1979 (1) TMI 78 - HC - Income Tax

Summary

Issues Involved:
1. Lease of the air-conditioning plant.
2. Inseparability of the lease of the building and the air-conditioning plant.
3. Tribunal's interference with the Appellate Assistant Commissioner's order.

Issue-wise Detailed Analysis:

1. Lease of the Air-Conditioning Plant:
The primary question was whether the assessees had leased out the air-conditioning plant to the State Bank of India. The court observed that although there was some reference to the provision of air-conditioning in the correspondence preceding the lease deed, the lease deed itself did not mention it. The air-conditioning plant was under the control of the assessees, who were responsible for its maintenance. The State Bank of India paid for the air-conditioning facility based on the floor area, but this did not constitute a lease of the air-conditioning plant. The court concluded that there was no transfer of possession of the air-conditioning plant, and thus, no lease of the machinery.

2. Inseparability of the Lease:
The second issue was whether the lease of the building and the air-conditioning plant were inseparable. The court noted that the lease of the building would continue even if the air-conditioning facility was withdrawn, indicating that the two were separate transactions. The court referred to Section 56(2)(iii) of the Income-tax Act, which applies only when the letting of the building is inseparable from the letting of machinery, plant, or furniture. Since there was no lease of the air-conditioning plant, the provision was inapplicable. The court also cited the Supreme Court's decision in Karnani Properties Ltd. v. CIT, which distinguished between income from property and income from other sources, supporting the view that the receipts from the air-conditioning facility should be treated separately from the rent of the building.

3. Tribunal's Interference:
The third issue was whether it was open to the Tribunal to interfere with the order passed by the Appellate Assistant Commissioner. The AAC had held that the income from the building should be assessed under Section 26 of the Act, while the income from the air-conditioning facility should be treated as income from other sources. The Tribunal had reversed this decision, treating the income from both sources as inseparable and assessable under Section 56(2)(iii). The court found that the Tribunal had misdirected itself by holding that there was a lease of the air-conditioning plant. Consequently, the Tribunal's decision to treat the income as inseparable was incorrect.

Conclusion:
The court concluded that there was no lease of the air-conditioning plant, and therefore, Section 56(2)(iii) of the Income-tax Act did not apply. The rent from the building should be assessed under Section 26 of the Act, and the income from the air-conditioning facility should be treated as income from other sources. The question referred to the court was answered in the negative and against the department. The parties were directed to bear their own costs.