Gupta Bros. vs Commissioner of Income Tax

Sengupta, J.—In this reference u/s 256(1) of the income tax Act, 1961 (''the Act'') for the assessment year 1972-73, the following question of law has been referred to this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was not carrying on any business and, therefore, its status was as an AOP?

The facts are that for the assessment year 1972-73 in respect of its previous year ended Dewali 1971 the assessee submitted its return as unregistered firm showing the loss of Rs. 943 reflected in its profit and loss account for the period, under the head ''Profits and gains of business or profession''. In reply to the ITO''s query the assessee intimated that there were 9 shops or godowns in the building and 10 residential flats and that it charged the shop owners for their electric consumption at the rate of Rs. 43 per month. The ITO held that the operations carried on by the assessee did not constitute business as, according to him, a notion fundamental to business was trading which the assessee did not carry on. He accepted the loss reflected in the profit and loss account as returned by the assessee, but assessed the same under the head ''Income from other sources''. Observing that the existence of a partnership firm presupposes the existence and carrying on of a business he took the status of the assessee as that of an AOP.

The assessee being aggrieved by the said order of the ITO appealed to the AAC. The AAC found that the partners of the assessee-firm had entered into an agreement to carry on business as Estate Agents for land development, acquisition, etc., and held that the correct status of the assessee would be that of an unregistered firm.

The department felt dissatisfied and came to the Tribunal. The Tribunal found that the AAC had arrived at the conclusion which he did without giving a finding as to whether the assessee was really carrying on any business. The Tribunal sent that matter back to the AAC for a finding in that regard after pointing out that a decision about the correct status of the assessee hinged on such finding.

On such remand the AAC found that the balance sheet of the assessee showed the building at Rs. 1,91,069 on the assets side and on the liability side Subhankardas Gupta''s name stands for Rs. 1,98,901. He noticed that the only receipt shown in the assessee''s profit and loss account was by rent collection while expenditure shown therein was on electric charges, rates and taxes, salary and wages, sub-lease rent and interest. He observed that it could not be stated from the said accounts that the assessee had carried on any business activities. According to him, the assessee had done nothing except realisation of rent and done some minor development work involving investment of Rs. 46,000 spread over several years. He held that the ITO was correct in assuming the status as an AOP and assessing the income under the head ''Income from other sources''.

The Tribunal dismissed the assessee''s appeals against the AAC''s above order. The Tribunal found that when the construction was virtually complete, the assessee entered into a sub-lease agreement with the said Gupta and that it was not shown that during the year under consideration any money was spent by the assessee on further construction of the house property and that the only activity of the assessee happened to be to collect rent. The Tribunal held that the assessee was not carrying on any business and, therefore, its status as an AOP was rightly taken by the ITO and confirmed by the AAC.

The activity of the assessee was only to collect rent. The Tribunal has found that the assessee was not carrying on any business. The finding, although challenged, the question was not allowed. Thereafter the assessee did not come to this Court u/s 256(2).

On the facts found by the Tribunal we are of the view that the Tribunal has come to a correct conclusion. Since there was no business, the assessee was rightly held as an AOP.

For the reasons aforesaid, we answer the question in the affirmative and in favour of the revenue and against the assessee.

There will be no order as to costs.

Banerjee, J.

I agree.