1. This is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to, as "the Act"), by the Income-tax Appellate Tribunal, Madras Bench, on the application of the assessee. The question referred for decision is :

"Whether, on the facts and in the circumstances of the case, the income from the letting of the building by the assessee to the Export Promotion Council is assessable under the head 'Income from house property' ?"

2. The reference relates to the assessment year 1963-64. The assessee is a medical practitioner. In 1962, he constructed a building at Ernakulam. When the construction was in progress, he entered into an agreement with the Export Promotion Council to lease the second floor and part of the first floor of the building to the Council. The terms and conditions of the lease are contained in a letter dated July 16, 1962, written by the Chairman of the Council to the assessee. This letter is annexure "A" to the reference and it reads :

"Dear Sir, Please refer to your letter dated 22nd June, 1962, and the further discussions you have had with us regarding the hiring of the building under construction for the use of the Export Promotion Council. We are prepared to hire the entire second floor covering an area of 5,200 sq. ft. and the portion of the 1st floor covering an area of 2,400 sq. ft. approx. on the following terms and conditions:

1. The accommodation will be hired in the name of the Cashew Export Promotion Council, who shall have the right to sublet the accommodation to any party they choose.

2. The total rent for the portion hired will be Rs. 2,350 (rupees two thousand three hundred and fifty only) per mensem.

3. You will provide [the necessary partitions as indicated in the drawing attached to this letter.

4. You will provide the necessary lavatories, closets, etc., as indicated in the attached drawing.

5. You will air-condition the room market 'council hall'.

6. Three garages in the court-yard will be reserved for our use.

7. A fluorescent tube fitting ' Export House ' will be prominently displayed in the building.

8. You will provide separate electric meters for the spaces as indicated to you (3 in number). We agree to pay the charges incurred on account of electricity consumed by us.

9. You will make arrangements for the uninterrupted water supply to the offices occupying the space referred to you.

10. You will maintain the building at your own cost. White-washing/colour washing will be done at least once a year.

11. You will ensure that the lift is provided not later than 1st of April, 1963.

12. The rent will be payable by the Cashew Export Promotion Council at the end of each month to you from the date of occupation.

13. The third floor, when ready, will not be let out to any other party without consulting us.

14. The building should be ready for occupation by 1st of November, 1962.

15. This agreement will be terminable by a notice of six months on either side.

If you agree with the above conditions, kindly sign the duplicate copy of this letter in token of your acceptance and return it to us.

Yours faithfully."

3. The assessee contended that the above agreement evidences a hire of machinery, plant and furniture along with the building, and that the income received by him from the said transaction is "income from other sources" falling under Section 56(2)(iii) of the Act. The Income-tax Officer rejected the contention, and assessed it as "income from house property" under Section 22 of the Act. He appealed to the Appellate Assistant Commissioner without success. He again appealed to the Appellate Tribunal, who dismissed the appeal and confirmed the decision of the Appellate Assistant Commissioner. In doing so, it stated :

"In the present case, most of the furniture and fixtures mentioned are ordinary amenities now invariably found in a modern building. Fans, lavatories, water-supply, partitions are all the usual types of fixtures one now associates with a modern building. We do not consider that, the existence of these amenities would constitute a case of a building and plant, machinery and furniture being let out inseparably."

4. The assessee relied on the decision of the Supreme Court in Sultam Brothers Private Ltd, v. Commissioner of Income-tax, [1964] 15 I.T.R. 353; [1964] 5 S.C.R. 807 (S.C.)., before the Tribunal in support of his contention. Referring to this decision, the Tribunal stated that the admitted fact that the assessee did not provide an electric lift as stipulated in the agreement and that the rent was consequently reduced showed "that the plant, furniture and the building were not let out inseparably".

Counsel for the assessee submitted that the conclusion of the Tribunal cannot be sustained on the authority of the above decision of the Supreme Court, and that the lease evidenced by annexure "A" fell within Clause (iii) of Sub-section (2) of Section 56 of the Act, It is necessary to refer to some of the provisions of the Act to examine this contention. Section 4 contains the charging provision; and the charge is on the total income of the previous year. "Total income" is defined as the total amount of the income referred to in Section 5, computed in the manner laid down in the Act.

Section 14 classifies all income under several heads for the purpose of computation of the total income. That section reads :

"14. Heads of income.--Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :--

A.--Salaries.

B.--Interest on securities.

C.--Income from house property.

D.--Profits and gains of business or profession.

E.--Capital gains.

