B. Sudershan Reddy, J.
1. The Income-tax Appellate Tribunal, Hyderabad Bench 'A', referred the following two questions for our opinion :
'1. Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in holding that there was a valid partnership in law and consequently the assessee was entitled to registration and continuation of registration for the assessment years 1979-80 and 1980-81, respectively
2. Whether, on the facts and in the circumstances of the case and in law, the Appellate Tribunal was justified in holding that the letting out the godown would amount to carrying on of business within the meaning of the Partnership Act disregarding the decision of the Andhra Pradesh High Court in R.C. No. 118 of 1980, dated November 29, 1984, in the case of CIT v. Phabiomal and Sons : [1986]158ITR773(AP) ?'
2. The Commissioner of Income-tax, Visakhapatnam, vide his order dated March 20, 1984, took the view that the income derived from letting out of the house property by the assessee consisting of godowns constructed for the benefit of the Food Corporation of India is assessable as income from property and not as income from the business. The Commissioner accordingly revised the order of the Assessing Officer for the assessment years 1979-80 and 1980-81. The Commissioner accordingly held that the assessee is not entitled to registration for the assessment year 1979-80 and continuation of registration for the assessment year 1980-81. The Commissioner took such a view after holding that the activity of letting out the godowns to the Food Corporation of India by the assessee cannot be treated as a business activity. Accordingly, directions were issued to take the status of the assessee as an association of persons for the relevant assessment years 1979-80 and 1980-81.
3. Consequent to the said orders, the assessing authority passed an order for 1979-80, which was upheld in the appeal by the Appellate Assistant Commissioner. For the assessment year 1981-82, the Income-tax Officer assessed the rental income as income from the house property and the same was also upheld by the Commissioner of Income-tax (Appeals). As against the said order of the Commissioner of Income-tax (Appeals) for 1981-82 and that of the Appellate Assistant Commissioner for 1979-80, the assessee preferred I.T.A. Nos. 454 and 455 of 1984 and I.T.A. Nos. 1527 and 120 of 1985. Thus the dispute relates to the assessment years 1979-80, 1980-81 and 1981-82.
4. It was mainly contended before the appellate authority that the income derived by the assessee from the godowns let out to the Food Corporation of India is assessable as income from business and the assessee is, therefore, entitled for registration and continuation of registration as this activity of construction of godowns and letting them out to the Food Corporation of India amounts to business activity.
5. On behalf of the Department, an attempt was made to support the orders of the Commissioner of Income-tax.
6. The Income-tax Appellate Tribunal after an elaborate consideration of the matter upheld the order of the Commissioner of Income-tax (Appeals) for the assessment year 1981-82 that the income derived from letting out the godowns is assessable as income from property.
7. In so far as the letting out the godowns to the Food Corporation of India is concerned, the Tribunal took the view that the same would amount to exploiting the commercial asset and it tantamounts to carrying on of a business within the meaning of the Partnership Act. Having said so, the Tribunal held that the assessee is entitled to registration for 1979-80 and continuation of registration for 1980-81.
8. At the request of the Revenue, the questions referred to hereinabove are referred for our opinion.
9. Sri S.R. Ashok, learned senior counsel appearing for the Income-tax Department, submits that the question that falls for consideration is not res integra, but squarely covered by the decisions rendered by this court in CIT v. Phabiomal and Sons : [1986]158ITR773(AP) and CIT v. Veerabhadra Industries : [1999]240ITR5(AP) .
10. We need not elaborately refer to the principle and ratio laid down in Phabiomal and Sons : [1986]158ITR773(AP) , since the same is approvingly referred to in the subsequent judgment in Veerabhadra Industries : [1999]240ITR5(AP) . This court, after an elaborate consideration of the matter, while considering the question as to whether the assessees therein are entitled for registration under Section 185(1)(a) of the Income-tax Act, 1961 (for short 'the Act'), observed that 'the expression 'business' contemplates continuous activity from year to year'. The court in the said judgment observed that 'there is no evidence that the assessee is continuing the activity of constructing godowns and letting them out from year to year. In such a situation, the income from simple letting out of the godown cannot be treated as business income for the purpose of the Income-tax Act. When once it is not business income the question of availing of benefit under Section 185(1)(a) of the Act does not arise.' The court accordingly took the view that 'the income thus derived has to be assessed as income from the property in accordance with Sections 22 - 27 of the Income-tax Act'.
11. Sri Lakshmana Sarma, learned counsel appearing on behalf of the assessee, however, submits that the assessee has entered into a partnership agreement with the Food Corporation of India for construction of godowns, which is nothing but a commercial activity. Sri Sarma made an attempt to distinguish the judgment of this court in Veerabhadra Industries : [1999]240ITR5(AP) by relying upon the observation of this court made in the said judgment that 'there is no material that he has constructed a godown in this year'. According to learned counsel for the assessee, the construction activity in the instant case went on for a period of three continuous years and it was not completed in that particular year, in which the construction activity had commenced. It is thus contended that the income derived by the assessee is the income out of the business of letting out the godowns. According to learned counsel, the assessee is entitled for registration under Section 185(1)(a) of the Act.
12. We are unable to agree with the submissions made by learned counsel for the assessee. This court in clear and categorical terms held that the expression 'business' contemplates continuous activity from year to year. It is not the case of the assessee that it is in the business of construction of godowns and letting them out from year to year either to the Food Corporation of India or to any other interested person or persons, as the case may be. Therefore, on the basis of the evidence that is made available, it is not possible to hold that the assessee is continuing the activity of construction of godowns and letting them out from year to year.
13. With regard to the question as to what income amounts to income from the business, this court in CIT v. A.P. Small Scale Industrial Development Corporation : [1989]175ITR352(AP) observed that 'what is required to be seen in each and every case is the primary object of the assessee that is sought to be achieved by entering into an agreement with the other'. This court noticed that the primary object of the assessee therein is to promote small-scale industries in the State. The assessee therein was enjoined 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. In the process of discharge of those obligations cast upon the assessee under the memorandum of objections, the assessee therein 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 two industrial estates. Under those circumstances, the contention of the Revenue 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 has been rejected. This court took the view that the scheme envisaged construction of sheds by the assessee and the space therein was hired out with all infrastructural facilities like power and water to the craftsmen--entrepreneurs to engage themselves in the crafts in which they are trained.
14. This court accordingly, upheld the view taken by the Tribunal that the whole of the operations undertaken by the assessee therein involved in each letting of the property is akin to the nature of business or trading operation.
15. In the instant case, there is no such evidence available on record to suggest that the assessee had undertaken any such systematic business activity of construction of godowns and letting them out as business property.
16. In the circumstances, we are of the considered opinion that the Assessing Officer rightly assessed the income derived by the assessee as that of the income from the property and not of business. We are of the opinion that the assessee is not entitled for any registration and continuation of the same in terms of Section 185(1)(a) of the Act.
17. The questions referred are accordingly answered in favour of the Revenue and against the assessee. No order as to costs.