TMI Blog2014 (8) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... f promoting construction of new cinema hall - the source of funds for construction of cinema hall is irrelevant; and it would also not matter if the grant would be available after the business has been set up - the assistance cannot be said to be an operational subsidy so as to be taken as a revenue receipt - the remission had been granted by way of incentive of capital receipts in the construction of cinema building - the subsidy in respect of Multiplex located at Jaipur to be capital in nature. Applicability of Explanation 10 to sec. 43(1) – Held that:- E. Tax subsidy was not given to meet the cost of any specific asset - the department itself proposed that there was no obligation on assessee to utilize it for any specific purpose will not be hit by Explanation 10 to Sec. 43(1) - entertainment subsidy being for the promotion of cinema/ multiplex industry, only because the methodology adopted is to cap it to capital cost of assets will not mean to reduce the cost of asset directly or indirectly in terms of Explanation 10 to Sec. 43(1) - the subsidy received by the Assessee cannot be received from the written down value for the purpose of computing depreciation - the alternate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd related services. Assessee electronically filed its return of income for A.Y. 06-07 on 20.12.2006 declaring total income of ₹ 8,17,42,812/-. The case was selected for scrutiny and thereafter the assessment was framed 143(3) vide order dated 29.12.2008 and the total income was determined at ₹ 9,67,67,330/-. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) vide order dated 27.10.2009 granted partial relief to the Assessee. Aggrieved by the order of CIT(A), Assessee and Revenue both are now in appeal before us. We now take up Revenue's appeal in ITA No. 441/AHD/2010 for A.Y. 2006-07. 5. The ground raised by the Revenue reads as under:- 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting addition of ₹ 14,68,89,992/- on account of treating the entertainment tax as revenue receipt as against the claim as capital receipt. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in not appreciating the fact that the incentive given to the assessee for assisting him in carrying out the business operations and it is given only after and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his year. Entertainment tax exemption availed by the company in terms of the respective State policies was claimed by the assessee as capital receipt, which was denied by the AO, relying upon the decision.of the Supreme Court in the case of Sahney Steel Press Works Ltd Vs CIT, 228 ITR 253. 5. In appeal, the Id. AR contended that the said amounts were in the nature of capital receipt, being incentive by way of exemption from entertainment tax and hence they were required to be excluded while computing the taxable income. The break-up of amount is as under: Pune ₹ 13,911,045 Baroda ₹ 37,368,008 Elgin Rd (Kolkata) ₹ 30,992,010 Salt Lake (Kolkata) ₹ 18,553,315 Indore ₹ 1,511,072 Nariman Point(Mumbai) ₹ 44,460,613 Jaipur, (vaibhav) ₹ 2,094,912 Total ₹ 148,890,975 5.2 The Id. AR relied on the detailed submissions made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . p.544] S.O.293 - In exercise of the powers conferred by sub-section (2) of section 7 of the Rajasthan Entertainments and Advertisements Tax Act, 1957 (Raj. ActNo.24 of 1957), the State Government being of the opinion that it is expedient in the public interest so to do, hereby 'exempts entertainment tax (including additional entertainment tax) for a period of five years, payable by a new cinema hall constructed subject to the condition that commercial exhibition of films in such cinema hall should start up to March, 31, 2000. // No.K4(l)FD/Tax-Div./2000-308 dated March 30,2000 S.O. 383 - In exercise of the powers conferred by sub-section (2) of the section of the Rajasthan Entertainmentand advertisement Tax Act, 1957 (Act no 24 of 1957),the state Government hereby makes the following amendment in this Department Notification NoF.4(69)FD/tax-Div/95-98 dated 15- 3-199 6,namely:- AMENDMENT In the said notification, the existing expression upto March 31,2000 shall be substituted by the expression upto March 31,2002 5.6 The above notifications have been issued in exercise of powers conferred by sub-section (2) of section 7 of the Rajasthan Entertainments an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal encapsulated the judicial position with regard to this issue following the ratio of the Supreme Court in the case of Sahney Steel (supra) and held that the ultimate decision whether the receipt falls in the capital field or out of it would depend on the salient features of the Scheme. If it is given as a general assistance to the assessee to carry on his business or trade, it would be a trading receipt, but if the object of the subsidy, irrespective of its source, is to enable the assessee to acquire new plant and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt and it will not be open to the Revenue to contend that the subsidy paid in the form of refund of sales-tax paid on raw materials or finished products must be treated as revenue receipt. However, if the monies are given to the assessee for assisting him in the carrying on of the business operations and it is given only after and conditional upon the commencement of production, they must be treated as revenue receipt. 