M.C.AGARWAL, J. - (1.) THE Tribunal, Allahabad under S. 256(1) of the IT Act, 1961 ('the Act') has referred the following question stated to be of law and to arise out of the Tribunal's order dt. 29th April, 1981, passed in IT Appeal No. 192/All/1980 for the opinion of this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee's claim of registration was rightly allowed by the ITO and in that view cancelling the order of the CIT under S. 263?"
(2.) WE have heard Shri Prakash Krishna, the learned standing counsel for the CIT and Shri Shambhu Chopra, the learned counsel for the assessee respondent. The respondent claimed to be a partnership firm constituted under a deed dt. 18th June, 1974. The firm was constituted by four persons named below : 1. Ratan Kumar, 2. Lav Kumar, 3. Rewati Raman and 4.Madan Mohan. They constructed a cinema hall named Jai Bharat Theatre at Lucknow, and furnished it with furniture and machinery equipment, etc. By an agreement, dt. 1st Nov., 1975, the theatre was leased out to a partnership firm Jai Santoshi Maa Exhibitors for a period of three years on a monthly rent of Rs. 2,500 for the building, Rs. 1,500 for the furniture and fixtures and Rs. 1,000 for machinery and equipment. For the asst. year 1976 77 to which these proceedings relate, the assessee claimed the status of registered partnership firm. The AO granted registration to the firm by an order under S. 185 passed separately and assessed the aforesaid four persons in the name of the firm Jai Bharat Theatre as a registered firm. The assessment order was passed on 24th Feb., 1981. The CIT, Lucknow, thought that the so called firm Jai Bharat Theatre did not carry on any business and, therefore, there was no valid partnership. He, therefore, took the view that the assessee could not be assessed as a registered firm. He, therefore, cancelled the assessment order under S. 263 and directed the AO to make a fresh assessment according to law. The assessee appealed to the Tribunal who did not agree with the CIT and held that the activity of letting out amounted to business and, therefore, registration was rightly allowed. The Tribunal, therefore, quashed the order passed by the CIT and restored the order passed by the AO.
(3.) AS is evident, the controversy in this case is whether the so called firm Jai Bharat Theatre carried on business and was, therefore, a valid partnership firm.;