SHREE LAND CORPORATION. vs. THE INCOME TAX OFFICER

Facts

The assessee, Shree Land Corporation, is engaged in the business of purchasing and selling land for housing societies and letting out properties. For Assessment Year 1983-84, the assessee filed a return declaring a total income of Rs. 78,887/-. The Assessing Officer passed an order under Section 143(3) on 21.08.1985. The assessee appealed to the CIT(Appeals), which dismissed the appeal on 28.11.1996. Subsequently, the assessee appealed to the Income Tax Appellate Tribunal (ITAT), which also dismissed the appeal on 13.02.2003. The present appeal is filed by the assessee against the ITAT's order. The High Court admitted the appeal on a substantial question of law.

Held

The High Court held that the assessee had not carried out any business activity since its inception and had not entered into any business transactions. The Court agreed with the reasoning of the CIT(Appeals) who had annulled the order granting registration to the assessee under Section 185(1) for AY 1979-80, observing that no business activity was carried out and no income was earned or returned. Consequently, the question of law was answered in the negative, in favour of the assessee and against the Revenue. The impugned judgment and order of the ITAT was quashed and set aside, and the order of the CIT, Surat dated 19.03.1990 was restored. The appeal was allowed.

Key Issues

1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in treating the assessee as a registered firm, despite the fact that no business was carried on by the assessee, and for earlier years, the Commissioner of Income-tax had concluded that the assessee was not a registered firm, with income from house property being assessed in the hands of co-owners as individuals? (Question of law) Assessee's Contention: The assessee argued that it was not carrying on any business activity, and for earlier years, the CIT had already determined that it was not a registered firm, with income assessed in the hands of co-owners. The Tribunal's decision to treat it as a registered firm was therefore incorrect. Revenue's Contention: The judgment does not record any specific arguments made by the revenue on this issue.