Orissa High Court
Commissioner Of Income-Tax vs M.P. Bazaz And Ors. on 3 July, 1992
Equivalent citations: [1993]200ITR131(ORISSA)
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT Pasayat, J.
1. The Income-tax Appellate Tribunal, Cuttack Bench (in short, the "Tribunal"), has stated a case and referred the following question for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (in short, "the Act").
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee was deriving income from business and that, therefore, the assessee was a firm entitled to registration ?"
2. From the statement of case drawn up by the Tribunal, we find the fact situation to be as follows :
M/s M.P. Bazaz and others (hereinafter described as the "assessee") filed two returns for the assessment year 1978-79 corresponding to the accounting year ending on March 31, 1978. The first return related to the period April 1, 1977, to November 7, 1977, and the second return related to the period November 8, 1977, to March 31, 1978. The status declared in the returns filed by the assessee was that of a partnership firm. An application in Form No. 11A was also filed on March 30, 1978, claiming registration of the assessee-firm under the Act. Evidently, there was a change in the constitution of the firm when one of the partners, according to the assessee, died on November 7, 1977, and, therefore, an application in Form No. 11A indicating the change in the constitution was filed. In the statements of income filed along with the returns, the assessee showed income from house property and interest income. In computing the income from house property, certain deductions were claimed. A partnership deed dated December 1, 1973, with four partners was produced before the Assessing Officer. It was noticed by the Assessing Officer that the assessee had claimed the status of a partnership firm in the earlier years also, but showed the computation of income under the head "Property" in the statements filed along with the returns. In the assessment year 1974-75, the Assessing Officer disallowed the claim of the assessee relating to status on the ground that the assessee was not doing any business and so the status could not be that of a partnership firm. He took the status of the assessee as an association of persons. For the assessment year in question also, the Assessing Officer disallowed the claim of the assessee to be treated as a partnership firm. In appeal, the Appellate Assistant Commissioner of Income-tax, Cuttack Range, confirmed the finding of the Assessing Officer and dismissed the appeal. The assessee carried the matter in appeal before the Tribunal. Its primary stand before the Tribunal was that the Revenue authorities were not correct in their conclusions regarding status, even though the assessee had not assailed the orders for the previous years. It was emphasised that any conclusion for the previous year would not operate as res judicata, as each assessment year is separate and self-contained. Relying on the partnership deed dated December 1, 1973, it was explained that party No. 1 of the said deed on the one hand and the rest of the parties on the other hand jointly owned half of a single-storeyed house property. They joined together for the purpose of carrying on business in real estate. To reflect the intention, a partnership deed was drawn up ; a loan was obtained from the bank, construction of the first floor was undertaken thereafter ; the first floor of the house was let out on rent ; all the expenses were met from the rental income and the surplus was distributed amongst the partners as per the terms of the partnership deed. In other words, it is explained that the assessee was engaged in an organised activity with a view to earn profits and so it was carrying on business. Consequently, the assessee's claim to be treated as a partnership firm should have been allowed. Accordingly, the application praying for registration should have been considered and allowed. The Revenue's stand, however, was that year after year the assessee was showing the computation of income as if it was deriving income assessable under the head "Property". The conduct of the assessee thus showed that it was not doing any business. Even in actuality, the assessee was deriving only rental income. Since, in the earlier years, the status was taken to be an association of persons, the same had become final. It was also urged that, in an appeal filed under Section 246(1)(c) of the Act, the question as to whether the assessee is entitled to registration or not cannot be agitated. The Tribunal, on consideration of the rival submissions, came to hold that the activities carried on by the assessee do amount to business. It took note of the fact that the partnership agreement was entered into in respect of the first floor of the building which was yet to be constructed. The activities of taking a loan on interest, using the borrowed funds for constructing a building, letting out on hire the building so constructed do amount to business. Accordingly, it held that the status of the assessee should be taken as a partnership firm. It, however, held that, in the appeal, they could not decide the question of registration. Hence it directed that the status of the assessee should be taken as that of a firm as it was unable to give any direction as to whether the assessee is to be treated as a registered firm or an unregistered firm.
