COMMISSIONER OF INCOME TAX Vs. NAGI REDDY B

JUDGEMENT

(1.) THE assessee in this income-tax reference is one Nagi Reddy. He was, at the material time, the owner of two cinematograph film studios in Madras, by name Vijaya Studios and Vahini Studios. He leased them out on rent to a company called Vijaya Productions Private Limited. THE rental income was assessable as part of the assessee's total income. THE question, however, was under which head of income the lease amounts were to be assessed for purpose of computation. THE ITO and the AAC rejected the assessee's claim. But the Income tax Appellate Tribunal accepted the assessee's contention and directed the assessment of the rental income as business income with all that it involved, including allowance of depreciation on buildings and machinery. THE Tribunal, in their order, have set out the grounds for their determination. THE Department's contention in these references is that the Tribunal's decision is erroneous in point of law.

(2.) AS earlier indicated, the dispute in the present case is not about the taxability in the assessee's hands of the rents from the two film studios, but under which particular statutory head of income they fall to be computed. Sarkar J. indicated the general approach to questions of this kind in Nalikant Ambalal Mody v. S. A. L. Narayan Row, CIT . He pointed out that the question whether an income falls under one head or another has to be decided according to the common notions of practical men, for the I.T. Act does not provide any guidance in the matter. More particularly, on the quest on whether a particular letting of buildings is business and the rental income derived therefrom is to be assessed under the statutory head "Business", the same learned judge said, in another decision, that each case has to be looked at from a businessman's point of view, vide Sultan Brothers Pvt. Ltd. v. CIT . The learned judge further pointed out that the reported cases on the subject did not lay down any test for deciding when a letting amounts to business. Another learned judge of the Supreme Court, Ramaswami J., in a later decision, went even further and observed that no general principle can at all be laid down which would be applicable to all cases. New Savan Sugar and Gur Refining Co. Ltd. v CIT .

(3.) MR. Jayaraman adverted to these general observations of the Tribunal and said that they evidenced a clear misdirection on the part of the Tribunal. The error of the Tribunal, according to him, lay in thinking that cinematograph film studios were commercial assets par excellence and income derived therefrom must be per se business income.