Decided on October 09,1972

D.L. KANHERE Respondents


KANTAWALA, J. - (1.) BY this reference under S. 66(1) of the Indian INCOME TAX ACT, 1922, the following two questions are referred to us for our determination : "Whether the income from the lease of the Kohinoor Cinema building, which had been equipped as a cinema theatre, is assessable under S. 12 of the Indian INCOME TAX ACT, 1922, or under S. 9 of that Act ?" and "Whether the mortgage interest allocated to the building, K (Rs. 28,052 and Rs. 31,583, as the case may be), is an admissible deduction under S. 9(1)(iv) in computing the assessee's income from the two properties (other than 'the building, K') for the asst. yrs. 1958 -59 and 1959 -60 ?" Questions referred to us arise out of the reassessment made upon the assessee for the asst. yrs. 1958 -59 and 1959 -60, the relevant accounting years being the corresponding financial years ending March 31, 1958, and March 31, 1959.
(2.) THE assessee is the owner of three house properties. One of them has been equipped as a cinema theatre. All the three house properties were mortgaged with a view to secure repayment of losses in his speculation business. There were two mortgages in respect of these properties. Under the first mortgage deed all the three properties were mortgaged with a view to secure repayment of a loan of Rs. 3 1/2 lakhs and the interest payable thereunder. Later on, the assessee created a second mortgage in respect of the very same three mortgaged properties. On June 29, 1956, a partnership was formed, consisting of three partners, viz., the assessee, his son, Madhukar, and a limited company known as Gouri Sons (P) Ltd., a company managed, controlled and owned by Kapurs. The partnership business was carried on under the name and style of Kay and Kay Exhibitors. The business of this partnership was that of running Kohinoor Cinema and of exhibiting the cinema films at the said cinema theatre and the management of the said Kohinoor Cinema. The partnership business was to be carried on at the premises of the said Kohinoor Cinema or at such place or places as the partners may mutually decide. Clause 12 provided for calculation of the profits of the partnership business. In ascertaining the profits of the business, the amount that was to be paid for the hire of the cinema theatre was to be deducted as expenses.
(3.) AS aforesaid, the building, Kohinoor Cinema, belonged to the assessee. Under an agreement of lease, dated June 27, 1956, made between the assessee as the landlord on the one hand and the partnership firm of M/s Kay and Kay Exhibitors on the other hand, the assessee as a landlord granted and the partnership accepted as tenant, a lease of the Kohinoor Cinema with all furniture, fixtures, articles and things lying therein for a term of 6 years commencing from the date on which the landlord was in a position to give possession after obtaining the possession from the present occupiers at a monthly rental of Rs. 4,000 payable every month. Two days later, a fresh agreement was entered into and by this agreement dated June 29, 1956, the assessee and the firm of Kay and Kay Exhibitors agreed to reduce the rent payable for Kohinoor Cinema from Rs. 4,000 per month to Rs. 2,800 per month.;

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