ANAND PRAKASH, A.M. assessee is company. it was incorporated on 6th Dec., 1979, under t h e Companies Act of 1956. main objects to be pursued, on its incorporation, were stated in Memorandum of Association of said Company, in cl. III(A) which,inter alia,mentions as follows: 1. To acquire and take over all assets, rights and privileges of M/s Pushpa Aggarwal & Co. Co-proprietorship firm. said firm shall cease to exist after such take-over. 2. xx xx xx 3. To purchase, develop, to turn to account take on lease or in exchange or otherwise acquire lands and buildings, tenements and hereditaments of any tenure and to hold or to sell, let, alienate, mortgage, charge or otherwise deal with all or any of such lands, tenements and buildings. 4. xx xx xx Part B of cl. III deals with objects incidental and ancillary for attainment of main objects. 2. accounting period of assessee-company is calendar year and it closed on 31st Dec., 1980, for assessment year presently under consideration. 3. In pursuance of object mentioned in sub-cl. (1) of part of cl. (3) of Memorandum of Association, referred to above, company entered into agreement on 1st Jan., 1980 with Proprietors of firm, M/s Pushpa Aggarwal & Co. namely Shri Harish Aggarwal, and his wife, Smt. Pushpa Aggarwal, to purchase from them property, which they had built on plot of land, situated at 7 Jamrudpur, New Delhi and which had been let out by them to M/s Mohan Exports (India) (P) Ltd. agreement dt. 1st Jan., 1980 stipulated,inter aliaas below: "That M/s Pushpa Agarwal & Co. (P) Ltd. consisted of two equal co- owners, namely Harish Aggarwal and Smt. Pushpa Aggarwal, owning 5 storeyed commercial complex standing on plot No. 7, Jamrudpur, New Delhi, with investment of Rs. 8,01,167.86, over plot measuring 218.50 sq. yards. That said property hitherto, under co-owners of Shri Harish Aggarwal and Smt. Pushpa Aggarwal, under name of M/s Pushpa Aggarwal & Co. shall now vest in company, vendee. That said property, namely, 7, Jamrudpur, New Delhi, is let out to M/s Mohan Exports (India) (P) Ltd. and henceforth said concern shall be tenants of vendee-company and vendee-company shall be entitled to receive rent, discharge rent receipts, take any other legal proceedings as may be deemed necessary against tenant..............." In satisfaction of aforesaid transfer, co-proprietors were allotted shares in company and company undertook to discharge all liabilities of said co-proprietary business. Annexure I of aforesaid agreement mentions assets and liabilities, which were agreed to be taken over by company. In pursuance of said agreement, co-proprietors, referred to above, addressed letter to M/s Mohan Exports (India) (P) Ltd. tenants of aforementioned building, on 19th Feb., 1980, informing them,inter alia, as below: "Please refer to Lease Deed in respect of Multi-storeyed building at Plot No. 7. Community Centre, Jamrudpur, New Delhi, signed by you on 4th May, 1979, with M/s. Pushpa Aggarwal & Co. We have since set up Limited company under name and style of Pushpa Aggarwal Co. (P) Ltd. This companies Act, 1956 (No. 1 of 1956). copy of Memorandum & Articles of Association of this company is enclosed for your reference. It will be seen therefrom that primary object of this Limited company is to acquire and take over all assets, rights and privileges of M/s. Pushpa Aggarwal & Co. This has been done w.e.f. 1st Jan., 1980. In view of above, we request you to issue rental cheque for month of February, 1980 in favour of Pushpa Aggarwal Co. (P) Ltd. instead of in individual name of Mr. Harish Aggarwal & Smt. Pushpa Aggarwal." 4 . During accounting period under consideration, assessee- company derived income from rent from aforesaid property, aggrgating to Rs. 2,76,000. There was no income from any other source as per P&L A/c of Company, placed at Serial No. 29 of assessee s paper book. On debit side, there were numerious expeses, which were debited to P&L A/c including,inter alia, following: . . Rs. i. Printing & Stationery 63,130 ii. Salary (Paid to Directors) 24,000 iii. Directors meeting fee 3,400 iv. Accounting charge 2,400 v. Legal charges 940 vi. Filing fee 150 vii. Electricity charges 270 and similar other small expenses including audit fee of Rs. 25 . 