TMI Blog2014 (9) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt 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 under those directions - The collection of duty had no nexus with the day-to-day function or running of the multiplex - The collection of the duty was not with an objective to supplement the trade receipt - The subsidy was meant for the recoupment of a capital expenditure already incurred by the assessee - the subsidy was for the promotion of the construction of multiplex theatres, hence it was granted on capital account - the subsidy was not meant for repaying any loan taken for construction of multiplexes - it was to promote cinema houses to construct multiplex theatres - 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 – Decided against Revenue. Expenses on professional fees for registration of trade mark - Stamp duty on documentation for loans taken from banks – Capital expenses or not – Held that:- Following the decision in Commissioner of Income-Tax, Bombay City I Versus Ciba of India Limited [1967 (12) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nning of multiplex and cinema theatre – relying upon CIT vs. Priya Village Roadshows Ltd. [2009 (8) TMI 765 - Delhi High Court] - the assessee was also involved in the business of running cinemas - the revenue authorities is directed to allow the claim – Decided in favour of Assessee. - ITA No(s). 1984/Ahd/2009, 1991/Ahd/2009 2299/Ahd/2009 1992/Ahd/2009 2300/Ahd/2009 - - - Dated:- 9-9-2011 - Shri Mukul Kr. Shrawat And Shri A. N. Pahuja,JJ. For the Petitioner : Shri S. N. Soparkar For the Respondent : Shri S. K. Gupta, CIT-D.R. ORDER Per Shri Mukul Kr. Shrawat, Judicial Member : All these appeals have been filed by the Assessee and the Revenue against the orders of the Learned CIT(Appeals)-I, Baroda dated 24/03/2009 (for A.Y. 2003-04) and dated 14/05/2009 (for A.Ys. 2004-05 2005-06). Since these appeals are inter-connected hence, for the sake of convenience, we herein-below proceed to decide all these appeals collectively by this single order. Several grounds have been raised which are decided as under:- (A) Revenue s appeals, (i) ITA No.1984/Ahd/2009 for A.Y. 2003-04 , (ii)ITA No.2299/Ahd/2009 for A.Y. 2004-05 (iii) ITA No.2300/Ahd/2009 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be to enable the assessee to acquire any new plant machinery for further expansion of its manufacturing activity, then the subsidy is in the nature of capital receipt . Since the assistance was granted to the assessee after the commencement of the operation of multiplexs, therefore, it was for business operation, hence in AO s view it was a revenue receipt . Undisputedly the incentive was given from the Entertainment Tax (E.T.) exemptions , therefore, it was after the commencement of the business operation. As per A.O. the object of the incentive was not to enable the assessee to acquire new plant machinery, but for the purpose of carrying the business operation. Accordingly, entertainment tax which was collected by the assessee and claimed as exempt was disallowed by treating as Revenue Receipt . The matter was carried before the first appellate authority. 3. Before Ld. CIT(A), it was submitted as under:- 4.1. In appeal, it was submitted by the ld. AR as under:- The Company is entitled to Entertainment Tax (ET) exemption in respect of its Multiplexes at Pune Baroda. The amount of exemption availed during the year ended on 31.03.03 in respect of its Multi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n) c. Eligibility certificate dt. 15.06.02 issued to us by The Collector of Pune. d. A note on treatment of ET exemption as a Capital Receipt submitted vide letter dt. 25.1.05 13.12.05 during assessment proceedings. While claiming the exemption of ET as Capital Receipt, we have relied upon the judgment given by ITAT, Mumbai Bench J (Special Bench) on 23.10.03 in the case of DCIT Vs. Reliance Industries Ltd. (88 ITD 273). A copy f the same is enclosed for your perusal . 4. The ld.CIT(A) has considered few decisions, namely, Sahney Steel and Press Works Ltd. vs CIT, 228 ITR 253(SC), DCIT vs. Reliance Industries Ltd. 88 ITD 273 (SB)[Mum] and CIT vs. Ponni Sugars Chemicals Ltd. Others, 219 CTR 105 (SC). The ld.CIT(A) has also examined the scheme of the Government and the notification of Government of Gujarat issued by Commissionerate of Tourism and a Resolution by Information, Broadcasting and Tourist Division, Government of Gujarat. The ld.CIT(A) has also discussed the decision of ITAT Indore Bench in the case of ITO vs. Shreeji Chitra Mandir 97 ITD 77 (Indore) and decision of Hon ble M.P. High Court in the case of Sundaram Exhibitions (P) Ltd. 202 CTR 408 (MP). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that from the notifications etc. it was cleared that the said exemption of entertainment duty was available only to a new Unit for the period of first five years only. On that basis, ld. CIT(A) has remarked that the said subsidy was intended to promote construction of new cinema complexes. He was of the view that the subsidy was relatable to creation of a capital asset created through capital outlay. 