5.9 In Ponni Sugars Chemicals Ltd. Others, 219 CTR 105, the Supreme Court laid down the following prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsidy. 5.13 In the case of Jaipur Multiplex, the entertainment tax subsidy has been granted to a new cinema hall constructed subject to the condition that commercial exhibition of films in such cinema hall would start up to March, 2000. However, the object of the scheme of subsidy has not been amplified or particularly targeted at newly constructed cinema halls. The object of this scheme has been stated in vague amorphous terms i.e., the state Government being of the opinion that it is expedient in the public interest so to do . In this case, the decision of the Indore Bench of the ITAT in ITO v Shreeji Chitra Mandir, 97 ITD 66, would be applicable since the subsidy has not been related to any capital outlay but has been related to the general objective of public interest5'. Accordingly, in my opinion, the AO has correctly treated the quantum of subsidy as supplementary trade receipt. The disallowance of ₹ 20,90,912/- is accordingly confirmed. 5.14 In respect of Multiplex at Indore, the Id. AR submitted that the subsidy was granted vide Notification no. (38)-B-5-16-2000-CT-V dated 25th October 2001 issued in exercise of the powers conferred by Section 7 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now in appeal before us. 10. Before us, ld. D.R. submitted written submissions, the relevant paras of which reads as under:- 6. What comes out in the three decisions of the Apex Court is that while encouragement of an Industry is always the basis for granting of a subsidy, it may be a Capital subsidy or a Revenue subsidy based on how the Scheme granting the subsidy seeks to encourage the Industry. Such encouragement can be by either of two ways, (a) By subsidizing the cost of setting up of the Industry or (b) by aiding the profitability of the Industry. In the former case, the subsidy would be capital in nature and in the latter case, it would be revenue in nature. 7. It has thus been held that the subsidies given for the purpose of setting up of the Industry by subsidizing the cost of setting up were capital in nature and those subsidies granted to encourage the setting up of an Industry by making the business (more profitable is revenue in nature. In Ponni Sugars case, which is the latest decision the subject and has taken into consideration other decisions rendered the basic test be applied in judging the character of subsidy and highlighted as under with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in the Unit in M.P. in current years, apart from the Heading of the Scheme, is that the subsidy has been computed as a percentage of the fixed Capital Cost. True nature of this has been highlighted in P.J. Chemicals case by the Apex Court, in Para 13: The Question in the present context is not whether if a portion of the costs is met directly or indirectly by any other person or authority, it should be deducted or not. Quite obviously, the plain meaning of the Section is that it shall be. But the real question is as to the character and nature of a Subsidy whether it was really intended to subsidise the cost of the capital or was ntended as an incentive to encourage new entrepreneurs to move to backward areas and establish Industries, the specified percentage of the Fixed Capital Cost which is the basis for determining the subsidy being only a measure adopted under the Scheme to quantify the financial aid. 12. This brings us to the question of treatment given by the assessee in its accounts which also gives the pointer as to how the subsidy was utilized, whether for Capital Purposes or as a revenue receipt. It can be seen from the Schemes itself that unlike in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat such decision is manifestly wrong or proceeds upon a mistaken assumption in regard to the existence or continuance of a statutory provision or is contrary to another decision of the Court. In CIT v. Kalpetta Estate Ltd. 211 ITR 635 (Ker), it was further decided by the Kerala High Court that a Tribunal is entitled to take a different view of the matter if new materials were placed or on a closer and more intelligent analysis. Here the review of the earlier decision will be based on concluded criteria laid down by the Apex Court. 16. The issue of West Bengal Entertainment Tax receipts, whether Capital or Revenue has not been adjudicated so far and hence may be adjudicated now, in these appeals. 