2003 (1) TMI 13

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....d continuation of registration for the assessment years 1979-80 and 1980-81, respectively? 2. Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in holding that the letting out godown would amount to carrying on of business within the meaning of the Partnership Act disregarding the decision of the Andhra Pradesh High Court in R.C. No. 118 of 1980, dated November 29, 1984, in the case of CIT v. Phabiomal and Sons [1986] 158 ITR 773?" The Commissioner of Income-tax, Visakhapatnam, vide his order dated March 20,1984, took the view that the income derived from letting out of the house property by the assessee consisting of godowns constructed for the benefit of the Food Corporation ....

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....wns let out to the Food Corporation of India is assessable as income from business and the assessee is, therefore, entitled for registration and continuation of registration as this activity of construction of godowns and letting them out to the Food Corporation of India amounts to business activity. On behalf of the Department, an attempt was made to support the orders of the Commissioner of Income-tax. The Income-tax Appellate Tribunal after an elaborate consideration of the matter upheld the order of the Commissioner of Income-tax (Appeals) for the assessment year 1981-82 that the income derived from letting out the godowns is assessable as income from property. In so far as the letting out the godowns to the Food Corporation of....

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.... In such a situation, the income from simple letting out of the godown cannot be treated as business income for the purpose of the Income-tax Act. When once it is not business income the question of availing of benefit under section 185(1)(a) of the Act does not arise." The court accordingly took the view that "the income thus derived has to be assessed as income from the property in accordance with sections 22 to 27 of the Income-tax Act". Sri Lakshmana Sarma, learned counsel appearing on behalf of the assessee, however, submits that the assessee has entered into a partnership agreement with the Food Corporation of India for construction of godowns, which is nothing but a commercial activity. Sri Sarma made an attempt to distinguish the....

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....[1989] 175 ITR 352 observed that "what is required to be seen in each and every case is the primary object of the assessee that is sought to be achieved by entering into an agreement with the other". This court noticed that the primary object of the assessee therein is to promote small-scale industries in the State. The assessee therein was enjoined to establish, promote, subsidise and otherwise assist any company or companies, syndicates or other concerns for the purpose of setting up an industry and to promote and operate schemes for development of small-scale industries. It has an obligation to aid, counsel, assist, finance, protect and promote the interests of small scale industries. In the process of discharge of those obligations cast....