5. assessee-company filed its return of income, declaring income of Rs. 1,02,220, as below: i. Net profit as per P & L A/c Rs. 91,289 Add 15 per cent of interest paid i.e. of Rs. Rs. 10,931 72,872 . Rs. 1,02,220 5A. ITO did not accept above computation of income. He pointed out in his order that "during year, all that assessee company has done is to receive rent from M/s Mohan Exports India (P) Ltd. There is no other line of activity, whatsoever. only question that arises is, whether assessee- company could be said to be carrying on business at all. mere letting out of property could not be said to be business and they will be assessable under head "income from house property. In support of above ITO relied upon decision of Hon ble Calcutta High Court in case ofCommercial Properties Ltd. AIR 1928 (Cal) 456.Accordingly, ITO computed income of assessee under head "Property Income", denying in process assessee s claim for deduction of expenses under various heads referred to above including salary paid to Directors, etc. Curiously enough, however, ITO did not work out income of assessee in accordance with ss. 23 & 24. He somehow assessed assessee on gross rent received, which was patently against law. 6. assessee appealed against aforesaid order to ld. CIT(A) and pleaded before him that he was doing business , that it had been set up with purchases of property in question, that purchasing of property and realisation on rent from tenant was business transaction in terms of sub-cl. (iii) of Part of cl. (3) of Memorandum of Association and, therefore, expenses claimed by assessee in its P& L A/c should be allowed in their entirety. above plea of assessee was not accepted by ld. CIT(A) who held that income of assessee from rent of property in question was assessable in terms of ss. 22 to 27 and that, therefore assessee s income should be computed in terms of aforesaid sections only, and accordingly he recomputed assessee s income in terms of ss. 23 & 24 as below: Ground ALV (based on rent . 2,76,000 received) Less House-tax payable . 72,260 . . 2,03,740 Less deductions under s. 24 .. . (a) Ground Rent 7,850 . (b) 1/6th for repairs 33,850 . Interest paid on loans from 72,873 1,14,679 72,873 1,14,679 directors invested in property Net . 89,061 income claim of assessee that he was doing business was rejected by ld. CIT(A) by relying on various decisions of High Courts, referred to in his order. income thus determined was less than that returned by assessee. 7 . assessee challenges correctness of aforesaid order of ld. CIT(A) and it was submitted before us on behalf of assessee by its learned counsel that with purchase of property, referred to above, stated business of assessee-company as per cl. 3(ii)(1) was set up and any expenditure incurred by it, therefore, would be its business expenditure, even if there was no income from head "Business", during year in question. Our attention was drawn to sub-cl. (3) of Part of cl. III of Memorandum of Association and it was pointed out that, by letting out property to tenants, company had started doing business in terms of aforesaid sub-cl. (3) and it was, therefore, wrong on part of CIT(A) to alleged that assessee- company had not set up it business and that expenditure, debited in its accounts were not allowable to it. According to learned counsel for assessee, even if income from property were assessable under head "Income from property in terms of ss. 22 to 27 of Act, it would not be conclusive of question, as to whether or not assessee-company had set up its business for term business in context of said company setting up its business, will have different connotation than that spelt out in s. 28 of IT Act, 1961. In support of above proposition, our attention was invited by ld. counsel for assessee to following decisions: 1.CIT vs. Cotton Fabrics Ltd. (1981) 23 CTR (Guj) 247 : (1981) 131 ITR 99 (Guj). 2. CIT vs. New India Investment Corpn. Ltd. (1978) 113 ITR 778 (Cal) 3. CIT vs. Admirality Flats Motel (1982) 133 ITR 895 (Mad) 4.CIT vs. Laxmi Compnay (1982) 133 ITR 905 (Mad) 5.CIT vs. Cocanada Radhaswami Bank Ltd. (1965) 57 ITR 306 (SC) 6.CIT vs. Chugamdas & Co. (1965) 55 ITR 17 (SC) 7.CIT vs. Orissa State Co-operative Housing Corpn. Ltd. (1976) 104 ITR 157(Ori) 8. S. G. Mercantile Corpn. (P) Ltd. vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC). According to ld. counsel for assessee, what has been decided in aforesaid cases is that head of income would not determine, whether business was being done by assessee company and that question had to b e decided de-hors provision of s. 28. According to assessee s ld. counsel, property referred to above, was its commercial asset and it was exploiting it commercially, and as such it was doing business in terms of its Memorandum of Association and, therefore, expenses claimed by it had to be allowed even if there was no receipt to be assessable in terms of ss. 28 to 43A of IT Act 1961. In support of above proposition, learned counsel relied upon following decisions: 1.CIT vs. Chang Deo Sugar Mills Ltd. (1982) 31 CTR (Bom) 114 : (1982) 143 ITR 469 (Bom) 2.Snam Progetti, S. P. A. vs. Addl. CIT (1981) 132 ITR 70 (Del) 3.CIT vs. Dalmia, R. (1974) 96 ITR 463 (Del). In support of proposition that once business was set up in given previous year, expenses incurred thereafter, should be allowed to assessee, ld. counsel relied upon following authorities: 1. Westren India Vegetable Products India vs. CIT (1954) 26 ITR 151 (Bom). 