Punjab & Haryana H.C : The petitioner had shown the rental income from warehouse business in pursuance of the partnership deed and had claimed deduction of salary and interest paid to the partners

High Court Of Punjab & Haryana

Aditya & Company vs. CIT & Anr.

Sections 28(i), 56, 147, 148

Asst. Year 2002-03, 2003-04

G.S. Singhvi & Ajay Kumar Mittal, JJ.

Civil Writ Petn. Nos. 15512 & 15516 of 2004

1st October, 2004

Counsel Appeared

P.C. Jain, for the Petitioner


By the court :

This order shall dispose of CWP Nos. 15512 of 2004 and 15516 of 2004, as they involve similar facts relating to asst. yrs. 2002-03 and 2003-04.

For the sake of reference, the facts have been taken out from CWP No. 15512 of 2004. In this petition under Art. 226/227 of the Constitution of India, the petitioner has sought to challenge the proceedings initiated under s. 148 of the IT Act, 1961 (for short, ‘the Act’) and has sought quashing of Annex. P-2 and the order passed on objections (Annex. P-1).

The petitioner had filed the return for the asst. yr. 2003-04 in the status of a firm and an intimation under s. 143(1) of the Act for giving refund of Rs. 2,00,450 was issued. The petitioner had shown the rental income from warehouse business in pursuance of the partnership deed and had claimed deduction of salary and interest paid to the partners. The AO had issued a notice under s. 148 of the Act (Annex. P-2) on the premise that the said income does not fall within the ambit of ‘business income’ and shall be income from other sources and, therefore, income chargeable to tax has escaped assessment. Accordingly, the petitioner was issued a notice by the AO, to which objections were filed by the assessee. The AO vide order dt. 10th Sept., 2004 (Annex. P-1) had rejected the said objections on the ground that letting out of plinth to Government agencies could not be termed as business income and the rental income would be assessable as income from other sources.

Learned counsel for the petitioner on the strength of precedent reported in Narsingha Kar & Co. vs. CIT 1976 CTR (Ori) 403 : (1978) 113 ITR 712 (Ori) and CIT vs. Cossipore Properties (1977) 107 ITR 965 (Cal) submitted that letting out of plinth would constitute business income and not income from other sources. Shri Jain, learned counsel for the petitioner next submitted that in the present case, the AO has initiated reassessment proceedings on mere change of opinion and the same is bad in law as held in Wyeth (India) (P) Ltd. vs. N.D. Bhatt, IAC & Anr. (1982) 26 CTR (Bom) 269 : (1982) 137 ITR 20 (Bom). The last submission of the learned counsel for the petitioner was that in view of CIT vs. D.C. Basappa by LRs (2001) 169 CTR (Kar) 499 : (2001) 251 ITR 673 (Kar), the AO cannot take recourse to the proceedings under s. 148 of the Act, for changing the status of an assessee.

We have considered the submissions of the learned counsel, but have not felt impressed. The AO in the reasons recorded and also while rejecting the objections of the petitioner, noticed as under : “It was clearly mentioned that s. 4 of the Indian Partnership Act, 1932 defined partnership as relationship between the persons who have agreed to share the profits of business carried on by all or any of them acting for all meaning thereby that a firm could be formed if it derived income from business or profession only and if the income derived is not from business, no partnership existed and consequently the said concern was not entitled to the status of ‘firm’. By simply mentioning the words ‘business’ in the partnership deed executed on 1st April, 2001 does not mean that it is mandatory for the Department to assess the income under the head “Income from business or profession”. Accordingly, your objections in this regard cannot be accepted.” In Narasingha Kar & Co.’s case (supra), a Division Bench of Orissa High Court after considering the facts and circumstances of the case and on a proper construction of the agreement came to the conclusion that the income earned by the assessee from the shops was assessable under s. 28 of the Act and not under s. 56 thereof. Again in Cossipore Properties’ case (supra), it was on the facts of that particular case that it was observed as under : “In our opinion, there was sufficient material before the Tribunal to conclude that the activities carried on by the assessee were business activities.”

From what has been noticed above, it would thus be abundantly clear that it is on the basis of facts of each case that it has to be decided whether a particular income falls under the heads “Business income” or the “Income from other sources”. In the present case, we do not find any error in the approach of the AO in initiating proceedings under s. 148 of the Act against the petitioner and accordingly issuing notice Annex. P-2 and passing order Annex. P-1 on the objections filed by the petitioner and the same cannot be said to be without jurisdiction. Now adverting to the next limb of the arguments of the learned counsel for the petitioner, in Wyeth (India) (P) Ltd.’s case (supra), the income received by the assessee towards the rent or the compensation was treated as an income from “other sources” by the AO. The assessee had produced the entire relevant material to the AO and the assessment was completed after perusing the material. It was on that premises the reopening was held to be bad as the AO on mere change of opinion had sought to initiate reassessment proceedings. In the present case, the assessee was only sent an intimation under s. 143(1)(a) of the Act and the question of examination of the material by the AO did not arise at that stage. Thus, there is no question of change of opinion in the present case. Similarly, D.C. Basappa & Ors. (supra) was a case where an order under s. 171 of the Act had been made and the Revenue in the proceedings under s. 147 of the Act purporting to reopen the assessment on the ground of loss of revenue wanted to get over an order already in existence under s. 171 and it was in those facts, it was held that the AO cannot convert the proceedings under s. 147 to pass a different order under s. 171 of the Act. That is not the situation in the present case. Thus, the cases cited by the counsel for the petitioner are not applicable to the facts and circumstances of the present case.

Accordingly, we find no merit in both the petitions and the same are hereby dismissed.

[Citation : 279 ITR 47]

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