R. N. MISRA J. - The Income-tax Appellate Tribunal, Cuttack Bench, has stated these cases and referred the following questions under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') for the opinion of the court :
'(1) Whether, on the facts and in the circumstances of the case, and on a proper construction of the agreement, the income earned by the assessee from the shops constructed on the land belonging to the P.M. Academy School was rightly held to be not assessable under section 28 of the Income-tax Act, 1961, as income from business and assessable only under section 56 as income from other sources ?
(2) Whether, on the facts and in the circumstances of the case, the claim of the assessee that it was a partnership firm carrying on business and consequently entitled to registration under section 185 of the act was rightly rejected ?'
The relevant assessment year is 1969-70, corresponding to the previous year ending with March 31, 1969. The assessee made a return of income showing the status as that of a partnership firm and also applied for registration under section 185 of the Act. In support of the claim of registration a deed of partnership dated October 4, 1968, operative with effect from May 1, 1968, was relied upon. Sri Narasingha Kar entered into an agreement with the Headmaster of the P.M. Academy (to the detailed terms of which we shall advert in due course) on April 25, 1968, in terms whereof Narasingha undertook to construct twenty shop rooms on partnership agreement which undertook construction and after the construction was over, let out the shops and collected rents from the tenants in terms of the right conferred on Narasingha under the said agreement.
The Income-tax Officer came to hold that the income in the hands of the assessee was income from house property liable to be assessed in terms of section 22 and not under section 28 or section 56 of the Act as claimed. Therefore, as the assessee was not carrying on any business, there could be no firm as claimed. Accordingly, the income was assessed treating the status of the assessee as an association of persons and the application for registration was rejected.
The assessee filed two appeals - one against the assessment treating the assessee as an association of persons and the other against refusal of registration. The Appellate Assistant Commissioner came to the conclusion that the assessee had been given only permissive possession of the vacant site and, therefore, the income from property raised by the assessee was not chargeable under the head 'Income from property'. Yet he accepted the finding of the Income-tax Officer that the assessee did not carry on any business and, therefore, was not entitled to registration of any firm under section 185 of the Act. He directed that the income in the hands of the assessee be treated as income from other sources.
In second appeal by the assessee, it was claimed that the assessee was carrying on the business of building contractors and the income received by letting out shops arose in the course of such business and, therefore, should have been assessed as income from business under section 28 of the Act. It was further claimed that the firm being a genuine one and all other requisites having been satisfied, registration should have been granted. The Appellate Tribunal came to hold that the agreement dated April 25, 1968, did not create lease of the land in favour of the assessee. Therefore, the assessee was not the owner of the twenty shops. Accordingly, the income could not be taxed under section 22 of the Act. It took the view that there was no evidence to show that the assessee was out to carry on a business venture and came to hold that the outlay of expenditure on the construction of the shops was only to a acquire the leasehold right for a period of twenty years. Therefore, the Tribunal upheld the view of the Appellate Assistant commissioner that the source of income must be taken to be other sources and, therefore, section 56 of the Act was attracted. The Tribunal consequently came to the conclusion that there was no firm entitled to registration under section 185 of the Act.
Counsel for the assessee has claimed that Narasingha was a contractor by occupation. He entered into the arrangement with the Headmaster undertaking the construction of shop rooms as a part of the business activity and entered into the partnership with the intention of facilitating the carrying on of his business. The finding of the Tribunal that the assessee had no intention to carry on any business was not supported by any material on record and the adoption of such a basis has vitiated the entire conclusion. It is next contended that under section 14 of the Act, the heads of income have been provided and income from other sources being the residuary head, unless and until an income does not come under the first five classifications, it cannot be treated to be under the residuary head. According to assessees counsel, the income in this case is squarely business income within the ambit of section 28 of the Act and thus the conclusion of the appellate authorities based upon a non-existent hypothesis of lack of intention is an erroneous conclusion in law.