2. Sarabhai Management Corpn. Ltd. vs. CIT 1975 CTR (Guj) 111 : (1976) 102 ITR 25 (Guj). ld. counsel drew our attention to extract of Minutes of Board of Directors, held on 24th Feb., 1982, wherein following resolution wasinter alia,passed by Board of Directors: "Resolved that Smt. Pushpa, Aggarwal be and is hereby authorised to participate in public auction to be held by Indore Municipal Corporation at Indore on 26th Feb., 1982 on behalf of company and to sign all papers relevant to above auction." It was urged with reference to above resolution that Board of Directors of company was constantly meeting and trying to locate avenues for starting business by assessee-company in terms of its Memorandum and, therefore, it had to be said that business of assessee- company had been set up, even though receipts on account of such business had not started flowing in. according to ld. counsel, there was clear distinction between commencement of business and setting up of business and for purpose of IT Act, what had to be looked at, was setting up of business and, commencement of business and once business is shown to have been set up, expenses incurred had to be allowed in terms of s. 28. In present case, various activities of Directors and their search for proper business indicated that business had been set up and company was already to do whatever business came its way. According to him, business came its way. According to him, business is said to have been set up when it can be shown that structure of he business is established and it is ready to commence business, though there may be interval between setting up of business and commencement of business and all expenses incurred during that interval would be permissible deductions. 8 . above submissions were opposed by ld. Departmental Representative, who pointed out that assessee has started no business, whatsoever, during previous year under consideration, that only activity, which assessee carried out during previous year, was collection of rent from property, which had been purchased by assessee during previous year, that property was already under tenancy went assessee-company had purchased it, that in circumstance like this, income of assessee could be assessed only under head "Property" and for this, ld. Departmental Representative relied upon following decisions: 1. Ballygunge Bank Ltd. vs. CIT (1946) 14 ITR 409 (Cal) 2. Tinsukia Development Corpn. Ltd. vs. CIT (1979) 120 ITR 466 (Cal) 3. Indian City Properties Ltd. vs. CIT (1965) 55 ITR 262 (Cal). According to ld. Departmental Representative, there was no merit in assessee s contention that assessee had set up its business during previous year. No steps, whatsoever had been taken to establish business and to commence it, and unless some preparatory steps are shown to be taken, it cannot be urged that assessee was in state of readiness to commence its business and that, its business had been set up. mere meeting of Directors of assessee-company to look for business did not mean that business had been set up. In this connection, our attention was invited by ld. Departmental Representative to decisions of Hon ble Bombay High Court in case ofCIT vs. Industrial Solvents & Chemicals (P) Ltd. (1979) 8 CTR (Bom) 124 : (1979) 119 ITR 608 (Bom). In rejoinder, ld. counsel for assessee referred to decision of Hon ble Supreme Court in case reported inS. G. Mercantile Corpn. (P) Ltd. vs. CIT 1972 CIT (SC) 8 : (1972) 83 ITR 70 (SC)andKaranpura Development Co. Ltd. vs. CIT (1962) 44 ITR 362 (SC)and pointed out that even holding of property and letting it out could amount to business in terms of aforesaid cases and, therefore, order of ld. CIT(A) was wrong and it should be reversed. 9. We have given careful consideration to facts of he case and rival submissions. As is clear from facts stated above, one of objects of assessee-company was to acquire property situated at 7, Jamrudpur New Delhi, which had been constructed by co-owners, referred to above and which had been let out by them to M/s Mohan Exporters (India) (P) Ltd. and from which co-proprietors were deriving rental income. By acquiring said property and realising rent therefrom, can it be said that assessee had set up its business ? In case ofKaranpura Development Co. Ltd. (1962) 44 ITR 362, their lordships of Hon ble Supreme Court have laid down principles on basis of which problem, as one above, should be resolved. According t o their lordships "Ownership of property