing contractor was given the right, but at its own cost to build on any portion of the surface land of the colliery as he may think fit. (v) During the term of the agreement, the business of the colliery had to be carried on by the managing contractor in the name of the said firm, M/s. Kuya and Khas Kuya Colliery Co., under which name and style it was being worked prior to the agreement. (vi) All costs charges and expenses for working of the colliery and for carrying on the said business had to be borne and paid by the managing contractor. The contractor was bound to indemnify and keep indemnified the proprietors and their estates. (vii) All coal raised and coke manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any portion thereof (i.e. profit). (xv) The managing contractor was bound to keep and maintain proper books and registers showing raisings and despatches of coal and coke. The books and registers were open to inspection of the proprietors. (xvi) The managing contractor was bound to prepare monthly returns of coal raised and coke manufactured and despatched from the colliery, and serve one set thereof to each of the parties for the First Part. The proprietors were to pay and clear up liabilities of the firm only till the date of the lease, i.e., April 4, 1965. The above are some of the salient terms of the agreement arrived at between the assessee and the lessee. The terms of the agreement are substantially, if not completely, the same as in Khas Benedih Colliery's case [1974] BBCJ 440. The lessee was working under a general power of attorney in both the cases. In both the cases, the lessee was required to keep regular accounts and make it available for inspection to the proprietors. The proprietors were entitled only to receive guaranteed income and royalty or commission on extraction and sale of coal and coke. The proprietors had no stake in the losses of the lessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to their Lordships of the Supreme Court, the intention of the appellant was to go out of the business altogether so far as the factory and machinery was concerned with effect from the date of execution of the lease. The position in the present case is exactly similar. The assessee after executing the deed of lease completely effaced themselves from the control of the colliery and business of coal selling. The minimum guarantee or royalty was nothing but rent. In the present case, therefore, also the assessee must be held to have walked out of the business. Their income under the deed must, therefore, be assessed as income from " Other sources " and not as income from " Business". Learned counsel for the assessee drew our attention and, in fact, with some vehemence, to another Division Bench decision of this court in CIT v. Sabana and Sons [1976] 102 ITR 437. The case before us falls within the parameters laid down by the Supreme Court in the case of New Savan Sugar and Guy Refining Co. Ltd. [1969] 74 ITR 7. The present case is exactly similar to the case of Khas Benedih Colliery [1974] BBCJ 440, The law of the land is what the Supreme Court laid down. We are bound to follow it. M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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