17. As an alternate ground, it is submitted that if the subsidies are held to be capital in nature, then the application of the provisions u/s. 43(1) Explanation X with reference to the definition of Actual Cost may be applied and the value of the assets be reduced accordingly, to the extent of subsidy received and the depreciation to be granted only on that basis. As a matter of fact, the Apex Court in the P.J. Chemicals case cited (Supra) would set the basis for this, where i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue has been decided by a High Court, the matter is covered in Assessee's favour. With respect to the subsidy in case of Indore Multiplex he submitted that the scheme of subsidy was more or less in line with the schemes of other State Government like Gujarat, Maharashtra and West Bengal. He also pointed to the findings of CIT(A) with respect to Indore Multiplex and supported his order. With respect to the additional ground and alternate contention of the Revenue, with respect to the reducing the capital subsidy from the cost of assets in view of explanation 10 to Section 43(1), he submitted that the subsidy amount cannot be reduced from the block of assets and for which he relied on the decision of the Hon'ble Mumbai Tribunal in the case of Godrej Agrovet Ltd. in ITA No. 1629/Mum/2009. He placed on record the copy of the aforesaid decision at page 57 to 65 of the paper book and pointed to the relevant para at page 63 and 64 of the paper book. Ld. A.R. submitted that Hon'ble Delhi Tribunal in the case of PVR Ltd. in ITA No. 1897/Delhi/2010 (order dated 20.04.2012) has decided the issue in favour of the Assessee. He pointed to the relevant findings of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 30/06/2009, the nature of claim and the purpose of the scheme were examined in the light of few following case laws:- i. Ruby Rubbger Works Ltd. (178 ITR181) ii. Sadichha Chitra (189 ITR 774) iii. Sahney Steel and Press Works Ltd. (228 ITR 253) iv. Balarampur Chini Mills Ltd. (238 ITR 445) v. Ponni Sugar and Chemicals Ltd. (260 ITR 605) * vi. Kanyakumari District Co-operative Spinning Mills Ltd. (264 ITR 684) vii. Reliance Industries Ltd. (273 ITR 16) viii Kalpana Palace (275 ITR 365) ix. R.B. Narain Singh Sugal Mills Ltd. (85 ITD 552) NB:-[ * The latest citation is CIT vs. Ponni Sugars and Chemicals Limited (2008) 306 IRR 392 (SC)] 8.3 The Tribunal has examined the scheme and then opined that it was a benevolent scheme for the benefit to the exhibitors/ multiplex owners. The subsidy was meant to grant economic assistance to set up a multiplex. The subsidy was collected as entertainment duty on sale of tickets. It was found by the Tribunal that such collection was not a trade receipt of the assessee because the entertainment duty was collected on behalf of the Government. It was collected under a specific direction and it was also utilized un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the promotion of the construction of multiplex theatres, hence it was granted on capital account. The Hon'ble Court has also confirmed that the subsidy was not meant for repaying any loan taken for construction of multiplexes. Considering the object of the scheme, the Court has opined that the same was to promote cinema houses to construct multiplex theatres. It was held that irrespective of the fact that the multiplexes have been constructed out of own funds or borrowed funds the receipt of subsidy would be on capital account. We have to follow this verdict primarily due to the reason that the very scheme in question, now before us, has been considered by the Honble Court in this judgement. 8.5. As far as the decision of Sundaram Exhibitions (P) Ltd.(supra) is concerned, as cited from the side of the Revenue by Id.CIT-DR, Mr.Gupta, we have thoroughly examined of that case. It was found by the Hon'ble Court that quote From a careful perusal of these rules, we may draw an inference that the financial assistance was provided to encourage the cinema owners in this line of business so that they may construct another cinema house, but in the instant case, no efforts wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of subsidy and in the light of the order of the Hon'ble Bombay High Court, we hereby affirm the finding of Id.CIT(A). Moreover, the facts of the case in hand is akin to the facts of M/s Chaphalkar Brothers ( supra) therefore holds the field, consequently this issue now stood settled in assessee's favour by the Hon'ble Bombay High Court. We decide accordingly and these grounds are dismissed. 13. Before us, Revenue has not brought any binding decision of jurisdictional High Court or Apex Court in its support. Further, since the facts in the year under appeal in the case of Multiplexes located in the State of Maharashtra and Gujarat are identical to that of earlier years, we respectfully following the decision of the Co-ordinate Bench and for the reasons given by the Co-ordinate Bench in the Assessee's own case for earlier years, find no reason to differ with the views of the Co-ordinate Bench and hold the subsidy to be capital in receipts. 14. With respect to the Multiplexes located at Jaipur in the State of Rajasthan, we find that ld. CIT(A) after considering the Government notifications no. 293 and 383 (supra) had denied the claim of Assessee but however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recoverable from the proprietor, who is essentially the owner of the particular entertainment or who may be in charge of the management, as per clause (8) of Section 3 of the Act of 1957. 