Shah, J. - (1.) The appellants were lessees of a cinema theatre called "Prakash Talkies" at Ahmedabad and carried on the business exhibiting cinematograph films in that theatre. After the expiry of the lease the landlord filed an action in the civil court in rejectment against the appellants and obtained a decree for possession of the theatre and an order for payment of mesne profits. The civil court in ejectment against the appellants and obtained a decree for possession of the theatre and an order for payment of mesne profits. The civil judge at Ahmedabad determined in a proceeding under Order XX, rule 12, of the Code of Civil Procedure, the liability of the appellants to pay mesne profits at Rs. 2,57,963. In appeal the claim of the landlord for mesne profits was settled by consent and the amount was reduced to Rs. 1,90,220.
(2.) In proceedings for assessment of income for the assessment year 1955- 56 the appellants claimed Rs. 92,240 out of the amount of mesne profits as a permissible allowance in the computation of their business income. The Income-tax Officer disallowed the claim holding that the business of Prakash Talkies was not carried on by the appellants during the previous year relevant to the year of assessment 1955-56. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer holding that mesne profits which the appellants had to pay for wrongfully using the landlords property must be treated not as a legal charge on the business but as an ex gratia or capital payment. In the appeal to the Income-tax Appellate Tribunal it was held that since it was not proved that the appellants carried on an "integrated cinematograph business" in the manner claimed by them, the outgoing in respect of a closed business was not an admissible allowance. The Tribunal observed that what the appellants were doing" is acquiring various theatres from time to time either on lease or otherwise and run each of them independently with separate identifiable books; opening of a new theatre of closure of another will not affect the working of the remaining ones. This is after all the proper test of an integrated and interlaced business. The Prakash Talkies had been run quite independently of the other cinemas and, as such, a source had dried up in 1952 itself."
(3.) Two questions were referred by the Tribunal to the High Court of Gujarat, the first of which alone need be set out : "Whether, on the facts and in the circumstances of the case, the amount of Rs. 92,240 was allowable as a deduction in determining the business income of the assessee for the assessment year 1955-56 - ;