TMI Blog1987 (3) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case, the Tribunal is correct in law in holding that an appeal lies to the Appellate Assistant Commissioner against the charging of interest by the Income-tax Officer under section 139(8) ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the sum of Rs. 8,411 spent by the assessee on tea, coffee, refreshments, etc., served to the customers visiting the assessee's business premises is not of the character of entertainment expenditure and in treating the same as an allowable business expenditure ?" The reference relates to the relevant assessment year 1974-75. The assessee, A. P. Small Scale Industrial Development Corporation Limited, is State Government undertaking. It was registered under the Companies Act, 1956, on March 1, 1961. The objects of the assessee are set out in clause 3 of the memorandum of association. The objects include, inter alia, aiding, counselling, assisting, financing and protecting and promoting the interests of small scale industries in the State ; to enter into contracts with the Government of India and the State Government and Corporations for fabrication, manufacture, assembly and supply of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd established the Craftsmen's Guild at Mallepally, Hyderabad. The main sources of income for the assessee were: (i) Interest on loans given to entrepreneurs. (ii) Profit from supply of raw material to entrepreneurs at its raw material servicing centres at various places. (iii) Income from its own production units, and (iv) Income from certain Government production units handed over to it for management. For the year under consideration, the assessee filed a revised return disclosing under the head "Business" a total income of Rs. 21,48,960. This was inclusive of : (i) Rs. 48,000 being the receipt from the Andhra Bank for the building constructed in phase one of Balanagar Industrial Estate, (ii) Rs. 4,952 being the receipt from the technocrats to whom the unelectrified sheds built in phase two of the estate were let out, and (iii) Rs. 97,453 being the receipt from the Craftsmen of the Guild at Mallepally. The Income-tax Officer held that the aforesaid three receipts aggregating to Rs. 1,07,300 were assessable under the head "Property income" but not under the head "Business income". In making the assessment under the head "Income from property", the Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing the decision of this court in Addl. CIT v. Maddi Venkataratnam [1979] 119 ITR 514, held that the expenditure was not of the nature of entertainment expenditure, but was business expenditure. On the question whether the receipt of Rs. 1,07,300 was income from property or a trading receipt, the Tribunal, after examining the nature of the activities carried on by the assessee and the recitals in clause 3 of the memorandum of association, held that the assessee was rendering services to craftsmen to whom the sheds were let out in order to help them pursue their crafts. The services rendered by the assessee to the craftsmen or the result of their activities carried on continuously in an organised manner was with a view to earning profits. In that view, the Tribunal held that those activities were business activities and that the income derived therefrom, therefore, assessable under section 28 of the Act. The Tribunal relied on two decisions of the Supreme Court in CIT v. National Storage Pvt. Ltd. 1967] 66 ITR 596 and Karnani Properties Ltd. v. CIT [1971] 82 ITR 547. So far as question No. (3) is concerned, which relates to the expenditure incurred on refreshments served by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... motes small scale industries in this State is set out in clause 3 of the memorandum of objects. By clause 3, the assessee is enjoined, inter alia, to establish, promote, subsidise and otherwise assist any company or companies, syndicates or other concerns for the purpose of setting up an industry and to promote and operate schemes for development of small scale industries. It has an obligation to aid, counsel, assist, finance, protect and promote the interests of small scale industries. As part of the obligations cast upon it by clause 3 of the memorandum of objects, it had undertaken the schemes both at Balanagar and Mallepally. Out of the total income of Rs. 21 lakhs returned by the assessee, during the relevant assessment year, only Rs. 1,07,300 pertains to receipts from the above two industrial estates. The contention of the Revenue is that they are mere receipts from house properties and, therefore, they should be brought to tax only as income from house property but not as trading receipts. It is difficult to agree with this contention. As rightly found by the Tribunal, the scheme envisages construction of sheds by the assessee and the space therein was hired out with all inf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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