Bharucha, J.
1. The question to be considered in this reference under section 256(1) of the Income-tax Act, 1961, made at the instance of the assessee reads thus :
'Whether, on the facts and in the circumstances of the case, the income of the building known as 'Meher Chambers' arising from lease and lease and licence of the building premises was assessable under the head 'Income from property' or under the head 'Income from other sources' ?'
2. The assessment year involved is 1969-70. The assessee had constructed a building called known as 'Meher Chambers' consisting of a ground and give upper floors. It was centrally air-conditioned. By three leases, separate premises in the building were leased to three tenants. By another set of three agreements, the air-conditioning facility was made available to the three tenants. We shall refer to the agreements in some detail.
3. The assessee filed a return for the assessment year 1962-63 declaring the income received from the leases under the head 'Income from property' and the income from the agreements under the head 'Income from other sources'. Subsequently, it filed a revised return declaring the income from the leases and the agreements under the head 'Income from other sources'. For the subsequent assessment years up to 1966-67, the income from the leases and the agreements was again declared under the head 'Income from other sources'. The Income-tax Officer rejected the assessee's claim and treated the income wholly as income from property. The Appellate Assistant Commissioner upheld his decision. The assessee went up in appeal to the Income-tax Appellate Tribunal which held that this income fell wholly under the head 'Income from other sources'.
4. For the year under reference, the Income-tax Officer treated the income received from the leases as income from property and the income received from the agreements as income from other sources. The Appellate Assistant Commissioner and the Tribunal followed the latter's decision for the earlier years.
5. The question really is whether the income arising to the assessee from the leases is assessable under the head 'Income from other sources' or under the head 'income from property'. The three leases are substantially identical in terms. It is enough to note that they make no mention of the air-conditioning installation or facility. The three agreements are also substantially similar. Thereunder, it is recited that the assessee(referred to therein as the owner) had agreed at the request of the tenants(thereunder referred to as the licensees) to get installed on the premises air-conditioning equipment, machinery and auxiliary installations. Under the agreements, the assessee allowed the tenants to use the installation, such use to be made by the tenants for six days during each week and for ten hours during each day. Amounts payable by the tenants for such use of the installation were fixed under the agreements. It may be noted that the assessee had stated before the Tribunal that this payment was based on the rate of 75 paise per square foot. The agreements provided that, in the event the tenants renewed the leases of the premises, they would be bound to extend the terms of their agreements for the like period, the intention being that both terms should run concurrently. Clause 5 of the agreements made it clear that the assessee was to be in control of the installation and was to be responsible for its maintenance and service. Under clause 7, the assessee was at liberty to temporarily shut off the installation for repairing and such like. Under clause 9 it was provided that if the tenants made default in punctually paying the amounts specified in the agreements or failed to observe any of the terms thereof, the assessee would be entitled immediately to put at end to the concerned agreement and enter upon the premises to seize and take away the installation. To appreciate the argument, it is necessary to set out the relevant portion of section 56. The said section provides as follows :
'56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head 'Income from other sources', if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.
(2) In particular, and without prejudice to the generality of the provisions of sub-section(1), the following income shall be chargeable to income-tax under the head 'Income from other sources', namely : - ...
(ii) income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head 'Profits and gains of business or profession';
(iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head 'Profits and gains of business or profession'.'
6. It was contended on behalf of the Revenue by Mr. Dhanuka that section 56(2)(iii) of the Income-tax Act, 1961, contemplated both the letting of a building and the letting of a plant. In the instant case there was no letting of the installation. Section 56(2)(iii), therefore, did not apply. In the alternative, Mr. Dhanuka submitted that, having regard to the tests laid down by the Supreme Court in Sultan Brothers Private Ltd. v. CIT : [1964]51ITR353(SC) , to which we shall refer and assuming that there were two such lettings, they were separable and the provision did not apply.
7. Mrs. Jagtiani, learned counsel for the assessee, submitted, first, that it was not open to the Revenue to contend that there was no letting of the installation. She then submitted that there were two lettings and that they were inseparable.
8. Mrs. Jagtiani pointed out that the income derived by the assessee from the agreements had been taxed under the head 'Income from other sources'. According to her, it had been so taxed under the provisions of section 56(2)(ii) of the Income-tax Act, 1961. These provisions applied when the plant or machinery had been let on hire. Having so taxed it, Mrs. Jagtiani submitted, it was not now open to the Revenue to contend that the installation had not been let.
