1991 (8) TMI 116 - AT - Income Tax

Summary

Issues:
1. Grant of registration to the assessee-firm
2. Assessment of income under the head "profits and gains of business" or "income from house property"

Analysis:

Issue 1: Grant of registration to the assessee-firm
The appeal by the department was against the order directing the ITO to grant registration to the assessee-firm. The firm was formed to purchase land, construct buildings, and give them on rent. The AAC accepted that the firm was carrying on business activities and deserved registration. The department challenged this decision. However, it was noted that a partner of the firm had been assessed prior to the assessment of the firm. Refusal of registration in such a case would lead to double taxation. Citing relevant case law and CBDT Circular, it was concluded that the firm was entitled to registration for the assessment year. The nature of the firm's activity qualified as a business activity, justifying the grant of registration. Therefore, the AAC's decision to direct the ITO to grant registration was upheld.

Issue 2: Assessment of income under different heads
The income derived from renting out godowns was assessed under the head "income from house property" by the ITO, not as "profits and gains of business" as claimed by the assessee. Various cases were cited to support this assessment. It was established that income from renting out property, even if derived in the course of business activities, falls under the head "income from house property." The Supreme Court's decision in CIT v. Cocanada Radhaswami Bank Ltd. was discussed to clarify the treatment of income under different heads. The ITO's assessment under the correct head was deemed justified, and the AAC's decision was set aside. The appeal was partly allowed, affirming the assessment under the head "income from house property."

In conclusion, the judgment addressed the grant of registration to the assessee-firm and the correct assessment of income under the relevant heads, ensuring compliance with legal provisions and precedents.