F.--Income from other sources."

5. Section 22 of the Act states what is the income chargeable under the head "Income from house property". Sections 24 and 25 deal with the deductions allowed In computing the income chargeable under the head "Income from house property". The term "house property" is not defined in the Act. Section 56 states what is the income chargeable under the head "Income from other sources". It reads :

"56. Income from other sources.--(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 :--

(i) dividends;

(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 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 is clear from Sub-section (1) of Section 56 that an income would be chargeable under the head "Income from other sources "only if it does not fall under any of the other heads specified in Section 14. So, if an income falls under Section 22, it cannot fall under Section 56. Section 57 specifies the deductions allowed in computing the income chargeable under the head "Income-from other sources" ; and according to that provision, most of the deductions allowed in respect of buildings, plant, machinery any furniture used for the purposes of business are allowed in the case of income of the nature referred to in Clauses (ii) and (iii) of Sub-section (2) of Section 56. These deductions are much larger than the deductions allowed in the case of income from buildings falling under the head "Income from house property". That is why the assessee seeks to bring the income from his building under Clause (iii) of Sub-section (2) of Section 56.

7. The legislative history of the above provisions would throw considerable light on the purport of these provisions. They correspond to Sub-sections (3) and (4) of Section 12 of the Indian Income-tax Act, 1922. Sub-section (3) was inserted in that Act by Section 13 of the Indian Income-tax (Amendment) Act, 1939, while Sub-section (4) was inserted by Section 7 of the Indian Income-tax (Amendment) Act. 1941, Sub-section (3) deals with income from machinery, plant or furniture let on hire ; while Sub-section (4) deals with income from the same things, viz., machinery, plant or furniture let on hire along with buildings, where the letting of the one is inseparable from the letting of the other. By enacting Sub-section (3) income from letting of machinery, plant or furniture was brought under the head "Income from other sources" ; and consequently that income became entitled to most of the deductions allowed in respect of machinery, plant or furniture used for the purpose of business. Then a question would naturally arise whether, if these things are let along with buildings and the letting of the machinery, plant or furniture is not separable from the letting of the buildings, the income from this combined letting would be entitled even to the deductions allowed in respect of income falling under Sub-section (3). Sub-section (4) was enacted obviously to resolve the above question, and to provide that the income from such a combined letting would be treated on a par with the income falling under Sub-section (3), namely, income from letting machinery, plant or furniture. So, if the letting of a building would fall under Sub-section (4), the income therefrom would also be entitled to the same deductions. These provisions have been retained as Clauses (ii) and (iii) of Sub-section (2) of Section 56 in the Income-tax Act, 1961.

8. The assessee's claim that the income from the letting as per the agreement evidenced by annexure "A" falls under Clause (iii) of Sub-section (2) of Section 56 may now be considered in the light of the above provisions of the Act. Under the agreement the assessee was to provide the following things :

(i) partitions,

(ii) necessary lavatories, closets, etc.,

(iii) air condition for one room,

(iv) one fluorescent tube fitting for the name board "Export House",

(v) separate electric meters,

(vi) uninterrupted water supply,

(vii) electric lift.

9. The lift was not admittedly provided ; and on that account the rent was reduced. According to the assessee, items (i) to (vi) constitute machinery, plant and furniture ; and the agreement evidences a letting of these things and also a letting of the buildings, and the two leftings are inseparable. He further submitted that the quantum of the machinery, plant or furniture let along with the building or the proportionate rent, if any, that can be fixed for the machinery, plant or furniture, was not relevant. In other words, it was not necessary for a case to fall under Clause (iii) of Sub-section (2) of Section 56, that the building should contain any substantial amount of machinery, plant or furniture. It was sufficient if there was any item falling under the description "machinery, plant or furniture" ; and so letting of a building with necessary lavatories, closets, etc., or a building with water supply or with electric fans or even with electric lights would be a case falling under Clause (iii). It is impossible to accede to this contention. There is no dispute that income from letting of a house falls under the head "Income from house property". No building would be fit for habitation without some of the above amenities. The extent of the amenities may vary, depending upon several considerations. If the above contention was right, income from letting of a building can never fall under the head " Income from house property", unless the building is one without any of the amenities, which is necessary to make it habitable. It is not possible to treat a building separate from the fittings therein which go along with it is part thereof. Items (i) to (vi) which the assessee has provided in the building as per the lease agreement are fittings in the building and form parts of the building. Therefore, the agreement evidences only a letting of the building and income therefrom falls under the head "Income from house property". That being so, it cannot fall under the head "Income from other sources". Clause (iii) of Sub-section (2) of Section 56 applies only to a combination of two lettings, which are inseparable : a letting of machinery, plant or furniture and also a letting of buildings. It speaks of "the letting of the buildings" and also of the "letting of the said machinery, plant or furniture"; and the said provision is attracted only if the above two things are inseparable, or, in other words, if they form part and parcel of the same transaction. The agreement as per annexure "A" does not make out a letting of any machinery, plant or furniture. The rent is fixed for the building with all the amenities mentioned in the agreement. It must have been fixed having due regard to the provision of these amenities ; but it is a different thing from saying that the agreement involves a letting of these amenities also. There is only one letting in this case, and that is of the building. This is clear from the first paragraph of the agreement, though a faint attempt has been made in the subsequent clauses of that agreement to display some amount of ingenuity to bring the transaction under Clause (iii) of Sub-section (2) of Section 56.