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 & General Insurance Co. v. Fraser and Ross : 3SCR857 . Where, however, the word defined is declared to include certain things, the definition is extensive. See Ardeshir H. Bhiwandiwala v. State of Bombay (New Maharashtra) : (1961)IILLJ77SC , Sant Ram v. Labh Singh : 7SCR756 . In the case of Dr. P.Vadamalayan v. Commissioner of Income-tax : 74ITR94(Mad) , the Madras High Court has said that the definition being inclusive and not exhaustive is indicative of extension and expansion and not restriction. Jessel M. R. in Smith v. Anderson  15 Ch D 247 pointed out that the word 'business' is a word of large and indefinite import. It is something which occupies attention and labour of a person for the purpose of profit. The word means almost anything which is an occupation or duty requiring attention as distinguished from sports or pleasure and is used in the sense of occupation continuously carried on for the purpose of profit. To the same effect was the test indicated in the case of commissioner of Income-tax v. Shaw Wallace & Co. . The Supreme Court very aptly indicated in the case of commissioner of Income-tax v. Lahore Electric Supply Co. Ltd. : 60ITR1(SC) that 'business' (so far as the Income-tax Act is concerned) is an activity capable of producing a profit which can be taxed. The definition of 'business' in section 2(13) of the Act is similar to the definition of the same word inspection 2(b) of the Indian Partnership Act, 1932. Authorities have interpreted the word 'business' appearing in the Partnership Act in the same strain. Rangnekar J. in the supplementing judgment in the case of commissioner of Income-tax v. National Mutual Life Association of Australasia Ltd. : 1ITR350(Bom) observed :
'The word includes in the interpretation clauses is intended to be enumerative and not exhaustive and it has an extending force and does not limit the meaning of the term.'
Tested on such basis, the activity undertaken by Narasingha under the agreement with the Headmaster was certainly not outside the ambit of business.
It is not the case of the revenue nor does learned standing counsel canvass - and in our view rightly - that Narasingha had entered into the arrangement with the Headmaster for sports and/or pleasure. The activity involved what in the ordinary sense would run as a business activity. It involved outlay of capital, attention and all appropriate elements which go with the concept of 'business'. Learned standing counsel had been fair to state that there is nothing on record to indicate the intention of Narasingha as assumed by the Tribunal. In the absence of anything positive to support such a view, as relied upon by the Tribunal, by normal standards, the activity of Narasingha must be taken to be clearly a 'business undertaking'. The income received from such business, therefore, was business income which came under the purview of section 28 of the Act.
It is now no partys case that the income is to be taxed as income from property. The stand adopted by the Income-tax Officer was dislodged in first appeal. At no time the assessee had contended that the income came within the fold of section 22 of the Act. The Supreme Court in the case of Sultan Brothers P. Ltd. v. Commissioner of Income-tax : 51ITR353(SC) indicated :
'Whether a particular letting is business has to be decided in the circumstances of each case. We do not think that the cases cited lay down a test for deciding when a letting amounts to a business. We think each case has to be looked at from a businessmans point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a think can by its very nature be a commercial asset.'
This appears to be the true test. When the facts of the case in hand are tested this way, we think the only conclusion that can reasonably be reached is that the arrangement envisaged by the agreement between Narasingha and the school was a 'business undertaking'. It is not correct that a vacant site was taken on lease with a stipulation to construct thereupon. The school never intended to lease out a site. On the other hand, the decision of the managing committee of the school was to construct rooms and for that purpose, the agreement had been entered into with Narasingha. Narasingha undertook to complete the construction of twenty rooms according to specifications and plan within one year from the date when he entered possession of the land fully at his cost. The investment made by the contractor was to be received from out of rents to be collected from the shop rooms which were to be tenanted out by Narasingha. The school was to receive a monthly sum of Rs. 1,000 out of the rent as its dues. Within the twenty years, certain period for which the agreement is to last, the contractor has to receive bank his investment with such profits as he could make. There cannot be a second conclusion on these facts except that the agreement envisaged a business arrangement and Narasingha entered into the agreement contemplating a business activity.
Our answer to the first question, therefore, is :
On the facts and in the circumstances of the case and on a proper construction of the agreement, the income earned by the assessee from the shops is assessable under section 22 (sec 28) of the Act and not under section 56 thereof on the footing that it was income from other sources.
Registration was refused as would appear from paragraph 22 of the judgment of the Tribunal that there being no business, there could not be a valid partnership entitled to registration under the Act. There can be a partnership only if some business is carried on. The existence of a business is thus the sine qua non of partnership. See Viswanathan v. Namakchand AIR 1955 Mad 536. The taxing authorities were of the view that the under-taking in this case was not a business. Therefore, they had turned down the claim for registration. As no other defect has been pointed out and in view of our conclusion that the undertaking in question was a business, the claim for registration is bound to succeed.
Both the questions are, therefore, answered in favour of the assessee. The assessee shall be entitled to costs of the references which we assess at rupees two hundred.
DAS J. - I agree.