Patna H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee, M/s Central Alkusa Colliery Company, Kusunda, was carrying on business through the managing contractor and the income received from the managing contractor was business income and so the assessee-firm was genuine and was entitled to registration for the asst. yr. 1969-70 ?

Counsel Appeared

B. P. Rajgarhia & S. K. Sharan, for the Revenue : None appeared, for the Assessee

BY THE COURT

This is a reference under s. 256(1) of the IT Act, 1961 (hereinafter to be referred to as “the Act”). The question referred to us for our opinion is as follows:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee, M/s Central Alkusa Colliery Company, Kusunda, was carrying on business through the managing contractor and the income received from the managing contractor was business income and so the assessee-firm was genuine and was entitled to registration for the asst. yr. 1969-70 ? “

The relevant assessment year is 1969-70. The question referred to us is concluded by the decision of a Full Bench of this Court in the case of CIT vs. S. K. Sahana & Sons Limited (T. C. Nos. 249 to 251 of 1976 disposed of on 12th May, 1987—(1988) 169 ITR 617 (Pat)). In order to show that it is completely covered by that decision, some facts need be stated.

The assessee is a partnership firm. It owned a colliery, namely, Central Alkusa Colliery Company. For the asst. yr. 1968-69, the assessee filed two returns, one for the period ending 30th June, 1968, as unregistered firm and another for the period 1st July, 1968, to 21st Oct., 1968, as registered firm. For the asst. yr. 1968-69, the firm was assessed as an unregistered firm. That continued up to 30th June, 1968. On 5th July, 1968, a partnership deed was drawn up. Thereafter, an application for registration was filed on 4th Oct., 1968. The ITO disallowed the claim for registration and treated the firm as an unregistered firm for the relevant accounting year. The assessee, being aggrieved by the rejection of its status as registered firm, appealed to the AAC. The AAC found that for the asst. yr. 1970-71, the ITO had accepted the claim of registration. The AAC, on appeal, confirmed the order of the ITO and rejected the claim for being treated as a registered firm. The Tribunal, however, on appeal by the assessee, held that the assessee was entitled to registration as there was a genuine partnership deed. The stand of the Revenue before the Tribunal was that since the assessee was not carrying on business of coal mining, the income received as royalty from the managing contractor could not be said to be income from business but it should be treated as income from other sources. The Tribunal did not accept the stand of the Revenue. It held that although the managing contractor was doing business of coal mining, yet the income in the form of royalty and minimum guarantee received from the managing contractor was income from business. It, therefore, held that the assessee was entitled to be assessed as a registered firm. Being aggrieved by the order of the Tribunal, the Revenue claimed reference under s. 256(1) of the Act.

The core question in this case is whether the income of the assessee in the shape of minimum guarantee and royalty received by the assessee from the managing contractor was income from business or not. That was the central point for the simple reason that unless there is a business, there cannot be a partnership. It is well known that a partnership is an association of persons to carry on business and, therefore, if that body or association does not carry on business, it cannot claim registration. The agreement between the assessee and the managing contractor is not on record but the Tribunal has quoted some salient aspects of the agreement of the managing contractor. The matter was considered by the Tribunal in paragraph 10 of its order. In paragraph 11, the Tribunal has mentioned that the business of the assessee-firm was entrusted to the managing contractor by an agreement dt. 1st Aug., 1968. By this agreement, the managing contractor was appointed w.e.f. 1st Aug., 1968, for winning, getting and raising coal and for manufacturing hard and soft coke from and at the said colliery known as Gondudih Colliery. The managing contractor agreement was put in force for a period of 15 years from 1st June, 1968, renewable for a further period of five years at the option of the managing contractor. The managing contractor was put in full charge of, and control over, the mines, etc. Clause 4 of the agreement laid down that the managing contractor would carry on all works and business of the said Gondudih Colliery in its existing name and style. Clause 15 of the agreement laid down that during the subsistence of the agreement, the owners or any person on their behalf would not, in any way, interfere with the working of the colliery by the managing contractor. These terms clearly show that the assessee had leased out the business of running the colliery completely to the lessee. The assessee thus was not running the business of the colliery. The royalty or minimum guarantee amount was not the income of the assessee from business. Since the income was not from business, the firm was not entitled to be registered. Therefore, we are of the view that the Tribunal was not justified in holding that the assessee, M/s Central Alkusa Colliery Company, was carrying on business through the managing contractor nor could it be held that the income of the assessee was income from business. The Tribunal was not right in holding that the assessee was entitled to registration for the year 1968.

The question referred to us is thus answered in the negative, in favour of the Revenue and against the assessee. However, in the circumstances of the case, there will be no order as to costs.

Let a copy of this judgment be transmitted to the Asstt. Registrar, Tribunal, Patna, in terms of s. 260 of the Act.

[Citation : 170 ITR 178]