JUDGMENT
Ajit K. Sengupta, J.
1. In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment years 1966-67, 1972-73 to 1974-75, the following common question of law has been referred to this court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in its finding that the income from letting out of the entire commercial assets to Messrs Salkia Jute Pressing Co. (P.) Ltd. was business income and, in that view, upholding the Appellate Assistant Commissioner’s order to allow registration to the assessee for the assessment years 1966-67, 1972-73, 1973-74 and 1974-75 ?”
2. The assessee-firm was enjoying the benefit of registration from its inception. The firm also took over the running business of a jute press
at Salkia and was utilising the same for the purpose of its business. Thereafter, in view of the closure of the jute processing centres in Bangladesh and also because of some internal trouble, the assessee leased out its commercial assets to one Salkia Jute Pressing Co. (P.) Ltd. with the agreement of taking back the same at short notice. This fact led the Income-tax Officer to believe that the assessee had not carried on any business and, therefore, it was not entitled to registration in view of the decision of the Calcutta High Court in the case of Sunil Krishna Paul [1966] 59 ITR 457. He, therefore, refused to register the assessee-firm for the years under reference.
3. The assessee preferred appeals to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner, after considering the facts and circumstances of the case, directed the Income-tax Officer to grant registration.
4. Against the aforesaid order of the Appellate Assistant Commissioner, the Department preferred appeals before the Tribunal. The Tribunal, after having heard the rival submissions made before it, deemed it fair to set aside the assessments by observing as under :
“We have considered the rival submissions of the parties and, as stated above, are of the view that all the relevant facts which are necessary for coming to a decision are not properly brought out on the records. It would be necessary to ascertain whether the case decided by the Calcutta High Court in Sadhu Charan Ray Choudhury, In re, relates to a partnership concern or an association of persons. It is also not clear whether the press and other commercial assets taken over by the Roy Chowdhuries in July, 1907, were the assets of the Roy Chowdhuries individually or the assets of the partnership concern in which the Roy Chowdhuries were partners. Again, the unexpired lease period in July, 1907, was of 50 years and 11 months which would have been over some time in 1957 or 1958. After the expiry of the lease period, what has happened to the press and other commercial properties taken over by the Roy Chowdhuries is not clear from the material already brought on record. Again, there is material available on the record as to how changes occurred in the assessee’s firm right from its inception. Even the lease agreement entered into between the assessee-firm and Salkia Jute Pressing Co. Pvt. Ltd. has not been considered by the income-tax authorities. In this view of the matter, we set aside the order of the Appellate Assistant Commissioner under appeal and restore the case once more to his file with a direction to give his decision afresh in the light of our foregoing observations. The Appellate
Assistant Commissioner is further directed to give an opportunity to both the Income-tax Officer as well as the assessee to place their respective cases before him in this regard.”
5. In view of the aforesaid direction of the Tribunal, the Appellate Assistant Commissioner allowed the Income-tax Officer as well as the assessee an opportunity of being heard. The main ground on which the Income-tax Officer refused to grant registration was that the assessee’s income during the years under reference was limited to rental income from house property and lease rent from exploitation of its commercial assets. According to the Income-tax Officer, the assessee-firm had no business activities but had only earned rental income. Details were submitted by the assessee before the Appellate Assistant Commissioner as to how the assessee became the owner of the commercial assets which were leased out to Messrs Salkia Jute Pressing Co. (P.) Ltd.
6. The Appellate Assistant Commissioner, after considering the facts and circumstances of the case and the principles laid down in the decision cited before him, directed the Income-tax Officer to register the assessee-firm for each of the four years under consideration.
7. Aggrieved by the aforesaid order of the Appellate Assistant Commissioner, the Revenue preferred appeals before the Tribunal. The departmental representative urged that, admittedly, the assessee had not carried on any business and simply earned rental income only. He urged that one of the essential conditions for enjoying the benefit of registration was the carrying on of business by the firm and that, in the absence of that condition, the Income-tax Officer was justified in refusing to register the firm. He, therefore, wanted the Tribunal to set aside the Appellate Assistant Commissioner’s order and restore that of the Income tax Officer.
8. It was submitted on behalf of the assessee that the Income-tax Officer conceded that the assessee exploited its commercial assets and, therefore, the Department should not have filed these appeals.
The Tribunal upheld the findings and conclusion of the Appellate Assistant Commissioner,
9. At the hearing, Mr. Mitra, learned counsel for the Revenue, submitted that no business activity was carried on by the assessee-firm ; accordingly, the firm is not entitled to registration.
10.We are unable to accept this contention.
11. The Appellate Assistant Commissioner had held that this partnership firm had been in existence prior to 1907. It was in 1907 that the
firm took over the business of a jute press in Salkia as a running concern. The said jute press was run by the firm from 1907 to 1931. Thereafter, the commercial assets were being utilised by the firm from year to year through the lessee under an agreement. The lease agreement provided that the lessee would maintain the said press as a going concern and the firm would be at liberty to take back the press at short notice. The genuineness of the firm has never been disputed. It is no doubt true that the partnership firm must have some business. The word “business” connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. The business in this context must be considered in a broad sense. A commercial asset may be exploited in many ways. The assessability of the income under the head “Business” or “Other sources” has nothing to do with the validity of the partnership either for the purpose of the Partnership Act or for its registration under the Income-tax Act. The business may be done in a number of ways. The Partnership Act nowhere provides that the business cannot be carried on by the partners by leasing out commercial assets belonging to the firm. The partnership firm being the owner of the jute press may run it itself or lease it out. It cannot be said that, by leasing it out, the firm ceases to carry on a business. It still continues the business of earning profit from its commercial assets. There can be a partnership for carrying on the business of leasing out commercial assets. A commercial asset may be exploited in many ways. A particular mode or means of working the assets will have no bearing on the question whether the partnership would be entitled to registration. It is now well-settled that, where income, is derived by exploitation of commercial assets and there is only a difference in the manner of exploitation, that is to say, instead of the user of the assets by the assessee himself, the assessee leases out the assets, the income derived must be considered to be of the same nature, namely, business income. Exploitation of commercial assets does not necessarily mean exploitation by the assessee himself at all times. It cannot be disputed that the firm being the owner of property may lease it out as a part of its business. The facts found by the Appellate Assistant Commissioner have not been challenged before the Tribunal. It is admitted that the firm has been doing something more than the management of the existing property. The intention is to retain the assets as circulating capital to earn profits.
12. In our view, the principles laid down by this court in CIT v. Prem Chand Jute Mills Ltd. [1978] 114 ITR 769 and Everest Hotels Ltd. v. CIT , will equally apply to the facts of this case.
13. For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the assessee.
14. There will be no order as to costs.
Bhagabati Prasad Banerjee , J.
15. I agree.