This is appeal filed by assessee against order of Commissioner (Appeals) dated 27-9-1984 and it relates to assessment year 1982-83. 2. only question that falls for determination in this appeal is whether assessee-firm can be said to have carried on business when it had constructed godowns on site belonging to one among partners and when they formed partnership only to construct godown and to lease them out to Food Corporation of India (FCI) or to any other party. 3. assessee is registered firm. assessment year involved is 1982-83 for which previous year ended on 31-3-1982. On 4-4-1977 partnership with six partners was formed. Copy of partnership deed is filed before us. In preamble of partnership deed, it was stated that all parties to deed constituted themselves into partnership under name and style of 'Nalinidevi Associates' having its principal place of business at Himayatnagar for purpose of constructing godowns on site at Karmanghat, Hyderabad, belonging to first party, viz., R. Nalinidevi and for leasing out godowns to (FCI) on any other party. Clause 3 of partnership deed again reiterates purpose of partnership as construction of godowns and leasing them out to FCI or any other party and for any other business or businesses as may be agreed upon mutually from time to time. Clause 4 of partnership deed states that firm should be deemed to have commenced from 4-4-1977. Clauses 5 and 6 of partnership deed state that portion of land bearing Sl. Nos. 55 and 56 at Karmanghat village, Hyderabad East Taluk, belonging to Smt. Nalinidevi valuing Rs. 10,000 shall be treated as asset of partnership firm and also value of said site of Rs. 10,000 should be treated as capital contribution of Smt. Nalinidevi. Clause 7 stat es that capital required for construction of saiddodowns shall be invested by parties 3 to 6 in proportion to their profit-sharing ration mentioned in clause 9. Clause 9 says profit and loss sharing ratio which is not very much germane for us. Clause 16 deals with retirement of partner. partner intending to retire should give one month's notice in writing. Thereupon he or she should be entitled to receive profits up to date of his or her retirement as shown by profit and loss account drawn up to that date. He or she shall be paid money actually invested by him/her less his/her proportionate share of loss sustained by partnership, if any within period of six months from date of his/her retirement. 4. assessee entered into lease agreement dated 2-3-1978 with FCI. From preamble to lease deed, copy of which is filed before us, it is gathered that FCI made advertisement in newspapers calling for offers from persons for construction of godowns upon pieces of land owned by those persons. According to capacity and specification indicated by FCI for purposes of storing foodgrains, sugar, fertilizer or any other material by it and thereafter to lease same to FCI on rent for period specified. In pursuance of said advertisement assessee appeared to have addressed letter dated 22-11-1976 whereby it had agreed to construct two godowns of 5,000 mts. capacity at Bahadurguda in Hyderabad District. It had agreed to construct said godowns according to specifications laid down by FCI and also agreed to lease out same for initial period of five years at rent of 4 8 p. per sq. ft. per month. FCI at request of assessee recommended Andhra bank to advance loan of Rs. 5,90,000 to assessee to meet cost of construction of godowns, etc. Clause II of lease agreement stipulates that FCI agreed to pay rent of Rs. 14,46,40 for entire godowns fully described in schedule to lease deed as rent and it had agreed to remit it straight to Andhra Bank, Kothi, Hyderabad, towards loan account which is due from lessors in terms of lease agreement. Clause III gives option to lessee to extend terms of lease by one year on same terms and conditions. Clause IV is clause on which assessee wants to rely upon very much. According to its terms, assessee should keep godowns fit in all respects for storage of foodgrains. godowns shall be structurally sound, roden proof/damp proof and shall have pucca damp proof floor and water tight with slanting proofing to allow free flow of rain water so as to prevent damage being done to stocks due to seepage and leakage of water. godown walls shall be smoothly plastered and they should be while washed once in year. plinth level of hired godowns shall be more than one foot above road level and surrounding ground level shall not be in low lying area allowing accumulation of rain/flood waters. godowns shall be away from canals, streams and flood water, channels, nallas and shall be well ventilated. There should also be proper road and drainage arrangement. If during period of lease, flooring in godown is founding sinking or roof/walls of godown is/are found to be damaged resulting in leakage/seepage of water inside godown or shutters/ doors of godown are found to be damaged by rust/months, etc., it will be liability of lessors to reconstruct flooring in godown, repair roof/walls of godown as well as shutters/doors thereof as case may be to make place structurally sound and storage worthy. In case