9. However, under sub-section (2) of Section 7 of the Act of 1957, on being satisfied about existence of reasonable ground for doing so in the public interest, the State Government may, by general or special order notified in the Official Gazette, reduce or remit the entertainment tax with which any entertainment or ckss of entertainments is chargeable. While exercising such powers, the State Government issued the exemption notification in question on 15.03.1996 in SO No. 293 that reads as under: -- S.O. 293.- In exercise of the powers conferred by sub- section (2) of Section 7 of the Rajasthan Entertainments and Advertisements Tax Act, 1957 (Rajasthan Act No.24 of 1957), the State Government being of the opinion that it is expedient in the public interest so to do, hereby exempts entertainment tax (including additional entertainment tax) for a period of five year, payable by a new Cinema Hall constructed subject to the condition that commercial exhibition of films in such cinema hall shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the assessee: and the decision of the Hon'ble Allahabad High Court in Kalpana Palace (supra), with which we respectfully concur, directly applies to the present case. 18. Accordingly, the formulated question is answered in the affirmative that the Tribunal was justified in affirming the deletion of addition of ₹ 9,13,143/-, being the amount of entertainment tax capitalized as subsidy; and that the referred decisions do not operate against the assessee. 15. Thus, respectfully following the decision of Hon'ble Rajasthan High Court cited hereinabove, we hold that the subsidy in respect of Multiplex located at Jaipur to be capital in nature. 16. With respect to the Multiplexes in the State of Madhya Pradesh, we find that the Co-ordinate Bench of Tribunal while deciding the case in the case of Assessee in ITA No. 1984, 2299 2300/AHD/2009 (supra) distinguished the decision in the case of Shreeji Chitra Mandir 97 ITR 77 Indore by noting as under: 8.6. As far as the decision of Shreeji Chitra Mandir (supra) is concerned, as cited by the ld.DR Mr.Gupta, the Respected Co-ordinate Bench Indore has examined the scheme. The subsidy was to be given in inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The scheme of the U.P. Govt. has been spelt out above. The incentive does not refer to acquire any particular asset; the object and purpose of the scheme was to promote the cinema industry by promoting the construction of multiplexes to ward of effects of cable television. 13.3. Hon'ble Supreme Court judgment in the case of CIT Vs. PJ. Chemicals Ltd. (supra) has held that actual cost should be interpreted in a liberal manner. The purpose of the U.P. Govt. being to promote the cinema industry as a whole, only because the basis for determining the subsidy is capped at the capital assets, will not mean that he scheme is to meet the cost of any specified asset directly or indirectly. Therefore, the amount of such subsidy cannot be held to reduce the actual cost of asset u/s 43(1) Explanation 10 of the Act. 13.4. Ld. DR has filed written submission, which we have referred hereinabove in para llE(ii). While arguing it to be revenue subsidy, has pleaded that there was no obligation on assessee to utilize the subsidy in any specified manner. Similarly, Id. CIT(Appeals) also while holding the subsidy to be revenue in nature, has given a finding that the subsidy was not relatabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rendered by the Tribunal vide its order dated 10.09.2009 (supra) in para No. 8 which reads as under:- In the case of P.J. Chemicals Ltd. (supra), Hon'ble supreme Court in the context of section 43(1) of the Act has held that if a subsidy is granted with the object of inducing entrepreneurs to move to backward area and establish industry and where subsidy is granted as percentage of fixed capital cost taken as basis for determining the subsidy, that would only be a measure adopted under the Scheme to quantity subsidy. The Court therefore held that it was not a payment directly or indirectly to met any portion of the actual cost. Language of Explanation 10 to section 43(1) is also identical; and therefore by virtue of insertion of Explanation 10, it cannot be said that decision in the case of P.J. Chemicals (supra) has been superseded by amendment in law. This is the reasoning adopted by Vishakhapatnam Bench of IT AT. Respectfully following the same, we hold that the amount of subsidy cannot be reduced from the block of asset for computing depreciation. With regard to the arguments of learned Departmental Representative that proviso to Explanation 10 makes it clear that irr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project was later abandoned. A.O was of the view that setting up a new project was in the capital field and not in that of revenue. He accordingly disallowed the expenditure. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) following the decision in Assessee's case for A.Y. 04-05 05-06, upheld the order of A.O and dismissed the claim of Assessee. 23. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. Before us, the ld. A.R. submitted that identical issue in the case of Assessee was before Hon'ble Tribunal for A.Y. 04-05 05-06. Hon'ble Tribunal vide order dated 09.09.2011 has decided the issue in favour of Assessee. He therefore submitted that since the facts of the case in the year are identical to that of earlier year, the expenses be allowed. Ld. D.R. on the other hand relied on the order of A.O and CIT(A). 