and leasing it out may be done as part of business, or it may be done as land owner. Whether it is one or other must necessarily depend upon object with which act is done. It is not that no company can own property and enjoy it as property, whether by itself or by giving use of it to another on rent. Where this happens, appropriate head to apply is "income from property" under s. 9, even though company may be doing extensive business otherwise. But company formed with specific object of acquiring properties, not with view to leasing them as properties, but to selling them or turning them to account even by way of leasing them out as integral part of its business, cannot be said to treat them as landowner but as trader........In deciding whether company dealt with its properties as owner, one must see not to form, which it gave to transaction, but to substance of matter. TheCalifornian Copper Syndicate case (1904) 5 Tax Cases, 159,illustrates vividly dealing with mineral rights and concessions by company as part of objects of its business, or in other words, in holding of business. Calcutta cases and case ofFry vs. Salisbury House Estates Ltd. 15 Tax Cases 226, HLillustrate contrary proposition. There, property, though dealt with by company intending to do business, was dealt with as landowner. intention in those cases was not to derive income renting them out........" 10. It is above principle, which has to be applied to facts of present case to determine as to whether assessee-company derived income from property situated at 7, Jamrudpur, New Delhi, as landlord or whether income from said property was derived by assessee-company as trader. reference to Memorandum of Association of assessee company would show that assessee-company was incorporated "to acquire and take over all assets and rights and privileges of M/s Pushpa Aggarwal & Co. co- proprietorship firm........." only assets which aforesaid co-proprietorship owned was aforesaid property situated at 7, Jamrudpur, New Delhi. Its acquisition was thus in pursuance of main object No. 1, as set out in Para of cl. (3) of Memorandum of Association. This property has not been let out by assessee-company in terms of sub-cl. (3) of Part of cl. (III), as alleged by assessee-company. it would, therefore, not be correct for assessee, to allege that with acquisition of said property, it set up business provided for in main objects No. (8) of Part of cl. (3) of Memorandum. said property was acquired by assessee-company as landlord and it continued to be utilised by it during year under consideration only as landlord, and not as commercial property which might be subject matter of business in terms of Objects No. 3 as contained in Para of cl. (3) of Memorandum of Association. facts of present case, in this regard, are similar in theseFry vs. Salisbury House Estates Ltd.,referred to above. It was building with 800 room. company was formed for express purpose of acquiring it and utilising it. room were let unfurnished to tenants, but there was some slight service in shape of heating and cleaning. company also retained some room as its offices. Company was first assessed under r. 8(c)(i) of Sch. (VII) of English IT Act, 1918, which provided for assessment of landlords in respect of tenants in case of any house or building let in apartments and tenements. company paid tax assessed of it. Then notice was sent under Schedule D. company admitted that it had to pay tax under Sch. D on profit it might have made from services it rendered, but contended to income, which had been taxed under Sch. could not be taxed under Sch. D . company demanded case, Rowlatt J. held against company, but his decision was reversed by Court of Appeal. On further appeal to House of Lords, it was held that rents were profits from ownership of land and assessment under Sch. was proper mode and they could not be treated as trade receipts of Company for purposes of Sch. D. 11. facts in present case are more or less akin to facts in above case, except to extent, that in present case, assessee- company has not kept any rooms in said building for its business nor is there anything to show that assessee-company was rendering any service to tenants of nature indicated above. This being so, it has to be held, in present case, that company was deriving income from said property as landlord and, therefore, income from said source had to be assessed under head "Property income." 