Commercial asset letting of a cinema complex treated as business income, not passive income from other sources.

Lease money from letting a cinema complex was treated as business income because the property was a commercial undertaking and the arrangement formed part of the financing and completion of the business asset. The assessee retained the cinema licence, remained responsible for key incidents of ownership, and the lease covered the building, equipment, furniture and related commercial facilities. On these facts, the receipt was characterised as exploitation of a commercial asset rather than passive rental income, and it was distinguished from cases where business activity had been abandoned and only property income remained. The amount was therefore assessable as business income and not as income from other sources.

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Issues: Whether the lease money received for letting out the cinema was assessable as business income under section 10 of the Indian Income-tax Act, 1922, or as income from other sources under section 12 of that Act.

Analysis: The cinema was constructed as a commercial undertaking, the lease arrangement was closely linked with the financing of completion of the building, and the assessee retained the cinema licence in its own name. The lease terms showed that the building, equipment, furniture, restaurant, cycle stand, and parking area were being utilised as part of a commercial arrangement, with the assessee remaining responsible for important incidents of ownership such as replacement of equipment and bearing of certain charges. On these facts, the letting out was treated as exploitation of a commercial asset rather than a mere passive receipt of rent. The arrangement was distinguished from cases where the assessee had abandoned the business and merely derived rent from property.

Conclusion: The lease money was assessable as business income under section 10 and not as income from other sources under section 12, in favour of the assessee.

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