1. The Income-tax Appellate Tribunal, Amritsar Bench, Amritsar, has referred the following question of law to us for our opinion :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the orders dated March 12, 1975, and July 25, 1975, for the assessment years 1972-73 and 1973-74 respectively passed by the Commissioner of Income-tax under Section 263 of the Income-tax Act, 1961 ?'
2. The assessee-firm was carrying on business in the manufacture of machinery parts and was also dealing in hand-tools. Before the commencement of the accounting period relevant to the assessment year 1972-73, the assessee closed its manufacturing and trading activities and leased out the factory premises to the State Warehousing Corporation and received the following amounts by way of rent :
Assessment yearAmount returnedRs.1972-7350,7621973-7475,470
3. The ITO allowed registration to the firm for both the assessment years in question and completed the assessment on the basis that the firm had the status of a registered firm.
4. The Commissioner of Income-tax examined the records and found that since no business activity was being carried on by the assessee during the relevant accounting periods, the firm could not be treated as a registered firm. He accordingly issued notices under Section 263 of the I.T. Act, 1961, to the assessee requiring it to show cause why the order passed by the ITO be not cancelled as being erroneous and prejudicial to the interests of the Revenue. In response to the show-cause notices, the assessee contended that the letting out of the property constituted business activity on its part and hence it was wrong on his part to assume that the assessee had stopped business. The Commissioner did not accept this contention raised by the assessee and cancelled the orders passed by the ITO granting to the assessee the status of a registered firm for the relevant assessment years.
5. The assessee went up in appeal before the Income-tax Appellate Tribunal, who agreed with the view taken by the Commissioner. At the instance of the assessee, the aforementioned question of law was referred to us by the Income-tax Appellate Tribunal.
6. We have heard the learned counsel for the parties. Mr. Sodhi, learned counsel for the assessee, has brought to our notice an earlier Division Bench judgment of this court in Dal Chand & Sons v. CIT . Speaking for the Bench, Chief Justice, Mehar Singh observed as under (p. 253) :
''A business may be done in a number of ways and one of the ways is to run a commercial asset as such and another way may be that thecommercial asset, at a particular time, is found to be more responsive to profit if allowed to be run as such by another as lessee. In either case the owner of the factory carried on the business of earning profits and gains from such an asset....
So long as a business asset is exploited as such and profits or gains are earned from it, the same are profits and gains of a business, however the owner of the commercial asset exploits the same. So when it is said whether he carried on the business himself or not that only means whether he carried on a business activity which may have led to his earning profits or making gains. Once profits or gains are made from the use of the commercial asset itself, then the further detail whether the owner ran the commercial asset himself or it had been run by another person as a lessee for him makes not the least difference. He makes profits or gains just the same and he makes the same from and in consequence of running of the business asset. Hence, income derived by an assessee from the lease of a factory becomes income from business and assessable under Section 10 of the Income-tax Act.''
7. This judgment was followed by a later Division Bench of this court in Nauharchand Chananram v. CIT . Apparently, therefore, so far as this court is concerned, the matter stands concluded against the Revenue.
8. Mr. Awasthy, learned counsel for the Revenue, however, submitted that the view taken in Nauharchand Chananram's case , was distinguishable, inasmuch as the deed of partnership governing that case contained an express stipulation that the firm could carry on the business of letting out of property. It was argued by him that there was no such clause in the partnership deed governing the present case. The learned counsel is right to the extent that the partnership deed, which is printed at p. 21 of the paper book, does not contain an express stipulation that the firm could carry on the business of letting out the property on rent, but Clause 2 thereof reads as under :
'2. That the partnership hereunder constituted shall commence on and from the 1st day of April, 1972 and the name and style of the firm shall be 'CAPITAL FOUNDRY & ENGINEERING WORKS', (hereinafter referred to as 'the firm') to carry on business of foundrymen, engineering goods manufacturers, dealers in machine tools, rice milling, foodgrains of all kinds, sugar and other eatables, general traders and to carry on such other business or businesses as the partners mutually agree upon.'
9. The words 'to carry on such other business or businesses as the partners mutually agree upon' indicate that it was open to the partnership firm to engage in any other type of business, which could be one of renting out the property belonging to the firm. In our considered opinion,the distinction sought to be drawn by Mr. Awasthy cannot be properly drawn in view of Clause 2 of the partnership deed, extracted above.
10. For the reasons aforementioned, we answer the question of law referred to us in the negative, i. e., in favour of the assessee and against the Revenue. No costs.