10. Counsel for the assessee relied in this court also very much on the decision of the Supreme Court in Sultan Brothers' case and submitted that the said decision applied on all fours to the present case. In that case, the assessee constructed a building fitting up with furniture and fixtures for being run as a hotel. As then let out the building fully equipped and furnished for running a hotel and for certain ancillary purposes. The lease provided for a monthly rent of Rs. 5,950 for the building and a hire of Rs. 5,000 for the furniture and fixtures. The assessee claimed that the whole income received under the lease fell under Sub-section (4) of Section 12 of the Indian Income-tax Act, 1922, and that it should be assessed as income under the head "Income from other sources". The income-tax authorities disallowed the claim, holding that the rent received from the building was assessable under the head "Income from house property" and that the rent received on account of furniture and fixtures alone was assessable under the head "Income from other sources". The Supreme Court accepted the assessee's claim holding "that when a building, plant, machinery or furniture are inseparably let, the Act contemplates the rent for the building as a residuary head of income". Dealing with the question whether it was such a letting, the court said :

"What, then, is inseparable letting ? It was suggested on behalf of the respondent Commissioner that the sub-section contemplates a case where the machinery, plant or furniture are by their nature inseparable from a building so that if the machinery, plant or furniture are let, the building has also necessarily to be let along with it. There are two objections to this argument, In the first place, if this was the intention, the section might well have provided that where machinery, plant or furniture are inseparable from a building and both are let, etc. The language, however, is not that the two must be inseparably connected when let, but that the letting of one is to be inseparable from the letting of the other. The next objection that there can be no case in which one cannot be separated from the other. In every case that we can conceive of, it may be possible to dismantle the machinery or plant or fixtures from where it was implanted or fixed and set it up in a new building. As regards furniture, of course, they simply rest on the floor of the building in which it lies and the two indeed are always separable. We are unable, therefore, to accept the contention that inseparable in the sub-section means that the plant, machinery or furniture are affixed to a building.

It seems to us that the inseparability referred to in Sub-section (4) is an inseparability arising from the intention of the parties. That intention may be ascertained by framing the following questions : Was it the intention in making the lease--and it matters not whether there is one lease OF two, that is, 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 are in the affirmative, and the last in the negative then, in our view, it has to be held that it was intended that the lettings would be inseparable. This view also provides a justification for taking the case of the income from the lease of a building out of Section 9 and putting it under Section 12 as a residuary head of income. It then becomes a new kind of income, not covered by Section 9, that is, income not from the ownership of the building alone but an income which though arising from a building would not have arisen if the plant, machinery and furniture had not also been let along with it."

11. Counsel for the assessed, relied on the above passage, and submitted that, applying the tests laid down by the Supreme Court to the instant case, the lease was an inseparable one, and that the whole income arising thereunder would fall under the head "Income from other sources". But, there is a primary objection in accepting the above contention, which assumes that there is in this case a letting of the machinery, plant and furniture and also a letting of the building. The question whether the two letting form part and parcel of the same transaction or the two lettings are -inseparable arises only if there are two lettings. As already pointed out, there are no such two lettings in this case. The amenities which the assessee has provided in the building form part of the building which the assessee agreed to provide for the lease of the building. The above decision does not, therefore, support the assessee.

12. The question referred to is accordingly answered in the affirmative and against the assessee. In the circumstances of the case, the parties will bear their respective costs. A copy of this judgment under the seal of this court will be sent to the Appellate Tribunal, as required by Section 260(1) of the Act.