Sankarasubban, J. The above income-tax references arise out of IT Appeal Nos. 324 (Coch.) of 1991, 55 (Coch.) of 1992, 521 and 446 (Coch.) of 1994. Questions referred for the opinion of this court, under section 256(1) of the Income Tax Act, 1961 Income Tax Act, are as follows :
"1. Whether, on the facts and in the circumstances of the case, investing money and earning interest therefrom and letting out of building and earning rental income therefrom would constitute an activity of business carried on by the assessee-firm ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the assessee is entitled to renewal of registration ?"
2. Facts of these cases are as follows: The assessee in these cases is George Oommen & Co., Kottayam. For the assessment year 1989-90, the assessee filed an application for registration in Form No. 11 on 30-3-1989 along with a copy of the partnership deed dated 15-1-1982. The assessing authority found that the income earned during the year is the income from house property and interest received from Asian Investments. The assessing authority refused to grant registration for the year 1989-90. The assessing authority took into account the fact that in the returns for the years 1982-83 to 1988-89, the assessee had declared the status as an association of persons since the only receipt during the years were the income from house property and interest received from Asian Investments. The assessing authority was of the view that 'carrying on a business' is a must for the existence of a firm. As per Explanation (i) to section 6 of the Indian Partnership Act, sharing of profits or gross returns arising from property by persons holding a joint or common interest in that property does not make such persons partners. Thus, the application for registration for the assessment year 1989-90 was dismissed. By Annexure B2, for the same reason, application for registration for the assessment year 1990-91 was also dismissed.
2. Facts of these cases are as follows: The assessee in these cases is George Oommen & Co., Kottayam. For the assessment year 1989-90, the assessee filed an application for registration in Form No. 11 on 30-3-1989 along with a copy of the partnership deed dated 15-1-1982. The assessing authority found that the income earned during the year is the income from house property and interest received from Asian Investments. The assessing authority refused to grant registration for the year 1989-90. The assessing authority took into account the fact that in the returns for the years 1982-83 to 1988-89, the assessee had declared the status as an association of persons since the only receipt during the years were the income from house property and interest received from Asian Investments. The assessing authority was of the view that 'carrying on a business' is a must for the existence of a firm. As per Explanation (i) to section 6 of the Indian Partnership Act, sharing of profits or gross returns arising from property by persons holding a joint or common interest in that property does not make such persons partners. Thus, the application for registration for the assessment year 1989-90 was dismissed. By Annexure B2, for the same reason, application for registration for the assessment year 1990-91 was also dismissed.
3. For the assessment years 1991-92 and 1992-93, the assessee was assessed as unregistered firm. The assessee took the matter in appeal before the Commissioner (Appeals). The Commissioner (Appeals) also agreed with the assessing authority. Against that appeals were preferred before the Tribunal. The Tribunal held as follows:
3. For the assessment years 1991-92 and 1992-93, the assessee was assessed as unregistered firm. The assessee took the matter in appeal before the Commissioner (Appeals). The Commissioner (Appeals) also agreed with the assessing authority. Against that appeals were preferred before the Tribunal. The Tribunal held as follows:
"The appellant-firm was originally engaged in the execution of construction work. For sometime they diverted their activities into other areas like money lending and real estate development. The' appellant-firm adopted financing and ownership of real estates as its business. The absence of construction activity in the assessment years under appeal does not mean that the partnership firm was not genuine."
Then, it went on to consider the decisions on this aspect. Thereafter, it is held as follows:
"Apart from this, we are not inclined to agree with the learned Departmental Representative that the activity of financing and earning interest income therefrom and the activity of letting out the premises and earning rental income therefrom would not constitute the activity of business carried on by the assessee. These activities very well amount to business activities and they have been carried on by the assessee in the relevant assessment years in question. Considering all these facts and the case law relied on by the representative of the assessee, we are satisfied to hold that the appellant-firm has been carrying on a business activity and is entitled to renewal of registration."
4. After hearing the parties and after verifying the records, the following facts emerge: The partnership was constituted originally in 1960 and later it was amended by a supplemental agreement dated 15-1-1982. Thus, the amended agreement was entered on 15-1-1982 by which new partners were introduced. In paragraph 4 of the conditions, it is stated that the objects of the partnership shall be to continue the existing business and other dealings of the partnership and to carry on the business of contractors, builders, financiers, owners of buildings and real estate, etc. The firm may take up and carry on any other business, adventure or manufacture, which in the unanimous opinion of the partners can be carried on in addition to or in extension of the abovesaid objects. It is admitted that even though the partnership was originally entered into in 1960, application for registration was made only for the assessment year 1989-90. It is also seen from the records that from 1982, the assessee has been filing returns as association of persons and the annual income, which the assessee was having is the income from house property and the income received from Asian Investments. It is not discernible from the paper-book nor is it argued that the firm as constituted was granted registration at any point of time earlier. However, the second question referred to is as to whether the Tribunal is right in holding that the assessee is entitled to renewal of registration. Hence, we have to take it that the question for the first year, i.e., 1989-90 is regarding the grant of registration and in the subsequent years regarding renewal of registration.