requisite action as above is not taken by lessors within period of 15 days of date of issue of registered letter by lessee bringing out necessity for reconstruction/repair, etc., lessee will ne within s right to have neccessary reconstruction/repair carried out and entire expenses involved will be made good from lessors. In case of any damage to stocks occur due to lessors abstinence to carry out repairs within stipulated time, losses if any sustained by FCI shall be borne by lessors. All internal roads up to godown should be kept in motorable condition. Water must be made available to labours and godown staff. Electrical fittings in godown should allowed to be made use of by FCI and only consumption charges will be borne by FCI. 5. During previous year relevant to assessment year 1982-83 assessee-firm received rent of Rs. 1,70,956.86 from FCI. assessee claimed Rs. 76,832 under various heads of expenses and showed net profit of Rs. 94,124. assessee also claimed depreciation on godowns and electrical fittings and declared net profit of Rs. 81,490. ITO called upon assessee to file its objections for computing rental income as income from house property instead of under head 'Profits and gains of business or profession'. position was explained on behalf of assessee by its authorised representative by means of letter dated 9-2-1984. In its objections it is stated by assessee that it was having only limited capital of Rs. 2 lakhs and, therefore, it was forced to avail on of Rs. 5.90 lakhs from Andhra Bank to meet needs of FCI. FCI stood as guarantor on certain terms and conditions. assessee had dangerously risked in adventurous business venture agreeing to pay damages even for rodent damage to stored grains, etc., and also for arbitration soley by officials of FCI. It is also submitted before us that from 1979-80 to 1981-82 rental income was always considered as business income and as so changed treatment is not justifiable for assessment year 1982-83. assessee also relied upon CIT v. National Storage (P.) Ltd. [1967] 66 ITR 596 (SC) and Narasingha Kar & Co. v. CIT [1978] 113 ITR 712 (Ori.). ITO did not accept any of objections raised by assessee and following decision of Bombay High Court in Maharashtra Fertilizers & Chemicals v. CIT [1983] 37 CTR (Bom) 9 held that income derived from letting out of godowns was income derived from property as assessee-firm never actually utilised godowns for its business purposes. He also held that tollowing certain other decisions house-owning, however, profitable cannot be business or trade under Income-tax Act, 1961 ('the Act') where income is derived from house property by exercise of property rights. It is nature of operations and not capacity of owner that must determine whether income is from property or from trade. Therefore, he had computed income as income from house property granted allowable deductions under section 24 of Act and computed net income from house property at Rs. 1,10,718. 6. Aggrieved against said assessment dated 19-5-1984 assessee went in appeal before Commissioner (Appeals). learned Commissioner (Appeals) by his impugned orders virtually confirmed ITO's reasoning. learned Commissioner followed Bombay High Court decision in Maharashtra Fertilizers & Chemicals' case (supra). In that case assessee was registered firm carrying on business in manufacture and sale of manure mixtures. It constructed godown outside municipal limits of Poona for being used in its business. firm called Parekh Traders approached assessee-firm and requested them to let out godowns to them. There was no machinery or plant fixed in godown. assessee-firm instead of using godown for its o w n business gave same on rent to Parekh Traders. question was whether income so derived by assessee should be treated as income from house property. Bombay High Court held that assessee had never actually utilised godown for its own business purposes and income therefrom should be considered as income from property and not business income. 7. Now assessee came up in second appeal before this Tribunal. assessee relied upon decision of Orissa High Court in Narasingh Kar & Co.'s case (supra) of Bombay High Court in CIT v. National Storage (P.) Ltd. [1963] 48 ITR 577 and of Supreme Court in National Storage (P.) Ltd.'s case (supra) in order to justify its submission that rental income derived from FCI should be treated as income from business instead of as income from porperty. It is contended very kly that facts of assessee's case are quite similar to facts in National Storage (P.) Ltd.'s case (supra). According to assessee agreeing to all conditions laid down by FCI regarding repayment of loan to banks involved element of risk and, therefore, it should be treated as business. So also payment of damages in respect of loss of stored grains owning to rodent meance and agreeing for arbitration solely with officials of FCI also justified treatment of income derived as business income. responsibility to pay damages in cse of loss to stored grains, undertaking to provide facilities to store and accepting risk of paying damage are in nature of business adventure. 