TMI Blog1993 (3) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... ase rent. It is contended that the lease rent should have been considered as business income of the assessee. It was also contended that the assessee should be allowed depreciation of Rs. 1,31,595. The lease amount derived was Rs. 79,315 towards 95 per cent share. On the ground that the record with regard to this amount always reveaied that it was always leased out and was never run by the assessee, the Income-tax Officer took the view that the lease amount has to be considered under the head'other sources'and not business income. It was contended before the Income-tax Officer that the theatre leased out was only for a period of five years under the term of the said lease and all contracts which the co-owners of the cinema hall had entered into with the film distributors had to be taken over by the assessee and that the lease had to observe all conditions of licence granted to the lessor. The fact that the co-onwners had already entered into contracts with film distributors, that they were grantees of licences for running a cinema theatre were all facts showing an intention on the part of the lessor to maintain the theatre and the equipment in perfect condition and running order an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lending business'. Having been aggrieved by the assessment dated 29-9-1987, the assessee went in appeal before the Appellate Asstt. Commissioner, Vijayawada. 3. Firstly, the Appellate Asstt. Commissioner took up for consideration the loss said to be sustained by the assessee while carrying on the moneylending business. He noticed that the assessee claimed Rs. 4,755 towards salaries, Rs. 1,102 towards travelling, Rs. 1454 towards motor car expenses and Rs. 4,704 towards telephone expenses out of the interest income. At the same time he found that the assessee had advanced money only to one party, namely, Sri Art Movies. He held that he did not find any reason for incurring substantial expenditure on salary, travelling, telephone etc. for the purpose of earning interest from only one party. He recorded his finding that the expenses claimed as mentioned above have not been incurred wholly and exclusively for the purpose of earning interest income. A substantial part of the said expenses represented assessee's personal expenses which had nothing to do with earning of interest. Therefore, he allowed only Rs. 1,000 out of the interest income towards expenses. Not having been satisfied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the cinema hall and because of the new A. C. plant the claim for depreciation stood at Rs. 1,31,595 towards 95 per cent share of the assessee. 6. Taking into consideration all the above, the Tribunal is of the opinion that treating the lease amount as income from other sources is not quite correct for the following reasons. Firstly, the Tribunal is of the view that cinema hall. comprising of building, projector, screen, plant and machinery found in the cabin room, electrical fittings and other furniture in the auditorium together constitute'commercial asset'and whichever way the said asset is exploited the resultant Income derived therefrom in the opinion of this Tribunal should always be considered as business income. In this case, there is sufficient indicia to disclose that prior to the lease, the cinema hall was run for some time by the lessors and they have obtained the cinematographic licence to run the cinema hall in that premises and also entered into several advance contracts with the distributors of the films agreeing to exhibit their films in their theatre in the coming days, weeks or months. However, for the reasons best known to themselves, the co-owners of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of a powerloom factory by manufacturing handloom cloth in partnership up to 12-4-1954. Thereafter manufacturing was stopped and the machinery and buildings were lying idle. However, from 1-11-1956, the powerlooms were leased out under agreement dated 13-6-1957 which was renewed on 16-4-1958. Under the lease agreement though the lessee was at liberty to shift the looms and accessories to a new premises and work them there, their ownership continued with the assessee. The assessee was also to be paid a sum of Rs. 650 per month as and by way of share of the net profits. Up to the Tribunal stage the authorities held that the lease income is assessable from other sources. However, the Madras High Court held that the income was assessable as income from business. In Northern India Theatres (P.) Ltd.'s case , a private limited company was incorporated in 1955 which is the assessee with intention to carry on business of cinema and allied businesses, constructed a cinema house during the accounting period ending 31-10-1959 on a plot taken on sub-lease. Subsequently, one H came forward to give an interest-free loan of Rs. 1 lakh to the assessee to meet the cost of construction of the cin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease of the theatre for a temporary period and the income derived by the assessee from the lease was assessable under the head business. In Laxmi Rice Mills' case, the Madhya Pradesh High Court considered a case where the rice mill as well as cinema theatre after being run by the assessee were leased out. The question whether the lease income should be treated as business income or as income from other sources. In that connection, as per the head note of the decision, the following is what is held at page 571: "In order to be business income, there should be evidence of exploitation of commercial assets. Exploitation of commercial assets, does not necessarily mean exploitation by the assessee himself at all material times. The assessee may cause it temporarily to be exploited by another person against payment of consideration and for this purpose may also execute a lease for a fixed period even with clauses of option to renew. It must, however. be shown that the lessor's intention was that during the period of lease, the asset leased out must remain and be treated as a commercial asset and be exploited as such. This intention has to be ascertained from the cumulative effect of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mant of the property. At page 786, the Hon'ble Supreme Court had extracted the order of the High Court found reported as follows : "In order to qualify for an allowance under clause (vi), the claimant must make out that the machinery is the property of the assessee. That test is not satisfied by the present assessee. The assessee does not claim to be the full owner of the machinery in question. All that is claimed for the assessee is 1/6th share in the machinery. Such a fractional share will not suffice for granting an allowance for depreciation under section 10(2)(vi) of the Act." Approving the disallowance of depreciation to the assessee who was only a fractional owner, the Supreme Court categorically held as follows at page 787: " There is hardly any scope for doubt that the benefit of section 10(2)(vi) of the Act would be admissible only where the assessee is the owner of the property. It too is not admissible in respect of a fractional claim." The above decision of the Supreme Court does not leave any doubt that depreciation can be claimed by a full owner and not a fractional owner. Therefore, in view of the said categorical decision, the rejection of the depreciation cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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