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2004 Supreme(P&H) 1118
PUNJAB & HARYANA HIGH COURT
G.S.Singhvi and Ajay K.Mittal JJ.
Aditya And Company
Versus
Commissioner Of Income Tax
Civil Writ Petition No. 15512 of 2004,
Decided On : OCTOBER 1, 2004
Validity of proceedings under Section 148 of the Income-tax Act and classification of income as business income or income from other sources.
Headnote:
Income-tax Act - Assessment of Business Income - Section 148 - C.W.P. Nos. 15512 of 2004 and 15516 of 2004 - Section 143(1), Section 148, Section 4 of the Indian Partnership Act, 1932, Section 28, Section 56 - The court discussed the assessment of business income under Section 148 of the Income-tax Act, 1961, and the interpretation of partnership deed in relation to income from business or profession. The court referred to precedents to determine the classification of income as business income or income from other sources. The court held that the assessing officer's initiation of proceedings under Section 148 and the subsequent order on objections were valid and not without jurisdiction.
Fact of the Case:
The petitioner challenged the proceedings initiated under Section 148 of the Income-tax Act, 1961 and sought quashing of the order passed on objections. The assessing officer had issued a notice under Section 148 on the premise that the income does not fall within the ambit of Business Income and should be income from other sources.
Finding of the Court:
The court found that the assessing officer's initiation of proceedings under Section 148 and the subsequent order on objections were valid and not without jurisdiction.
Issues: Challenge to proceedings under Section 148, classification of income as business income or income from other sources.
Ratio Decidendi: The court held that the assessing officer's initiation of proceedings under Section 148 and the subsequent order on objections were valid and not without jurisdiction.
Final Decision: Both the petitions were dismissed.
Ajay Kumar Mittal, J.
1. This order shall dispose of C.W.P. Nos. 15512 of 2004 and 15516 of 2004, as they involve similar facts relating to assessment years 2002-2003 and 2003-2004.
2. For the sake of reference, the facts have been taken out from C.W.P. No. 15512 of 2004.
3. In this petition under Article 226/227 of the Constitution of India, the petitioner has sought to challenge the proceedings initiated under Section 148 of the Income-tax Act, 1961 (for short, the Act) and has sought quashing of Annexure P2 and the order passed on objections (Annexure P1).
4. The petitioner had filed the return for the assessment year 2003-2004 in the status of a firm and an intimation under Section 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 Assessing Officer had issued a notice under Section 148 of the Act (Annexure P2) 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 Assessing Officer, to which objections were filed by the assessee. The Assessing Officer vide order dated 10.9.2004 (Annexure P1) 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.
5. Learned counsel for the petitioner on the strength of precedent reported in Narsingha Kar & Co. v. Commissioner of Income-Tax, Orissa, (1978)113 I.T.R. 712 and Commissioner of Income-tax, West Bengal v. Cossipore Properties, (1997)107 I.T.R. 965 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 assessing officer has initiated reassessment proceedings on mere change of opinion and the same is bad in law as held in Wyeth (India) Pvt. Ltd. v. N.D.Bhatt, Inspecting Assistant Commissioner of Income-tax and Anr., (1982)127 I.T.R. 20. The last submission of the learned counsel for the petitioner was that in view of Commissioner of Income-tax v. D.C.Basappa and Ors. (2001) 251 I.T.R. 673, the assessing officer cannot take recourse to the proceedings under Section 148 of the Act, for changing the status of an assessee.
6. We have considered the submissions of the learned counsel, but have not felt impressed. The Assessing Officer in the reasons recorded and also while rejecting the objections of the petitioner, noticed as under: "It was clearly mentioned that Section 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 1.4.2001 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."
7. In Narasingha Kar & Co. 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 Section 28 of the Act and not under Section 56 thereof. Again in Cossipore Propertiess case (supra), it was on the facts of that particular case that it was observed as un
