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Issues Involved:
1. Whether the income of the assessee should be computed under section 12 of the Act. 2. Whether the unabsorbed depreciation for 1954-55 can be set off against the income computed under section 12 in the assessment year 1955-56. Issue-wise Detailed Analysis: 1. Whether the income of the assessee should be computed under section 12 of the Act: The assessee, a private limited company, was engaged in the business of exhibiting motion pictures in its cinema house, Bharat Talkies. On May 14, 1953, the assessee leased the cinema house, including its equipment, to a lessee for a period of five years with an option to renew for three more years. The lease agreement stipulated a monthly rent of Rs. 2,000, divided equally among the cinema theatre, projection equipment, furniture, and electric installation. In the assessment years 1955-56 and 1956-57, the assessee claimed that the income from leasing the cinema theatre and equipment was business income chargeable under section 10 of the Income Tax Act, and thus, it was entitled to carry forward business losses from earlier years. The Income-tax Officer, however, held that the income was not from business but from other sources chargeable under section 12, and thus, the business losses could not be carried forward. The Appellate Assistant Commissioner upheld this view but allowed the set-off of unabsorbed depreciation for 1954-55 in the assessment year 1955-56. The Tribunal dismissed the assessee's appeal, agreeing that the income was assessable under section 12 and not section 10, and also reversed the set-off of unabsorbed depreciation. The court examined whether the leasing of the cinema theatre and equipment constituted a business activity. The assessee argued that leasing out the asset was a mode of exploiting its commercial asset in the same business, and the income should be considered business income. The Tribunal, however, concluded that the assessee had ceased its business activity by leasing the entire asset and was merely collecting rent, indicating a cessation of business. The court held that an asset used for business does not cease to be a commercial asset merely because it is temporarily let out. The income from such letting is still business income if the asset is capable of being used for the same business purpose. The court found that the assessee had not abandoned its business but was exploiting its commercial asset through leasing, which is a recognized mode of carrying on business. Consequently, the income from leasing the cinema theatre and equipment should be considered business income chargeable under section 10. 2. Whether the unabsorbed depreciation for 1954-55 can be set off against the income computed under section 12 in the assessment year 1955-56: Given the court's conclusion that the income from leasing the cinema theatre and equipment is business income chargeable under section 10, the second question regarding the set-off of unabsorbed depreciation under section 12 does not arise. The court did not proceed to answer this question. Conclusion: The court answered the first question in the negative, holding that the income from leasing the cinema theatre and equipment is business income chargeable under section 10. Consequently, the second question did not arise for consideration. The assessee was awarded costs from the department.
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