2004 (11) TMI 71 - HC - Income Tax

Income from business - Letting out of Machinery with Cinema Hall - Whether, Tribunal was right in holding that the income from letting out of a cinema hall together with the machinery therein was rightly assessable in the hands of the assessee under the head Income from business in the light of the fact that letting out of the machinery was inseparable from the letting out of the cinema hall? - In the absence of any material being placed by the Department in support of the argument that the income in question should be treated as income from the house property, we do not find any error in the order of the Tribunal. In the result we answer the above question of law in the affirmative, i.e., against the Department and in favour of the assessee.

Summary

Issues:
1. Whether the income from letting out a cinema hall along with machinery should be assessable under the head 'Income from business' or 'Income from house property'?

Analysis:
The High Court of ALLAHABAD was presented with the issue of determining the appropriate classification of income derived from letting out a cinema hall along with machinery - whether it should be considered as 'Income from business' or 'Income from house property'. The case involved the assessment year 1981-82 and revolved around the ownership transition of Sant Talkies from a partnership firm to an individual. The Income-tax Officer initially assessed the rental income under 'Income from house property', but the Appellate Assistant Commissioner and the Tribunal later deemed it as 'Income from business'.

The Court observed that the partnership firm's business, which included leasing out the cinema hall, was treated as business income by the tax authorities. Following the dissolution of the partnership, the individual assessee became the exclusive owner of Sant Talkies. The terms of the lease agreement with the lessee indicated a composite arrangement covering both the building and machinery, with rent payable for each component. The Tribunal found no legal or factual errors in this assessment.

The Court emphasized that the income treatment should align with the nature of the activity conducted. Since the income was previously categorized as business income during the partnership, the transition to individual ownership did not alter the essential character of the income. Without any substantial evidence supporting a reclassification as income from house property, the Court upheld the Tribunal's decision to tax the income under the head 'Income from business'. The judgment favored the assessee, ruling against the Department's stance, with no costs awarded.

In conclusion, the High Court affirmed that the income from letting out a cinema hall along with machinery should be assessed under the head 'Income from business' based on the historical treatment of the income and the continuous nature of the lease agreements.