24. We have heard the rival submissions and perused the material on record. We find that for earlier years in ITA No. 1984/AHD/2009 identical issue was before the co-ordinate Bench of Tribunal and the same was decided in favour of Assessee by holding as under:- 27. We have heard both the sides. For A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure in the nature of capital into a Revenue Expenditure. The expenditure was setting up of a New Project which was clearly in the capital field. An observation of the quote is worth re-production :- The expenditure incurred on that capital project was not something which could be regarded as revenue expenditure laid out exclusively and wholly for the purposes of business of the assessee as what the assessee was trying to start was a new business for the manufacture of a new project. The expenditure incurred therein was clearly capital expenditure and not revenue expenditure. 27.1. Therefore, the distinction is that in the above cited precedent, the assessee was setting up a new project for the purpose of manufacturing of a new product. On the other hand, in the present appeal, now before us, the assessee is running a multiplex cinema theatre and the expenditure was in respect of a new project for the same line of business of running of multiplex and cinema theatre. Undisputedly, the expenditure was towards project report and consultation fees, etc. On identical facts in the case of CIT vs. Priya Village Roadshows Ltd, (supra), the Hon'ble Delhi High Court has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal hereinabove, have dismissed the appeal of the Revenue. For the same reasons stated therein, the ground of Assessee is allowed. Thus this ground of Assessee is allowed. In the result, the appeal of Assessee is allowed. Revenue's appeal for A.Y. 07-08 27. The ground raised by Revenue reads as under:- l(a). On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in restricting the addition on account of treating the entertainment tax as revenue receipt as against the claim as capital receipt from ₹ 19,21,88,772/- to ₹ 2,44,25,134/-. l(b). The Ld.CIT(Appeals) failed to appreciate that the subsidy received by the assessee after completion of cinema house and commencement of operation is clearly a revenue receipt exigible to tax, as held by the Indore Bench aof ITAT in the case of ITO vs Shreeji Chitra Mandir, 97 ITD 77 and M .P. High Court in the case of Sundraram Exhibitions (P) Ltd. 202 CTR 408. 2(a). On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in directing the Assessing Officer to allow deduction u/s.80IB as claimed by the assessee company. 2(b). The Id.CIT(Appeals) fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the submission of ld. A.R. 31. We have heard the rival submission and perused the material on record. Before us, both the parties have admitted that the facts of the case are similar to earlier years as A.O and CIT(A) has also followed the decision in earlier years. We find that the co-ordinate Bench of Tribunal in ITA No. 1984/AHD/2009 (supra) decided the issue as under:- 14. Like AO, ld.CIT(A) has also discussed the factual as also legal aspect in detail. On examination of the prescribed Rule 18DB and the provisions of section 80IB(7A) of the I.T. Act, he has commented that the AO while considering the built-up area of the cinema theatre had excluded the common areas comprising of projection room, stair cases, air conditioning area, toilets, administrative area, etc. It was noted by the Id.CIT(A) that only auditorium was considered. Ld. CIT(A) has given a finding quote If the air-conditioning unit, projection room, stairways, gangways, etc. are taken into consideration, the total built-up area of the cinema theatres hcc.tcd at ike multiplexes at Baroda and Pune would exceed the minimum prescribed are of 22,500 sq.ft. The total built-up are a in case of Pune unit is 43,83 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtained any Remand Report from the Revenue Department while deciding the technical issue of the construction of the multiplex. The connected Rule has issued guideline for construction of a multiplex, according to which total built-up area of a cinema theatre comprising multiplex should not be less than 22500 sq.ft. and should consists atleast 50% of the built-up area, excluding the parking area, A multiplex should comprise of atleast three cinema theatres. It should also have commercial shops. The capacity of cinema theatre should be atleast 900 seats and cinema theatre should not have less than 100 seats. Commercial shops should not be less than 3000 sq. ft, however, the minimum built-up area of each shop should not be less than 250 sq.ft. A multiplex is required to be centrally air-conditioned. The cinema theatre should use seat-batch not less than 20 inches. From the details furnished before us specially the maps given it is difficult for us to give a finding that the lay out plan was in-conformity with the prescribed IT Rules. In the interest of natural justice, we deem it proper to restore this ground of the Revenue back to the stage of the AO to decide afresh, needless to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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