R.N.MISRA J. - (1.)THE Income -tax Appellate Tribunal, Cuttack Bench, has stated these cases and referred the following questions under section 256(1) of the Income -tax Act, 1961 (hereinafter referred to as 'the Act') for the opinion of the court :
'(1) Whether, on the facts and in the circumstances of the case, and on a proper construction of the agreement, the income earned by the assessee from the shops constructed on the land belonging to the P.M. Academy School was rightly held to be not assessable under section 28 of the Income -tax Act, 1961, as income from business and assessable only under section 56 as income from other sources ? (2) Whether, on the facts and in the circumstances of the case, the claim of the assessee that it was a partnership firm carrying on business and consequently entitled to registration under section 185 of the act was rightly rejected ?'

(2.)THE relevant assessment year is 1969 -70, corresponding to the previous year ending with March 31, 1969. The assessee made a return of income showing the status as that of a partnership firm and also applied for registration under section 185 of the Act. In support of the claim of registration a deed of partnership dated October 4, 1968, operative with effect from May 1, 1968, was relied upon. Sri Narasingha Kar entered into an agreement with the Headmaster of the P.M. Academy (to the detailed terms of which we shall advert in due course) on April 25, 1968, in terms whereof Narasingha undertook to construct twenty shop rooms on partnership agreement which undertook construction and after the construction was over, let out the shops and collected rents from the tenants in terms of the right conferred on Narasingha under the said agreement.
The Income -tax Officer came to hold that the income in the hands of the assessee was income from house property liable to be assessed in terms of section 22 and not under section 28 or section 56 of the Act as claimed. Therefore, as the assessee was not carrying on any business, there could be no firm as claimed. Accordingly, the income was assessed treating the status of the assessee as an association of persons and the application for registration was rejected.

(3.)THE assessee filed two appeals - one against the assessment treating the assessee as an association of persons and the other against refusal of registration. The Appellate Assistant Commissioner came to the conclusion that the assessee had been given only permissive possession of the vacant site and, therefore, the income from property raised by the assessee was not chargeable under the head 'Income from property'. Yet he accepted the finding of the Income -tax Officer that the assessee did not carry on any business and, therefore, was not entitled to registration of any firm under section 185 of the Act. He directed that the income in the hands of the assessee be treated as income from other sources.