M.N Rao, J.:— At the instance of the Department, the following three questions have been referred to this court by the Income-tax Appellate Tribunal under section 256(1) of the Income-tax Act, 1961 (“the Act” for short):
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the receipt of Rs. 1,07,300 from the occupants of the sheds in the Craftsmen's Guild at Mallepally and of the buildings in the other industrial estates run by the assessee is assessable to tax under the head ‘Business’ and, therefore, the entire expenditure of Rs. 10,211 incurred by the assessee on the repairs of those buildings is allowable as business expenditure and the Income-tax Officer is not justified in deleting Rs. 2,041 from that expenditure?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that an appeal lies to the Appellate Assistant Commissioner against the charging of interest by the Income-tax Officer under section 139(8)?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in holding that the sum of Rs. 8,411 spent by the assessee on tea, coffee, refreshments, etc., served to the customers visiting the assessee's business premises is not of the character of entertainment expenditure and in treating the same as an allowable business expenditure?”
2. The reference relates to the relevant assessment year 1974-75. The assessee, A.P Small Scale Industrial Development Corporation Limited, is a State Government undertaking. It was registered under the Companies Act, 1956, on March 1, 1961. The objects of the assessee are set out in clause 3 of the memorandum of association. The objects include, inter alia, aiding, counselling, assisting, financing and protecting and promoting the interests of small scale industries in the State; to enter into contracts with the Government of India and the State Government and Corporations for fabrication, manufacture, assembly and supply of goods, materials, articles and equipment of every description and to arrange for the performance of such contracts; to promote and operate schemes for development of small scale industries in the country; to promote and establish such companies, associations and other suitable bodies in order to carry out the objects; to carry on the business as dealers in hardware and tools of all kinds, engineering articles; to manufacture, buy, sell import, export goods and machinery of any description; to enter into any partnership or arrangement for joint working in business, sharing of profits, pooling of any industrial undertaking with any other company or firm; to establish, promote, subsidise and otherwise assist any company or companies, syndicate or other concern for the purpose of setting up any industry or running any industrial undertaking. In furtherance of the objects set out in the memorandum of association, the assessee established what are called industrial estates at various places in Hyderabad City. The Technocrats Industrial Estate at Balanagar is one of the estates set up by the assessee for development in two phases. Among the structures put up in the first phase was a building let out to the Andhra Bank for providing banking facilities to the entrepreneurs. The sheds constructed in the first phase had been transferred to the technocrats on hire purchase basis. In the second phase, some more sheds (unelectrified) had been let out to some other technocrats. To all the technocrats in the society, the assessee provided infra-structural facilities like roads, water supply, power, banking facilities, etc. In the year 1970, the assessee conceived of the idea of establishing at Mallepally in Hyderabad what was called the Craftsmen's Guild—a scheme for providing self-employment facilities to trained but unemployed craftsmen and other skilled persons—being organised and grouped in a guild of 40 to 50 small ventures roofed under sheds constructed at one place. The scheme envisages construction of sheds by the assessee and the space therein being hired out with all infrastructural facilities like power and water to the craftsmen-entrepreneurs to engage themselves in the crafts in which they are trained. It also envisaged procurement of raw materials and financial assistance by the assessee to the craftsmen. Under this scheme, the assessee constructed sheds and established the Craftsmen's Guild at Mallepally, Hyderabad. The main sources of income for the assessee were:
(i) Interest on loans given to entrepreneurs.
(ii) Profit from supply of raw material to entrepreneurs at its raw material servicing centres at various places.
(iii) Income from its own production units, and
(iv) Income from certain Government production units handed over to it for management.
3. For the year under consideration, the assessee filed a revised return disclosing under the head “Business” a total income of Rs. 21,48,960. This was inclusive of:
(i) Rs. 48,000 being the receipt from the Andhra Bank for the building constructed in phase one of Balanagar Industrial Estate,
(ii) Rs. 4,952 being the receipt from the technocrats to whom the unelectrified sheds built in phase two of the estate were let out, and
(iii) Rs. 97,453 being the receipt from the Craftsmen of the Guild at Mallepally.
