NAUHARCHAND CHANANRAM Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Delhi Bench "a", has referred the following quetsion of law for our opinion : "whether the Tribunal misdirected themselves in law in coming to the finding that no business was carried on and therefore there was no partnership in law entitled to registration under Section 26 of the Income-tax Act ?"

(2.) THE assessee entered into a deed of partnership on the 20th day of April, 1957. In all there were 10 partners. These ten partners emanated from two families known as Nauharchand Chananram and Bishanmal Reluram. The dispute relates to the assessment year 1960-61 and arose on the application of the assessees for the renewal of the registration of the firm under Section 26a of the Income-tax Act, hereinafter referred to as the Act In the deed of partnership, in Clause (3), it is clearly stated : "that the business of the firm is and shall be that of running the cotton ginning and pressing factory at Mansa, either by himself or by giving on lease and other allied trades and on such other lines as the partners may desire to take up from time to time. "

(3.) THE deed also contained the usual partnership Clause and it is not necessary to refer to them. The shares of the partners were specified in the deed. The Income-tax Officer, B-Ward, Bhatinda, rejected the application on the ground that there was no partnership under the agreement dated the 20th April, 1957, and none ever came into existence. The assessees preferred an appeal to the Appellate Assistant Commissioner against the decision of the Income-tax Ocffier. The Appellate Assistant Commissioner revessed the decision of the Income-tax Officer and held that: "it cannot be said that the factory in question is not a commercial asset. Further the fact that it has been let out to others and not used by the appellant itself does not mean that no business activity for the purposes of profit is being carried on by the appellant. Furthermore, there is no bar in the Partnership Act to the constitution of the firm in such cases. . . . All the other requirements of law for the purpose of registration of the firm under Section 26a have been duly complied with. There is no bar, legal or otherwise, to grant of registration. "