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Commissioner of Income-tax, Hyderabad Vs. Venkateswara Talkies - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberReferred Case No. 36 of 1979
Judge
Reported in(1985)46CTR(AP)250; [1985]155ITR73(AP)
ActsIncome Tax Act, 1961 - Sections 28, 143(3) and 185
AppellantCommissioner of Income-tax, Hyderabad
RespondentVenkateswara Talkies
Appellant AdvocateM.S.N. Murthy, Adv.
Respondent AdvocateM.J. Swamy, Adv.
Excerpt:
.....theatre for short period up to august 1971 - no material to show that assessee intended to stop carrying on business and converted commercial asset into capital asset - assessee carried on business even after lease of theatre for temporary period - held, lease income derived by assessee assessable under head business. - - the order refusing registration as well as the computation of total income were part of one common order passed by the ito. against the assessment as well as the refusal to register the partnership firm, an appeal was filed before the aac, who confirmed the order of the ito and dismissed the appeals. 143(3). the assessee accordingly filed an appeal against that order taking objection to the computation of total income as well as the refusal to grant..........1961. the ito rejected the claim for registration on the ground that the income derived by the assessee-firm from the lease of the cinema theatre was income under the head 'other sources' inasmuch as the assessee could not be considered to be carrying on any business while the theatre was leased out. in the view that the assessee had not been carrying on any business, the claim for registration was rejected and the assessment was made in the status of an 'association of persons'. it also appears that in the assessment a sum of rs. 7,400 was added while computing the total income. the order refusing registration as well as the computation of total income were part of one common order passed by the ito. the question regarding registration was dealt with by the ito under the head.....
Judgment:

Anjaneyulu, J.

1. The following questions of law are referred to this court by the Income-tax Appellate Tribunal under s. 256(1) of the I.T. Act, 1961.

'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that a common appeal could validly be filed by the assessee against the Income-tax Officer's separate order on registration and assessment

2. Whether, on the facts and in the circumstances of the case, the assessee did any business during the period relevant to the assessment year 1969-70

3. Whether, on the facts and in the circumstances of the case, the assessee was entitled to registration under section 185 of the Income-tax Act, 1961 ?'

2. For the assessment year 1969-70, the assessee filed a return declaring the income derived by it from the lease of a cinema theatre known as 'Venkateswara Talkies'. The assessee claimed that it is a partnership firm evidenced by a deed of partnership entitled to registration under s. 185 of the I.T. Act, 1961. The ITO rejected the claim for registration on the ground that the income derived by the assessee-firm from the lease of the cinema theatre was income under the head 'Other sources' inasmuch as the assessee could not be considered to be carrying on any business while the theatre was leased out. In the view that the assessee had not been carrying on any business, the claim for registration was rejected and the assessment was made in the status of an 'association of persons'. It also appears that in the assessment a sum of Rs. 7,400 was added while computing the total income. The order refusing registration as well as the computation of total income were part of one common order passed by the ITO. The question regarding registration was dealt with by the ITO under the head 'Status' and the computation of total income was dealt with under the head 'Other sources' and the order was shown to have been passed under s. 143(3) of the I.T. Act. Against the assessment as well as the refusal to register the partnership firm, an appeal was filed before the AAC, who confirmed the order of the ITO and dismissed the appeals. The assessee carried the matter in second appeal to the Tribunal. Before the Tribunal, the assessee gave up the question regarding the addition of Rs. 7,400 made in the computation of total income and pursued its appeal only in connection with the refusal to grant registration to the partnership firm. The Tribunal found that the assessee-firm had been carrying on business in the exhibition of films till April, 1969, and the lease of the cinema theatre till August, 1971, did not indicate that the assessee abandoned the idea of carrying on business. On these facts, the Tribunal came to the conclusion that the asset, namely, the cinema theatre, continued to be a commercial asset producing income assessable under the head 'Business'. In that view of the matter, the Tribunal accepted the assessee's contention that the income derived by the lease of the cinema theatre is assessable under the head 'Business' under s. 28 of the I.T. Act. Once the question regarding the assessability of the income under the head 'Business' is resolved in favour of the assessee, objection regarding the grant of registration did not survive, because the ITO refused to grant registration to the firm on the ground that it has not been carrying on any business. In the view taken by the Tribunal that the assessee-firm must be considered to be carrying on business, the claim for registration of the partnership firm was allowed. Aggrieved by the order of the Tribunal, the Commissioner asked for and obtained a reference under s. 256(1) and the three questions mentioned above are referred by the Tribunal.

3.Taking up the first question referred, we find no error in the assessee filing one single appeal against a common order. It is not in dispute that the ITO has himself passed one single order purporting to be under s. 143(3). The assessee accordingly filed an appeal against that order taking objection to the computation of total income as well as the refusal to grant registration. It is, however, not necessary to consider this question in any detail because when the matter finally reached the Tribunal, the assessee gave up his contention regarding the addition of Rs. 7,400 to the income returned and pursued his appeal only in regard to the refusal to grant registration to the assessee-firm. The Tribunal was, therefore, right in holding that there was only one appeal filed by the assessee and that appeal was against the refusal to grant registration. We are unable to accept the Revenue's contention that the assessee was not entitled to urge the ground relating to refusal of registration in the appeal filed before the Tribunal after withdrawing the contention regarding the addition of Rs. 7,400. We accordingly answer the first question referred to us in the affirmative, that is, in favour of the assessee and against the Department.

4. Question No. 2 has also to be answered in favour of the assessee in view of the findings of fact by the Tribunal. The Tribunal found that the assessee has been carrying on business till April, 1969, and leased out the theatre for a short period up to August, 1971. There is no material on the basis of which it could be said that the assessee intended to stop carrying on the business and converted the commercial asset into a capital asset. On the facts, the Tribunal came to the conclusion, and rightly so in our opinion, that the assessee must be held to be carrying on business even after the lease of the theatre for a temporary period from April, 1969. The lease income derived by the assessee, was, therefore, rightly assessable under the head 'Business'. We, therefore, answer question No. 2 referred to us in the affirmative, that is, in favour of the assessee and against the Revenue.

5. Question No. 3 is consequential to the finding on question No. 2. Once it is held that the assessee has been carrying on business, the assessee was perfectly justified in claiming registration under s. 185 of the I.T. Act. The claim for registration was not refused on any ground other than that the assessee had not been carrying on business. If the finding that the assessee has been carrying on business is upheld, it follows automatically that the assessee-firm is bound to be registered under s. 185 of the I.T. Act, provided the application for registration filed by the assessee is otherwise in order and is in conformity with the Rules. The Tribunal did not commit any error in giving a direction to the ITO to scrutinise the application for registration filed by the assessee and to grant registration if it is otherwise in order. We, therefore, answer the third question referred in the affirmative, that is, in favour of the assessee and against the Revenue.

6. In the result, all the three questions referred to us are answered in favour of the assessee and against the Revenue. No costs.


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