1979 (11) TMI 20 - HC - Income Tax

Court affirms firm registration based on business activities; income assessed under 'Other sources'

The High Court affirmed the eligibility of the assessee for registration as a firm based on its business activities under the Partnership Act. The Court ... Business, Firm, Registration Issues involved:1. Whether the activities of the assessee constituted 'business' as per section 2(b) of the Indian Partnership ActRs.2. Whether the assessee was entitled to registration for the assessment year 1969-70Rs.3. Whether the income returned by the assessee should be assessed as income under the head 'Business' or under the head 'Other sources'Rs.Issue 1: Activities constituting 'business' for registration eligibility:The assessee-firm, initially constituted under a partnership deed, faced a challenge regarding the nature of its activities determining its eligibility for registration. The Income Tax Officer (ITO) contended that the main business of the assessee, involving leasing buildings as warehouses and collecting rent, did not qualify as a business activity. The Appellate Assistant Commissioner (AAC) upheld this view, considering it an association of persons rather than a firm. However, the Tribunal found that the letting of leasehold property could be considered an occupation within the meaning of the Partnership Act, establishing that the assessee was indeed carrying on business as per the Act.Issue 2: Entitlement to registration and assessment under appropriate head:The Tribunal's decision was challenged through reference applications, leading to the consideration of whether the assessee was eligible for registration under the Income Tax Act. The High Court emphasized that the Partnership Act governs the creation of a firm, and as long as the activities align with the definition of business under the Partnership Act, registration should be granted. In this case, the Court found that the assessee's activities of leasing and subletting properties constituted a business activity, thus confirming the grant of registration to the firm.Issue 3: Assessment of income under the appropriate head:Regarding the assessment of income, the Court analyzed whether the income should be categorized under 'Business' or 'Other sources.' While the definition of business under the Income Tax Act was considered, the Court noted that the activity of subletting properties did not align with traditional trade or commerce elements to be classified as a business. Therefore, the Tribunal's decision to assess the income under the head 'Other sources' was upheld, concluding that the assessee derived income from sources other than business activities.In conclusion, the High Court affirmed the eligibility of the assessee for registration as a firm based on its business activities under the Partnership Act. Additionally, the Court upheld the assessment of income under the head 'Other sources' due to the nature of the subletting activity not meeting the criteria for classification as a business.