1980 (10) TMI 48 - HC - Income Tax

Cinema lease income deemed business income under Income Tax Act

Commissioner Of Income-Tax, Delhi (Central) Versus Northern India Theatres (Private) Limited

The court held that the income received from leasing out the cinema should be classified as business income under section 10 of the Indian Income Tax Act, ... Business Income Issues involved: Assessment of rent received from leasing out cinema as 'business income' or 'income from other sources' u/s 10 or u/s 12 of the Indian I.T. Act, 1922.Judgment Details:The judgment concerns ITR No. 53 of 1969 for assessment year 1961-62, along with other references for subsequent years. The main question pertains to the classification of rent received from leasing out cinema as business income or income from other sources.The assessee, a private limited company, constructed a cinema house named 'Naaz Cinema' on a sub-leased plot. An interest-free loan was provided by Shri Hari Singh Dabra to complete the construction, and a lease agreement was signed with him for ten years at a monthly rent of Rs. 10,000. The issue was whether this rent should be assessed as business income or income from other sources.The Income Tax Officer (ITO) assessed the rent as income from other sources and disallowed the assessee's claim for development rebate and carry forward loss. The Appellate Authority Commission (AAC) held that the income was not business income as the letting out occurred before the business was set up. However, the Income-tax Appellate Tribunal determined that the rental income was business income under section 10 of the Indian I.T. Act, 1922.The key legal question referred to the court was whether the lease money received by the assessee for letting out 'Naaz Cinema' is assessable under section 10 or section 12 of the Indian I.T. Act, 1922.The Tribunal concluded that the lease of the cinema was a commercial exploitation by the assessee, making it assessable under section 10 and not section 12 of the Indian I.T. Act, 1922. The Tribunal's decision was based on various clauses in the lease deed indicating the commercial intent of the arrangement.In comparison to other cases, the Tribunal highlighted that running a cinema does not require specialized expertise and is distinct from running other businesses like factories or hotels. The Tribunal's decision was supported by precedents such as Ray Talkies v. CIT and C. P. Pictures Ltd. v. CIT, emphasizing the commercial nature of the lease arrangement.The court concurred with the Tribunal's findings, ruling that the income from leasing out the cinema should be assessed under section 10 of the Indian I.T. Act, 1922. The assessee was awarded costs, and the reference was answered accordingly.