1987 (6) TMI 98

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.... That firm had been granted registration and assessed up to the assessment year 1980-81. In the previous year, being the period from 19-11-1979 to 7-11-1980, corresponding to the assessment year 1981-82, there was a reconstitution of the firm on 1-4-1980, by the admission of a private limited company called 'Tirumalai Hotels & Builders Pvt. Ltd.', as a partner with 60% share. The partnership deed dated 1-4-1980 also provided that the business of the partnership shall be that of carrying on the business of trading in cotton, kappas, etc. However, that document also recited in the preamble that the incoming partner had been incorporated with the object of taking over the business assets and liabilities of the partnership firm carried on under....

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....fore us, it was contended on behalf of the revenue, relying on the decision of the Andhra Pradesh High Court in the case of CIT v. Phabiomal & Sons [1986] 158 ITR 773 that since no business was actually carried on in the present assessment year and that the receipt of rental income alone could not constitute business, the firm had not satisfied the criteria required for being recognised as a genuine firm. It was submitted that, in the circumstances, the registration granted by the Commissioner (Appeals) should be cancelled. On the other hand, it was pointed out, on behalf of the assessee, that the Tribunal by its order in ITO v. Tirumalai Hotels & Builders (P.) Ltd. [1986] 17 ITD 109 (Hyd.), has recognised the fact that the private limit....

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..... That, in our opinion, is not vital because section 4 of the Partnership Act only requires that there shall be an agreement to share the profits of a business carried on by all or any of the partners and the carrying on of the business does not require that there must be constant business activity. As long as it is shown that the partners were pursuing the business in such a manner that it can apparently be seen that they are prosecuting or promoting the business, it would be difficult to assert that the partners were not carrying on any business and, therefore, did not constitute a genuine firm. In the present case, the existence of the business, which had been carried on by the firm before the reconstitution as well as the continued carr....