JUDGMENT P. Krishna,J.
1. The Income Tax Appellate Tribunal at the instance of the Commissioner of Income Tax, Agra has referred the following question of law under Section 256(1) of the Income Tax Act 1961 (hereinafter referred to as the Act) for opinion to this Court:-
" Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from letting out of a cinema hall ( Sant Talkies) together with the machinery therein was rightly assessable in the hands of the assessee under the head "Income from Business" in the light of the fact that letting out of the machinery was inseparable from the letting out of the Cinema Hall?"
2. The assessment year involved in the present reference is 1981-82. The brief facts of the case are as follows:-
The assessee respondent derived income from a picture hall namely Sant Talkies. She became the owner of the Sant Talkies w.e.f. 31st July 1979. Earlier Sant Talkies was property of a partnership firm namely Surendra Kumar Sureshini Mittal. The said partnership firm was not carrying on the business of film exhibition in that cinema hall but hired it out to M/s. Sant Talkies, Ferozabad. In the said firm the assessee respondent was one of the partners. The income derived by the firm from M/s. Sant Talkies was being assessed as business income of the firm. The assessee became the sole owner of the Sant Talkies on account of dissolution of the partnership firm by means of the dissolution deed dated 31st July 1979. The assessee took the assets and liabilities, including the picture hall Sant Talkies as a result of dissolution of the partnership firm. In the relevant assessment year, the Income Tax Officer was of the view that the assessee had never carried on the business of film exhibition with the assets of Sant Talkies and therefore the rental income realised by the assessee from Sant Talkies is to be taxed under the head income from house property. He rejected assessee's claim to be assessed on the said income under the head "business". The Income Tax Officer computed the income accordingly. But he allowed the depreciation on the electric fittings, air conditioner, furniture, sanitary fittings, machinery, electric fans etc. The Appellate Assistant Commissioner in appeal against the assessment order found that the income from letting out the Sant Talkies altogether with machineries thereon has to be accepted as income from business. He also found that the machinery hired out was inseparable from the leasing out of Cinema Hall. The said order of the Appellate Assistant Commissioner has been confirmed by the Tribunal in second appeal.
3. Heard Shri Dhananjay Awasthi, the learned standing counsel for the department in support of the reference. Nobody appears for the assessee respondent.
4. The Tribunal has placed reliance on Clause 5 of the deed of partnership of dissolved Firm. This was to the effect that the business of partnership would consist of exhibition of motion pictures including leasing out of the picture hall also. It was very much influenced by the fact that the income earned by the erstwhile partnership Firm namely M/s. Surendra Kumar Sureshini Mittal in which the assessee was a partner for the earlier years was treated by the Department as income from business. The assessee succeeded to the assets and liabilities of the dissolved Firm. The picture hall along with the machineries etc. was taken on lease by M/s. Sant Talkies, Ferozabad by the erstwhile Firm Surendra Kumar Sureshini Mittal and the same lease continued even thereafter when the assessee became the exclusive owner of Sant Talkies w.e.f. 31st July 1979 on account of dissolution of partnership.. The terms and conditions of the lease agreement with M/s. Sant Talkies with respect to the Sant Talkies were as follows:-
i) "Tenancy to commence from 1.2.1970.
ii) Rent of Rs. 49000/- per month payable for the user of the building.
iii) All repairs to be undertaken by the 'tenant'.
iv) Monthly rent of Rs. 4,000/- payable for the user of the equipment, machinery, fixtures and fittings, furniture, fans and cooling plant installed in the theatre. Repairs of the same to be met by the tenant.
v) All taxes relating to the building and user of the assets, referred to above, was the exclusive liability of the tenant.
vi) The 'tenancy lease agreement' could be terminated by either party by giving three months' notice in writing.'
5. The Tribunal has also found that the agreement under which the property was let out was composite one. It may be mentioned here that the Tribunal found that the lessee had accepted the assessee as a successor to the agreement with the dissolved Firm. The lease rent continued to be paid for the building as well as machinery at Rs. 4,000/- per month for each. The learned standing counsel for the department could not point out any legal or factual error in the order of the Tribunal.
6. In view of the finding that the income derived by the partnership Firm in which the assessee was one of the partners from Sant Talkies was treated as business income during the continuance of the partnership, we do not find any fault in the order of the Tribunal that when the assessee became the exclusive owner of the Sant Talkies on account of dissolution of the partnership the income derived by the assessee will be taxed under the head income from business.. Every thing remained same except the dissolution of the partnership in which the assessee was a partner. The assessee indisputably became the exclusive owner of the Sant Talkies since 31 st July 1979 on account of dissolution of partnership deed.
7. In absence of any material being placed by the Learned Standing Counsel for the Department in support of the argument that the income in question should be treated as income from the house property we do not find any error in the order of the Tribunal.
8. In the result we answer the above question of law in affirmative i.e against the Department and in favour of the assessee. However, there shall be no order as to costs.