12. In re Commercial Properties Ltd. (1928) ILR 55 (Cal) 1057,which was also one of Calcutta cases referred to by their lordships of Supreme Court in case ofKaranpura Development Co., referred to above, object of company was to acquire land, build houses and let premises to tenants in Calcutta and elsewhere. sale assets were three properties, which were let out and all that registered company did wasthe management and collection of rent.Rankin, C.J. held that receipts were income from property within s. 9 of IT Act, that letting out such property and collecting rents was not doing business; and that profits and gains from business were very different from income from property. 13. facts of above case are entirely on fours with facts of present case. Here, too, only activity which assessee-company had done during previous year under consideration is to hold property acquired by it and to realise rents from it. Such activity cannot, in our opinion, be called business activity, as suggested by ld. counsel for assessee. ld. CIT(A) was, therefore, in our opinion, correct in holding that income realised by assessee-company from aforementioned property was assessable under head "income from property." We, accordingly, uphold his order in this regard. 14. That brings us to alternative contention of ld. counsel for assessee, that even if income from property was assessable under ss. 22 to 27 of IT Act 1961, it was not decisive of issue as to whether or not assessee-company was doing business. It may be so in some cases depending on their facts. But in present case, by acquiring aforesaid property and by collecting rent from it, assessee-company did not carry out any business. We have discussed facts with regard to is as above. It is true that, in cases ofCIT vs. Laxmi Co. (1982) 133 ITR 905 (Mad)andCIT vs. Admiralty Flats Motel (1982) 133 ITR 895 (Mad)their lordships of Hon ble Madras High Court have held that classification of various heads of income under IT Act is only for purpose of convenience of administration of Act and concept of business, as envisaged under It Act cannot be imported into determination of question as to whether as group of individuals by agreement carry on business as firm. In that case, one Shri G. and his wife entered to partnership for purpose of carrying on business as lodging house-keepers. They derived income in course of said business from letting out of flats and renting out of furniture and other articles. ITO held that income derived by firm by letting our flats was assessable only as income from property and hence their was no business with reference to which there could be firm and, therefore, refused registration to firm Tribunal, in second appeal held that, while income from letting out flats was assessable under head "Property" income derived by letting out furniture and other items to tenants in said properties was assessable under head "business" and so held that firm was carrying on business and was carrying on business and was entitled to registration. Department carried matter in reference to Hon ble Madras High Court, who held that intention of parties in present case was to run business of lodging and firm was carrying on business within meaning of partnership and was entitled to registration. fact that income from business of renting out lodges had been bifurcated and brought to tax under two heads, namely, "Property" and "Business", would not, in any manner, affect registration of firm, that letting out of furniture and t h e other articles had been conceived of by firm as substantive and systematic and organised course of activity, and would, therefore, constitute business. It was linked with, and incidental to carrying on of business of renting lodging house and, thus, income from letting out furniture and other articles would be of business nature. 15. above facts have hardly any resemblance with facts of present case and as such we are unable to appreciate as to how assessee derives any help from ratio of aforesaid decision. In present case, acquisition of Jamrudpur property and realisation of rent therefrom is clearly not activity connected with any "business . It has been done by assessee purchasing as landlord and not as part of business of being and as such it would not be correct to hold that, by acquiring said property, assessee had commenced or even set up business in any sense, whatsoever. 