Composite lease income and indivisible mortgage interest: cinema letting taxed as other sources, full interest deduction allowed.

Where a cinema building is let together with furniture, fixtures, plant and machinery under one inseparable composite rent, the income is assessable under the residuary head as income from other sources, not as income from property. The decisive test is whether the items are intended to be enjoyed together as one letting, and no apportionment is required where the lease is composite and indivisible. Where a common mortgage covers multiple properties and is one indivisible security, the entire mortgage interest is deductible against the property income assessable under the relevant head, without allocating interest proportionately between properties.

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Issues: (i) Whether the income from the lease of the cinema building, let together with furniture, fixtures, plant and machinery, was assessable under the head "income from property" or as "income from other sources". (ii) Whether the full mortgage interest paid on a common and indivisible mortgage over three properties was deductible against the income from the remaining mortgaged properties when the income of the cinema building was assessed under a different head.

Issue (i): Whether the income from the lease of the cinema building, let together with furniture, fixtures, plant and machinery, was assessable under the head "income from property" or as "income from other sources".

Analysis: Section 12 of the Indian Income-tax Act, 1922 is the residuary head and applies where income does not fall under a specific head. Where building and plant, machinery or furniture are let inseparably, section 12(4) governs the assessment. The decisive test is whether the lettings are intended to be enjoyed together as one composite letting, not whether one letting is primary and the other secondary. On the terms of the lease, the cinema theatre and the articles therein were let for a composite rent without apportionment, showing inseparability.

Conclusion: The income was assessable under section 12 of the Indian Income-tax Act, 1922 and not under section 9.

Issue (ii): Whether the full mortgage interest paid on a common and indivisible mortgage over three properties was deductible against the income from the remaining mortgaged properties when the income of the cinema building was assessed under a different head.

Analysis: Under section 9(1)(iv), interest on a mortgage or capital charge is an allowable deduction in computing property income. Where the mortgage security is one and indivisible, the mortgagee can proceed against any or all of the mortgaged properties for the entire debt and interest. In such a case, the assessee is entitled to claim the whole of the interest against the property income assessable under the head "income from property", and no proportionate allocation of interest to each property is permissible.

Conclusion: The full amount of mortgage interest was allowable as a deduction against the income of the other two properties.

Final Conclusion: The reference was answered by holding that the cinema building income fell under the residuary head, while the entire mortgage interest remained deductible against the property income of the other mortgaged buildings.

Ratio Decidendi: Where a building is let together with machinery, plant or furniture under a single inseparable composite arrangement, the income falls under section 12 as income from other sources; and where the mortgage security is one and indivisible, the whole mortgage interest is deductible against the assessable property income without apportionment.

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