9. Mrs. Jagtiani's argument does not take account of section 56(1) of the Income-tax Act, 1961. Thereunder, income of every kind which is taxable but is not chargeable to income-tax under any of the heads specified in section 14 of the said Act is chargeable under the head 'Income from other sources'. This is a general provision. Section 56(2) of the said Act makes a specific provision that income of the kind therein mentioned is chargeable under the head 'Income form other sources.' There is nothing on record which indicates that the income derived by the assessee from the agreements was taxed under the head 'Income from other sources' by reason of clause(ii) of sub-section (2) of section 56 of the said Act. It was not Mrs. Jagtiani's case that this was income which was chargeable under any of the heads specified in section 14 of the said Act. The income from the agreement could well have been taxed under the head 'Income from other sources' because it fell within the purview of section 56(1) of the said Act. Mrs. Jagtiani submitted that depreciation had been allowed on the installation and that could have been allowed only under section 57(ii) of the said Act, but she was unable to show upon the record that such depreciation had, in fact, been allowed. In the circumstances, we cannot preclude the Revenue from arguing that there was no letting of the installation.
10. The assessee had entered into the three agreements with the tenants in respect of the same installation. The tenants were, under the agreements, permitted to use the same installation. Such use was to be made for a stated period per day for a stated period per week. The assessee charged for such use at a rate calculated per square foot. The assessee retained control of the installation and was obliged to service and maintain it. The assessee was entitled to shut the installation off for repairs and the like. The true purport of the agreements, gleaned from a reading of all parts thereof, was that the tenants were given thereby only the facility of utilizing the product of the installation to the tenants.
11. There being no letting of the installation, the requirements of section 56(2)(iii) of the Income-tax Act, 1961, were not met. Accordingly, the income derived by the assessee form the leases cannot be taxed under the head 'income from other sources'. It must be taxed as income from property.
12. Great reliance was placed by Mrs. Jagtiani upon the aforesaid decision of the Supreme Court in Sultan Brothers' case : [1964]51ITR353(SC) . This was a case in which a building fitted with furniture and fixtures was let out on lease, fully equipped and furnished, for the purposes of running a hotel. The question was whether the letting of the plant and furniture was inseparable from the letting of the building. To determine whether the two lettings were separable or not, the building. To determine whether the two lettings were separable or no, the Supreme Court laid down certain tests thus : Was it the intention in making the lease, and it mattered not that there were separate leases in making the lease, and it mattered not that there were separate leases in respect of the furniture and the building, that the two should be enjoyed together Was it the intention to make the letting of the two practically one letting Would one have been let alone, and a lease of it accepted, without the other If the answers to the first two questions were in the affirmative and the last in the negative, then it had to be held that it was intended that the lettings would be inseparable.
13. The decision of this court in CIT v. D. L. Kanhere : [1973]92ITR535(Bom) , in which the decision in Sultan Brothers' case : [1964]51ITR353(SC) has been followed, was a case of a cinema theatre fully equipped and let.
14. In both the aforesaid cases, the issue was not whether there was a letting of the building and a letting of the plant. That was taken for granted. The issue was whether the two lettings were inseparable so as to attract the provisions of section 56(2)(iii) of the Income-tax Act, 1961.
15. The decision of the Karnataka High Court in D. C. Shah v. CIT : [1979]118ITR419(KAR) is of much assistance here. A lease was given to the State Bank of India of a building. Air-conditioning facilities were there after provided. The bank paid for the air-conditioning facility at a rate per square foot. The facility was maintained by the owners.jThe question that was considered was whether the owners had leased out the air-conditioning plant to the bank. The court observed that a lease involved the transfer of possession of the property in question which could be made use of by the lessee in any way he liked, provided he took reasonable care of it. There had been no transfer of possession of the air-conditioning plant. The bank was paying charges for the provision of the facility depending upon the floor area to which the facility was provided. There was, therefore, no lease. The decision in Sultan Brothers' case : [1964]51ITR353(SC) was clearly distinguishable.
16. The Kerala and Calcutta High Court have taken a similar view in Dr. P A. Varghese v. CIT : [1971]80ITR180(Ker) and Indian City Properties Ltd. v. CIT : [1978]111ITR19(Cal) .
17. In the result, we find that there has been no letting under the agreements of the air-conditioning installation. The provisions of section 56(2)(ii) of the Income-tax Act, 1961, do not, therefore, apply, Accordingly, the income derived by the assessee from the premises under the leases cannot be taxed under the head 'Income from other sources' but must be taxed as income from property. The question is so answered.
18. There shall be no order as to costs.