4. After hearing the parties and after verifying the records, the following facts emerge: The partnership was constituted originally in 1960 and later it was amended by a supplemental agreement dated 15-1-1982. Thus, the amended agreement was entered on 15-1-1982 by which new partners were introduced. In paragraph 4 of the conditions, it is stated that the objects of the partnership shall be to continue the existing business and other dealings of the partnership and to carry on the business of contractors, builders, financiers, owners of buildings and real estate, etc. The firm may take up and carry on any other business, adventure or manufacture, which in the unanimous opinion of the partners can be carried on in addition to or in extension of the abovesaid objects. It is admitted that even though the partnership was originally entered into in 1960, application for registration was made only for the assessment year 1989-90. It is also seen from the records that from 1982, the assessee has been filing returns as association of persons and the annual income, which the assessee was having is the income from house property and the income received from Asian Investments. It is not discernible from the paper-book nor is it argued that the firm as constituted was granted registration at any point of time earlier. However, the second question referred to is as to whether the Tribunal is right in holding that the assessee is entitled to renewal of registration. Hence, we have to take it that the question for the first year, i.e., 1989-90 is regarding the grant of registration and in the subsequent years regarding renewal of registration.
5. It is true that for the purpose of registration of the firm, under the Income Tax Act, what is to be looked into is whether the partnership has come into force as per the Indian Partnership Act. Whatever may be the head of assessment under the Income Tax Act, so long as what was carried on by the firm could be classified as business in the sense of the Indian Partnership Act, the firm would be entitled to registration, provided the other conditions necessary are satisfied. Even if the income obtained from the partnership does not come under the head 'Profits and gains of business or profession' under the Income Tax Act, if it is partnership under the Indian Partnership Act, then the firm is entitled to registration. Under the rules, the assessing authority is entitled to find out whether the partnership is genuine or not. Under section 4 of the Indian Partnership Act, 'partnership' is the relation between person who have agreed to share the profit of a business carried on by all or any of them acting for all. So the existence of a business is a pre-requisite for grant of registration to a firm. This is a matter to be ascertained by the assessing authority to find out whether the partnership is genuine or not.
5. It is true that for the purpose of registration of the firm, under the Income Tax Act, what is to be looked into is whether the partnership has come into force as per the Indian Partnership Act. Whatever may be the head of assessment under the Income Tax Act, so long as what was carried on by the firm could be classified as business in the sense of the Indian Partnership Act, the firm would be entitled to registration, provided the other conditions necessary are satisfied. Even if the income obtained from the partnership does not come under the head 'Profits and gains of business or profession' under the Income Tax Act, if it is partnership under the Indian Partnership Act, then the firm is entitled to registration. Under the rules, the assessing authority is entitled to find out whether the partnership is genuine or not. Under section 4 of the Indian Partnership Act, 'partnership' is the relation between person who have agreed to share the profit of a business carried on by all or any of them acting for all. So the existence of a business is a pre-requisite for grant of registration to a firm. This is a matter to be ascertained by the assessing authority to find out whether the partnership is genuine or not.
6. It can be seen from various orders that at least from 1982, the assessee has got income only from house property as well as from the investment in Asian Investments. No other activities are seen to be carried on by the firm. The mere income from the house property cannot be said to be an activity of carrying on business. So also, the interest obtained from investment made by the partners will not get the colour of carrying on business. It is true that certain decisions have taken the view that running of lodging home or hotel will amount to business. But so far as this case is concerned, there is nothing to show that letting out was done as a business. There is nothing in this case to show that any activity was carried on by the assessee. In the decision in CIT v. Veerabhadra Industries (1999) 240 ITR 5 (AP), the Andhra Pradesh High Court held that a single act of constructing a godown and letting it out cannot be treated as a business. The expression 'business' contemplates continuous activity from year to year. There was no evidence that the assessee was continuing the activity of constructing godowns and letting them out from year to year. The decision in CIT v. Lakshmi Co. (1982) 133 ITR 904 (Mad.) is distinguishable. In that case, the assessee put up additional constructions and let it out to various tenants.
6. It can be seen from various orders that at least from 1982, the assessee has got income only from house property as well as from the investment in Asian Investments. No other activities are seen to be carried on by the firm. The mere income from the house property cannot be said to be an activity of carrying on business. So also, the interest obtained from investment made by the partners will not get the colour of carrying on business. It is true that certain decisions have taken the view that running of lodging home or hotel will amount to business. But so far as this case is concerned, there is nothing to show that letting out was done as a business. There is nothing in this case to show that any activity was carried on by the assessee. In the decision in CIT v. Veerabhadra Industries (1999) 240 ITR 5 (AP), the Andhra Pradesh High Court held that a single act of constructing a godown and letting it out cannot be treated as a business. The expression 'business' contemplates continuous activity from year to year. There was no evidence that the assessee was continuing the activity of constructing godowns and letting them out from year to year. The decision in CIT v. Lakshmi Co. (1982) 133 ITR 904 (Mad.) is distinguishable. In that case, the assessee put up additional constructions and let it out to various tenants.
7. in view of the above facts, we answer the first question in the negative and against the assessee. The second question is also answered in the negative and against the assessee.
7. in view of the above facts, we answer the first question in the negative and against the assessee. The second question is also answered in the negative and against the assessee.