TaxTMI 
TaxTMI 
1983 (12) TMI 113
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....artnership deed dated 19-7-1975. There are seven major partners and four minors admitted to the benefits of partnership. Profit sharing ratio of the partners is mentioned in clause 7 of the partnership deed. The nature of the business sought to be carried on by this firm is mentioned in clause 3 of the partnership deed as 'tobacco business', both local and foreign, or any other business which may prove to be lucrative and which may be carried on with the mutual consent of the parties. The firm name is given as Sundaram Tobaccos and it is stated to have its head office at Guntur with a branch at Ganapavaram. Clause 1 of the partnership deed gives the option to open branches at other places also if necessary. A copy of the partnership deed was provided at pages 2 to 7 of the paper book filed before us. The assessee now before us is the said firm Sundaram Tobaccos. It has purchased 2.5 acres of land in R.S. No. 79 (O.S. No. 2) in Keesara Village, Nandigama Taluq, Krishna District and constructed godowns, grading halls, inspection halls and office-cum-guest house. For the sake of compendious expression, we call all the above constructions as 'Godown'. The construction of the godown was....
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.... leased out its Keesara godown only with a view to getting more business from VSTCO. 5. The intendment of taking on lease by VSTCO can be known from the letter obtained from the director of the said company which is as follows: "LDD/PS/619 September 1, 1983 Sundaram Tobacco Co. PO Box 77 Guntur 522 001 Dear Sirs, Regarding your enquiry about the construction and leasing of the godowns and grading halls at Keesara in 1975/76, I have to inform you that we do not have any correspondence in our records. It is, however, a fact that the godowns and gradin....
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....exus between the letting out of the godown of the assessee and the business of the assessee. The assessee is maintaining its staff for its branch at Keesara to whom salary as well as bonus is paid. Grading coolies also are employed by it. Therefore, the godown was not let out to a party unconnected with the business activity of the assessee. The ITO held the contentions of the assessee as having no force. He held that the assessee did not lease out the godown to VSTCO from 19-12-1975 to 31-12-1975. The business of the assessee is held to be different from that of VSTCO. The two cases cited on behalf of the assessee before the ITO were held to be distinguishable. Ultimately, he held that the income from leasing the godown should be assessed under the head 'Income from house property'. As a corollary depreciation allowance claimed was denied. 6. In appeal, the Commissioner (Appeals) held that the decisions in National Newsprint & Paper Mills Ltd.'s case and Prem Chad Jute Mills Ltd.'s case were not in fact applicable to the facts of the present case. In the first case, it was held that the dominant purpose of the letting out of the godown was to enable the assessee to carry on its....
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.... by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is business because it is concerned with an asset with which trade is commonly carried on...." The learned Commissioner (Appeals) held that simply because the godown is a commercial asset and trade is commonly carried on in it per se, such a godown cannot be taken to be a commercial asset according to the abovesaid Supreme Court decision. The godown was not at any time used by the assessee for its business. Applying the ratio of the Allahabad High Court as well as the Supreme Court, the Commissioner (Appeals) held that in the instant case the income derived by the assessee from letting out the godown is not business income and is to be assessed as income from property. Therefore, the panchayat taxes payable over the godown as well as the depreciation claimed over the godown were disallowed and the ITO's order bringing the income under the head 'Income from house property' is held to be quite valid and the appeal before him was dismissed for al....
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....ational Storage (P.) Ltd. [1967] 66 ITR 596 (SC), CIT v. Ajmera Industries (P.) Ltd. [1976] 103 ITR 245 (Cal.), National Newsprint & Paper Mills Ltd.'s case, Everest Hotels Ltd. v. CIT [1978] 114 ITR 779 (Cal.), Addl. CIT v. National Newsprint & Paper Mills Ltd. [1978] 114 ITR 398 (MP) and Addl. CIT v. Hindustan Machine Tools Ltd. [1980] 121 ITR 798 (Kar.). It was contended that because it had constructed the Keesara godown, the assessee was able to get turnover of Rs. 50 lakhs by virtue of the contract it had entered into for processing tobacco, etc., which it had obtained from VSTCO. The assessee was having 18 branches. Therefore, it was the contention of the assessee that it had constructed the godown as part of its business activity, or to facilitate its business and, thus, the lease amount obtained should be considered as part of the business income. 8. On the other hand, Shri N. Santhanam, the learned departmental representative, opposing the claim of the assessee tooth and nail, made the following submissions before us. Firstly, he contended that the letter dated 1-9-1983 which the assessee had produced clarifying the contemporaneous idea or state of thinking of VSTCO at ....
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.... to produce accessories for Hindustan Machine Tools Ltd. However, the lease terms in the case before us do not compel the assessee only to undertake processing activities for VSTCO. He distinguishes the Calcutta High Court's decision in Ajmera Industries (P.) Ltd.'s case from the case on hand by stating that there was no lease deed at all in the case before the Calcutta High Court. He also further stated that East India Housing & Land Development Trust Ltd.'s case was not referred to at all by the Calcutta High Court in that case. He further argued that without letting the godown at Keesara also, the assessee was having business connection with VSTCO. It is not as if the assessee established its business connection for the first time with VSTCO only after constructing the godown at Keesara or leasing it out to them from 1-1-1976. The learned departmental representative also wanted to rely upon the decision of this Tribunal in I.T. Appeal No. 1115 (Hyd.) of 1978-79. 9. In reply, Shri A. Satyanarayana, the learned counsel, countered the learned departmental representative's argument and stated that the owner need not actually occupy the premises and in support thereof he cited the....
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....t, that it would only be exclusively permitted to do processing in this very godown at Keesara. In fact, the lease agreement is for 9 years beginning from 1-1-1976 and during these years, the assessee is continuing to have the business contract with VSTCO under which it is continuing its processing operations for VSTCO in Keesara godown according to the rates it had contracted with VSTCO and which were quoted at pages 40 and 41 of the paper book. Thus, the expectation of the assessee was proved to be correct by subsequent events also. Therefore, factually, the godown was used only for assessee's business. The income derived therefrom will be assessable under the head 'Profits and gains of business or profession' having regard to the ratio of the Karnataka High Court in Hindustan Machine Tools Ltd.'s case. In view of the facts independently ascertained by us, there is in fact no fresh material which in contained in the letter of 1-11-1983 for the purposes of decision of this case. 12. In the case of Hindustan Machine Tools Ltd.'s case, the HMT Ltd. had constructed 50 sheds forming an industrial estate with the object of having ancillary units which would manufacture components re....