4. The Income-tax Officer held that the aforesaid three receipts aggregating to Rs. 1,07,300 were assessable under the head “Property income” but not under the head “Business income”. In making the assessment under the head “Income from property”, the Income-tax Officer allowed 1/6th of the receipts as deduction on account of repairs. The Income-tax Officer, in the computation of the business income of the assessee, disallowed Rs. 8,411 on the ground that it represented expenditure on entertainment— cost of tea, coffee and refreshment served by the assessee to the customers visiting the business premises of the assessee for business purposes. The assessment was completed and the Income-tax Officer charged interest under section 139(8) of the Act. On appeal; the Appellate Assistant Commissioner did not entertain the plea relating to the interest levied under section 139(8) on the ground that no appeal would lie against the charging of interest. As regards disallowance of Rs. 8,411 representing the expenditure on coffee, tea and refreshments, the Appellate Assistant Commissioner, following the decision of the Gujarat High Court in CIT v. Patel Brothers and Co. Ltd., [1977] 106 ITR 424, held that the expenditure in question was not of the character of expenditure on entertainment and, therefore, was allowable as a deduction as the expenditure was laid out wholly and exclusively for the purpose of business. As regards the third item concerning Rs. 1,07,300, the Appellate Assistant Commissioner upheld the contention of the assessee that the receipts from the Craftsmen's Guild at Mallepally partake of the character of “business income” and should be assessed as such, but not under the head “Income from house property”. Aggrieved by the decision of the Appellate Assistant Commissioner, the Department preferred appeal to the Income-tax Appellate Tribunal. The assessee preferred cross-objections questioning the order of the Appellate Assistant Commissioner that the appeal against levy of interest was not maintainable. The Department's appeal as well as the assessee's cross-objections were disposed of by the Tribunal by a common order. The Tribunal held that the order of the Appellate Assistant Commissioner in holding that the appeal was not maintainable against charging of interest was not correct and in that view it set aside the order of the Appellate Assistant Commissioner and restored the appeal to the file of the Appellate Assistant Commissioner for the limited purpose of rendering a decision on merits. As regards the expenditure of Rs. 8,411 relatable to refreshments served by the assessee to the visitors, the Tribunal, following the decision of this court in Addl. CIT v. Maddi Venkataratnam, [1979] 119 ITR 514, held that the expenditure was not of the nature of entertainment expenditure, but was business expenditure. On the question whether the receipt of Rs. 1,07,300 was income from property or a trading receipt, the Tribunal, after examining the nature of the activities carried on by the assessee and the recitals in clause 3 of the memorandum of association, held that the assessee was rendering services to craftsmen to whom the sheds were let out in order to help them pursue their crafts. The services, rendered by the assessee to the craftsmen or the result of their activities carried on continuously in an organised manner was with a view to earning profits. In that view, the Tribunal held that those activities were business activities and that the income derived therefrom, therefore, assessable under section 28 of the Act. The Tribunal relied on two decisions of the Supreme Court in CIT v. National Storage Pvt. Ltd., [1967] 66 ITR 596 and Karnani Properties Ltd. v. Commissioner Of Income Tax, West Bengal, [1971] 82 ITR 547.
5. So far as question No. (3) is concerned, which relates to the expenditure incurred on refreshments served by the assessee to the visitors, it is squarely covered by a decision of this court in Addl. CIT v. Maddi Venkataratnam and Co. Ltd., [1979] 119 ITR 514. Following the ratio laid down therein, we answer question No. (3) in favour of the assessee and against the Department.
6. As regards question No. (2), viz., whether the assessee was entitled to prefer an appeal to the Appellate Assistant Commissioner impugning the charging of interest, we must mention that, as a fact, the Tribunal found that the assessee not only disputed the charging of interest but also some of the additions and deductions made in the assessment. In view of this finding of fact by the Tribunal, we reframe question No. (2) as follows:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that an appeal would lie to the Appellate Assistant Commissioner against the order of the Income-tax Officer levying interest under section 139(8) and making additions and effecting deductions?”
