TMI Blog1972 (10) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... s for our determination : " Whether the income from the lease of the Kohinoor Cinema building, which had been equipped as a cinema theatre, is assessable under section 12 of the Indian Income-tax Act, 1922, or under section 9 of that Act? " and " Whether the mortgage interest allocated to the building, K (Rs. 28,052 and Rs. 31,583, as the case may be), is an admissible deduction under section 9(1)(iv) in computing the assessee's income from the two properties (other than ' the building, K ') for the assessment years 1958-59 and 1959-60 ? " Questions referred to us arise out of the reassessment made upon the assessee for the assessment years 1958-59 and 1959-60, the relevant accounting years being the corresponding financial years ending March 31, 1958, and March 31, 1959. The assessee is the owner of three house properties. One of them has been equipped as a cinema theatre. All the three house properties were mortgaged with a view to secure repayment of losses in his speculation business. There were two mortgages in respect of these properties. Under the first mortgage deed all the three properties were mortgaged with a view to secure repayment of a loan of Rs. 3 1/2 lak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that was derived by the assessee from the hire of Kohinoor Cinema Theatre was assessed as income falling under section 12 of the Act. Later on, the Income-tax Officer took action under section 34(1)(b) of the Act and in making the reassessment, he found that the interest amount of Rs. 28,502 for the first year and Rs. 31,583 for the second year was properly allocable to the loan secured by the mortgage of Kohinoor Cinema Theatre building and hence he revised the computation of the assessee's property income under section 9 of the Act. He did not allow the interest amount of Rs. 28,052 and Rs. 31,583 against the income brought to tax in the assessee's hands from Kohinoor Cinema Theatre building under section 12 on the ground that the said outgo was not any expenditure incurred by the assessee solely for the purpose of making or earning the rental income concerned. On appeal by the assessee, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. On appeal before the Income-tax Tribunal, firstly, it was urged on behalf of the assessee that the assessments that were originally made by the Income-tax Officer for the first two years were correctly made and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, he has not controverted the fact that the mortgage is one and indivisible in nature ; that the mortgagee will be entitled to proceed against each one of these three mortgaged properties for realisation of the amount due under the mortgage as well as for interest ; that accordingly even if the income of the building of the Kohinoor Cinema Theatre is assessed as income under section 12 of the Act, the entire amount of interest payable under the mortgage for these two assessment years can be deducted from the income of the other two properties assessable under the Act. It is not disputed in the present case that under both the indentures of mortgage the three properties were mortgaged with a view to secure the repayment of the principal amount due to the mortgagee together with interest. Thus the mortgage security is one and indivisible. It is always open under such circumstances to a mortgagee to proceed against any one or more or all the properties mortgaged for the purpose of realising the entire amount of principal and interest due to him under the mortgage. For the two assessment years, the total amount of interest payable to the mortgagee was Rs. 55,320 and Rs. 58, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said machinery, plant or furniture, he shall be entitled to allowances in accordance with the provisions of clauses (iv), (v), (vi) and (vii) of sub-section (2) of section 10 in respect of such building. While the matter was being considered by the Tribunal, on behalf of the assessee reliance was placed upon a decision of this court in Sultan Brothers (Private) Ltd. v. Commissioner of Income-tax . In this case the court made a distinction between a primary letting and secondary or subsidiary letting. The High Court observed that if the primary letting is of machinery, plant or furniture and the secondary letting is of the buildings and the two lettings are inseparable, then only will the provisions of sub-section (4) of section 12 apply. The Tribunal, following these observations, took the view that there was an irresistible conclusion that the letting of the building of Kohinoor Cinema was not a secondary one but it was the primary one and that the letting of the machinery and furniture was the secondary one. According to the Tribunal, the phrase " cinema theatre " in the lease transaction was the cinema theatre as the Kohinoor Cinema and the other things such as furniture, mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make the letting of the two practically one letting ? Would one have been let alone, and a lease of it accepted, without the other ? If the answers to the first two questions are in the affirmative, and the last in the negative, then it has to be held that it was intended that the lettings would be inseparable. If regard be had to the facts of the present case, there cannot be much controversy that the letting of the building and that of plant, machinery, furniture and fixtures was inseparable. A building built for cinema theatre by way of necessity has to be equipped with furniture, fixtures, plant and machinery required for the purpose of conducting the business of exhibition of films. It will be impossible for an owner of the cinema theatre not to let out inseparably building and plant and machinery. The matter, however, is simpler still if regard be had to the provisions of the agreement of lease arrived at between the assessee and the partnership of Messrs. Kay and Kay Exhibitors. The operative part of this document shows that the assessee as lessor or landlord has granted and the partnership has accepted a lease of the cinema theatre known as Kohinoor Cinema and all fur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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