16. Apart from that, it is pertinent to remember that, in present case, we are concerned with computation of income under head "Income from Business" as per ss. 28 to 43A and not with meaning of business in any other sense, and, for computing income under that head, it is necessary to record finding that business had, in fact, beencarried onduring accounting period under consideration, and inasmuch as by acquisition of property in question, no business was carried on it would be wrong hold that assessee was carrying on business none to less. facts ofCIT vs. Cotton Fabrics Ltd. (1981) 23 CTR (Guj) 247 : (1981) 131 ITR 99 (Guj)andCIT vs. New India Investment Corpn. Ltd. (1978) 113 ITR 778 (Cal)were also different. There assessees were carrying on business of dealing in shares and securities, in course of which income from dividends on shares held by them as stock- in-trade was realised. question for determination was, whether, while computing income under head "Dividend" in terms of s. 56 of IT Act, 1961 any expenditure should be set off against said dividend income. It was held by their lordships of Hon ble Gujarat and Calcutta High Courts respectively why no apportionment ought to be made as dividend income was, in fact, realised in course of assessee s business and such of expenses were business expenses and mere fact that dividend income was to be computed under s. 56 would not make business expenses as expenses covered by s. 57. In present case, there is no business at all, and only income is from property and, therefore, facts of aforesaid case and ratio stated therein have no relevance with facts of present case. same is position with regard to ratio in cases, reported in(1965) 5 7 ITR 306 (SC)(supra) and(1965) 55 ITR 17 (SC)(supra). fact ofCIT vs. Orissa State Cooperative Housing Corpn. Ltd. (1976) 104 ITR 157 (Ori)are also different from facts of present case. There question was as to whether income derived by way of "interest on Securities" by co-operative society in question was exempt under s. 81. There finding of Tribunal was that income from interest on securities and Fixed Deposits, was derived by assessee in course of its business and, therefore, it was held by their lordships that exemption in question was available to income under said head even though for purpose of computation they were assessable separately under ss. 18 and 56 respectively.Prima faciethe facts of present case have no similarity with facts of above case. Here, there is only one source of income and same is not business. 17. facts ofSnam Progetti, S. P. A. vs. Addl. CIT (1981) 132 ITR 70 (Del)andCIT vs. Dalmia, R. (1974) 96 ITR 463 (Del)are also different. There too, issue was not as to whether holding of property as landlord would constitute business . We therefore, derive no assistance from said cases. 18. contention of assessee that Directors of assessee- company were looking for openings for starting business in terms of Memorandum of Association and for that purpose they were regularly meeting and that this amounted to setting up of business, does not impress us. Looking for setting up of business and setting up of business are not same things. former activity carried on by assessee is antecedent to setting up business and does not amount to setting it up. During course of year, Directors may be looking for opening to start business but did not get opening, and, accordingly they were not in readiness to commence business. mere appointment of he Directors does not amount to setting up business; for that many more steps had to be taken. directors would be there whether or not there was business. learned counsel for assessee has not been able to pinpoint even one step, whereby it can be shown that Directors had even made up their mind to start particular business. best that could be done by learned counsel in this regard was to draw our attention to Resolution passed by company on 24th Feb., 1982, appearing at page 44 of assessee s paper book. But said Resolution was passed much after accounting period had ended and it is not, therefore, possible for us to accept assessee s contention on basis of this Resolution to effect that assessee-company had set up business during previous year under consideration. only Resolutions pertinent to previous year under consideration which have been placed on record, are contained at pp. 32 & 33 and they relate only to fixation of meeting fees to be given to Directors, fixation of remuneration of Directors, designation of First Directors of Company and co-option of Shri Rakesh Bansal as one of Directors. These Resolutions did not go to establish that assessee-company had set up any business during previous year under consideration. 19. authorities relied upon by Departmental Representative, in our opinion, squarely cover facts of present case. 2 0 . In view of above, we are of opinion that orders of authorities below are correct on facts and in law and as such no interference with order of ld. CIT(A) is called for. It has bot been case of assessee that computation of income under head "Property" , as done by ld. CIT(A) is wrong or that adversely affects him. In fact, it is less than income returned. Therefore, no interference with computation is necessary. 21. In result, appeal is dismissed. *** PUSHPA AGGARWAL & CO. (P) LTD. v. INSPECTING ASSISTANT COMMISSIONER