3. The stand before the Tribunal has been reiterated by the parties before us. Learned counsel for the assessee has submitted that the question as referred to this court for opinion does not arise out of the order of the Tribunal, since the Tribunal had not decided the question whether the assessee was a firm which was entitled to registration. The following observation of the Tribunal has been referred to :
"... Hence, we direct that the status of the assessee should be taken as that of a firm, but we are unable to give any direction as to the question whether the assessee is to be treated as a registered firm or an unregistered firm."
4. Learned counsel for the Revenue, however, submits that the Revenue had asked for reference of the following question and, therefore, we should reframe the question and answer it. Learned counsel for the assessee did not oppose the motion. Accordingly, we reframe the question which spells out the essence of the dispute.
"In the facts and circumstances of the case, whether the Income-tax Appellate Tribunal was justified in coming to the conclusion that the assessee derived income from business so as to be treated as a partnership firm."
5. The first question that falls for determination is whether the conclusion that the assessee derived income from business is sustainable. According to learned counsel for the Revenue, it is not, and he has placed strong reliance on CIT v. Lahore Electric Supply Co. Ltd. [1966] 60 ITR 1 (SC) and Sultan Brothers P. Ltd. v. CIT [1964] 51 ITR 353 (SC).
6. The word "business" is a word of large and indefinite import. It is something which occupies the attention and labour of a person for the purpose of profit. Section 2(13) of the Act defines "business" to include "... any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". When a word is defined to "mean" something, the definition is prima facie restrictive and exhaustive as was indicated by the Supreme Court in the case of Vanguard Fire and General Insurance Co. Ltd. v. Eraser and Ross [I960] 30 Comp Cas (Ins) 13 ; AIR 1960 SC 971. Where, however, the word defined is declared to "include" certain things, the definition is extensive. (See Ardeshir H. Bhiwandiwala v. State of Bombay [1961-62] 20 FJR 113 ; AIR 1962 SC 29), In Smith v. Anderson [1880] 15 Ch. D. 247, 258 (CA), Jessel M.R., after citing definitions of "business" from several dictionaries, said, "anything which occupies the time and attention and labour of a man for the purpose of profit is business." Further on, he remarks (at page 260) : "There are many things which in common colloquial English would not be called a business, even when carried on by a single person, which would be so called when carried on by a number of persons." For instance, a man who is the owner of a house divided into several floors and used for commercial purposes, e.g., offices, would not be said to carry on a business because he let the offices as such. But, suppose a company was formed for the purpose of buying a building, or leasing a house, to be divided into offices and to be let out--should not we say, if that was the object of the company, that the company was carrying on business for the purpose of letting offices ? The same observation may be made as regards a single individual buying or selling land, with this addition, that he may make it a business, and then it is a question of continuity. When you come to an association or company formed for a purpose, you would say at once that it is a business, because there you have that from which you would infer continuity. The word "business" has a more extensive meaning than the word "trade". In Narasingha Kar and Co. v. CIT [1978] 113 ITR 712, this court had occasion to deal with almost a similar controversy. It was held that the income of the assessee in that case from the shops was assessable under Section 28 of the Act as income from business, and since the assessee was carrying on a business, it was entitled to registration. The decisions on which reliance has been placed by learned counsel for the Revenue were also considered by this court in Narasingha Kar's case [1978] 113 ITR 712 (Orissa). The tests indicated in those two cases were applied and conclusions were arrived at. In Karnani Properties Ltd. v. CIT [1971] 82 ITR 547, the apex court has observed that, an activity carried on continuously in an organised manner with a set purpose and with a view to earn profits is "business". Similarly, when the assessee took a plot of land on lease, constructed some structures thereon and let them out to shop-keepers and stall-holders, the apex court construed the activity to be business. (See S. G. Mercantile Corporation P. Ltd. v. CIT [1972] 83 ITR 700 (SC). Keeping in view the decisions of the apex court in Karnani Properties case [1971] 82 ITR 547 and S. G. Mercantile Corporation's case [1972] 83 ITR 700 and also the decision of this court in Narasingha Kar's case [1978] 113 ITR 712 (Orissa), the Tribunal held that the activities carried on by the assessee amounted to business. The conclusion is essentially one of fact, and, in our considered opinion, does not give rise to a question of law. Accordingly, our answer to the refrained question is in the affirmative, in favour of the assessee and against the Revenue.
7. The reference is, accordingly, disposed of. No costs.
D.M. Patnaik, J.
8. I agree.