8. We have heard Shri V. Ramakrishna Rao, learned counsel for assessee and Shri Kailashnath, learned departmental representative. We do not agree when it was submitted that facts of this case are quite similar to facts obtained in National Storage (P.) Ltd.'s case (supra). Bombay High Court had disposed of said case in National Storage (P.) Ltd.'s (supra). In that case assessee purchased place approved by Chief Inspector of Explosives, Government of India, and constructed some units on said plot of land in conformity with rules and permitted vaults to be used by film distributors on payment of monthly charge. Vault-holder was given key of vault but key of entrance, which permitted access to vaults, remained in exclusive possession of company. company also rendered services to vault-holders such as fire services for which it paid annual amount to municipality, railway booking officers in premises free of charge for convenience of vault-holders for despatch and receipt of film charge for convenience of vault-holders for despatch and receipt of film parcels and canteen and telephone. It maintained regular staff for running aforesaid services and entire staff of Indian Motion Pictures Distributors Association was also paid 'Rs. 800 for part-time services rendered by them. In fact vault-holders were to be licence holders from assessee-company by Bombay High Court. said view of Bombay High Court was confirmed by Hon'ble Supreme Court in National Storage (P.) Ltd.'s case (supra). None of additional services agreed to be rendered by assessee-company to vault-holders were present in facts before us. Further it is not even argued that FCI is licensee but not lessee. So admittedly FCI is lessee and rent realised is monthly lease amount whereas in Bombay High Court case what they have realised was not rent but only licence fee. 9. Narasingha Kar & Co.'s case (supra) is also distinguishable. In that case N entered into agreement with management of school on 25-4-1968, undertaking to construct 20 shops on land belonging to school. Later N entered into partnership and this firm undertook construction and, after construction was over, let out shops and collected rents in terms of right conferred on N under agreement. One of terms under agreement was that school had to be paid monthly sum of Rs. 1,000 out of rent received from letting out of shops. agreement between school management and N remains only for 20 years and within that period assessee-firm has to receive back its investment with such profits as it could make. Under those circumstances, Orissa High Court held that activity of N must be taken to be clearly business undertaking. Similar facts are not available in case before us and, therefore, Orissa High Court decision also does apply to facts on hand. 10. At time of hearing much reliance was placed upon decision of Andhra Pradesh High Court in CIT v. K. Ramaiah, K. Ramakrishnamurthy [1985] 49 CTR (AP) 76. ratio of that case was that when assets were commercial in whichever way they were exploited income derived therefrom should be considered as business premises at least on single day before it is let out to FCI. It is not even canvassed before us that godown is commercial asset in hands of assessee-firm. Therefore, on that simple ground Andhra Pradesh High Court decision does not help assessee. 11. In CIT v. Phabiomal & Sons [1986] 158 ITR 773 (AP), P and his three sons who owned building entered into agreement of partnership between them to let out building and share rental income. question before Andhra Pradesh High Court was whether letting out building and collecting rent amounts to carrying on business. Division Bench held that activity does not amount to carrying on business but is incidental only to ownership. Therefore, they held that no partnership existed and also it is not entitled to registration. 12. case similar to facts before us is already disposed of by this Tribunal Bench 'B' in K Rama Reddy & Sons v. ITO [1985] 14 ITD 108. In that case also assessee-firm was constituted with object of constructing godowns as per specifications and plans of FCI to suit their requirements nd leased them out to them. In pursuance of agreement assessee constructed four godowns as per specifications and plan of FCI and leased them out to FCI. terms of lease agreement provide that assessee had also to render services by providing electricity, water supply, approach road, fencing, etc., and assessee also undertook to repair said godowns. assessee claimed activity of letting out godowns constituted business activity. ITO disallowed claim and computed income under section 22 of Act. Commissioner upheld ITO's order. Tribunal ultimately confirmed order of Commissioner (Appeals) and treated income derived by assessee as income from house property and not as business income. As said decision applies on all fours to facts before us we respectfully follows it and hold that lower authorities have correctly held that income derived from godowns let out to FCI should be considered only as income from house property and not as business income. 13. In result, appeal fails and is dismissed. *** NALINIDEVI ASSOCIATES v. INCOME TAX OFFICER