7. The Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT, [1986] 160 ITR 961, at page 966, dealing with the aspect whether in respect of levy of interest which is part of assessment proceedings, an appeal is maintainable, observed thus:
“Now, the question is whether orders levying interest under subsection (8) of section 139 and under section 215 are appealable under section 246 of the Income-tax Act. Clause (c) of section 246 provides an appeal against an order where the assessee denies his liability to be assessed under the Act or against any assessment order under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which he is assessed. Inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all.”
8. In view of the aforesaid pronouncement of the Supreme Court, it is unnecessary to refer to any other decision. We, therefore, answer the question in favour of the assessee and against the Revenue.
9. Coming to question No. (1), it is not in dispute that the primary object of the assessee is to promote small scale industries in the State. In what manner it promotes small scale industries in this State is set out in clause 3 of the memorandum of objects. By clause 3, the assessee is enjoined, inter alia, to establish, promote, subsidise and otherwise assist any company or companies, syndicates or other concerns for the purpose of setting up an industry and to promote and operate schemes for development of small scale industries. It has an obligation to aid, counsel, assist, finance, protect and promote the interests of small scale industries. As part of the obligations cast upon it by clause 3 of the memorandum of objects, it had undertaken the schemes both at Balanagar and Mallepally. Out of the total income of Rs. 21 lakhs returned by the assessee, during the relevant assessment year, only Rs. 1,07,300 pertains to receipts from the above two industrial estates. The contention of the Revenue is that they are mere receipts from house properties and, therefore, they should be brought to tax only as income from house property but not as trading receipts. It is difficult to agree with this contention. As rightly found by the Tribunal, the scheme envisages construction of sheds by the assessee and the space therein was hired out with all infrastructural facilities like power and water to the craftsmen-entrepreneurs to engage themselves in the crafts in which they are trained. The scheme also envisages procurement of raw materials and financial assistance. In order to implement the scheme, the assessee constructed sheds and established a Craftsmen's Guild at Mallepally. We are in entire agreement with the observations of the Tribunal:
“But the position is different where the income received is not from the letting of the tenements or from the letting accompanied by incidental services or facilities but the subject ‘hired’ is a complex one and the income obtained is not so much because of the bare letting of the tenements but because of the facilities and services rendered, and the operations involved in each letting of the property may be of the nature of business or trading operations. In such a case, the income derived is liable to be assessed under the head ‘Business’. The above propositions emerge from the decision of the Supreme Court in CIT v. National Storage Pvt. Ltd., [1967] 66 ITR 596, affirming the decision of the Bombay High Court in the same case [1963] 48 ITR 577.”
10. In CIT v. National Storage Pvt. Ltd., [1967] 66 ITR 596 (SC), the assessee purchased a plot of land and constructed godowns for storage of films. There were 13 units and each unit was divided into four vaults having a ground floor for rewinding of films. The units were constructed in conformity with the requirements and specifications laid down in the Cinematograph Film Rules, 1948. The vaults were licensed to film distributors. Under the licence, the vault could not be used for any purpose other than storing cinema films. The assessee installed a fire alarm and paid an annual amount to the municipality towards fire services. It maintained a regular staff and also paid for the entire staff of the Indian Motion Picture Distributors Association for services rendered to the licensees. It was held that the assessee was carrying on an adventure or concern in the nature of trade and the subject which was hired out was a complex one. Dealing with the activities carried on by the assessee in that case and, agreeing with the view taken by the Bombay High Court, the Supreme Court held (p. 603):
“The asses???ee kept the key of the entrance which permitted access to the vaults in its own exclusive possession. The assessee was thus in occupation of all the premises for the purpose of its own concern, the concern being the hiring out of specially built vaults and providing special services to the licensees. As observed by Viscount Finlay in Governors of the Rotunda Hospital, Dublin v. Coman, [1920] 7 TC 517 : [1921] AC 1, ‘the subject which is hired out is a complex one’ and the return received by the assessee is not the income derived from the exercise of property rights only but is derived from carrying on an adventure or concern in the nature of trade.”
11. The ratio laid down by the Supreme Court in the above case fully applies to the facts of this case. We, therefore, answer the question in favour of the assessee and against the Revenue.
12. There shall be no order as to costs.