5.1. In respect of Baroda multiplex, the subsidy was granted by the Government of Gujarat vide New Tourism Policy 1995 . The said scheme was spelt out in a Resolution No.NTP-1095/1983-C dated 20/12/1995 in the following terms:- The State Government have declared New Tourism Policy 1995 wherein Tourism has been accorded the status of an industry, with a view to make available all fiscal and non-fiscal incentives, benefits, reliefs and concessions available to industries. Based on the New Tourism Policy and in order to give a boost to tourism sector by attracting higher investment in the areas with tourism potential and to generate employment opportunities, the State Government is pleased to introduce the following new package scheme of incentives for tourism projects for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee ld.AR Mr. S.N.Soparkar appeared and, at the outset, stated that the issue is directly covered by the decision of Hon ble High Court Bombay in the case of CIT-I, Kolhapur vs. M/s.Chaphalkar Brothers, Pune, dated 8th June-2011 in Income tax Appeal No.1036 of 2010 and Income Tax Appeal No.1147 of 2010. He has informed that the scheme which was pronounced by the Maharashtra Government was not even identical but it was the same scheme which was adopted by the Gujarat Government. Since the said scheme of Maharashtra Government was considered and the exemption was affirmed by the Hon ble High Court, therefore, the issue now stood covered in favour of the assessee. Relevant paragraph (Chapalkar Bros.) of this precedent is as follows :- 5. Since the object of subsidy was to promote construction of multiplex theatre complexes, in our opinion, receipt of subsidy would be on capital account. The fact that the subsidy was not meant for repaying the loan taken for construction of multiplexes cannot be a ground to hold that subsidy receipt was on revenue account, because, if the object of the scheme was to promote cinema houses by constructing multiplex theatres, then irrespective of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y if the limits of incentives expire before the eligible period, then the unit was not allowed to avail of any further benefit. At this juncture, ld.AR Mr.S.N.Soparkar has pleaded that this very clause itself proves that the incentive was capital related. Before us, an ordinance of Maharashtra Government dated 17/08/2001 has also been placed. As per the terms multiplex theatre complex means an entertainment from culture centre which provides theatres in a complex with minimum total seating capacity of 1250. There was some variation in the seating capacity clauses, etc. in respect of theatre outside the Municipal Corporation of Mumbai. This Ordinance has prescribed that there will be no duty on the proprietor of a multiplex of the entertainment tax collected. Ld. AR has also mentioned that the Ordinance of the Maharashtra Government was verbatim adopted by the Gujarat State Government. Ld.AR has also mentioned that the Hon ble Bombay High Court in the appeal of M/s Chapalkar Bros. ( supra) has reproduced the Statement which was in the said Ordinance so as to examine the nature of the scheme, and for reference, we hereby reproduce the same from the ordinance as under :- ST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute between the parties appearing before us. The only dispute is that whether the said amount which was collected as a duty on sale of tickets was in the nature of a capital receipt or in the nature of a revenue receipt . The identical matter had come up before the ITAT Pune Bench in the case of M/s.Chaphalkar Brothers vs. ITO ( one of us i.e. J.M. is the author) bearing ITA Nos.1342 1342/PN/2006 for A.Ys. 2003-04 2004-05 and vide an order 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 ITR 181) 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 ITR 392 (SC) ] 8.3. The Tribunal has examined the scheme and then opined tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure of new set up of Multiplexes hence in the nature eof capital receipt. To arrive at this conclusion we draw support from a plethora of decisions, few of them already cited above. With the result we decide the ground in favour of the assessee. 8.4. The said order of the Tribunal now stood confirmed by the Hon ble Bombay High Court as cited in the case of M/s.Chaphalkar Brothers Pune (supra). The Hon ble Court has said that the subsidy was 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 Sundara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of subsidy was nothing but supplementary trade receipt. Ld.DR has therefore relied upon these two decisions, however, we have noticed that the facts were distinct from the facts from the case in hand, hence hereby hold that these two precedents being distinguishable on facts therefore do not apply on the facts of this case. 8.7. We have examined the true nature of the subsidy in the hands of the assessee. Having regard to the nature of subsidy and in the light of the order of the Hon ble Bombay High Court, we hereby affirm the finding of ld.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. 9. Ground No.2 (a) 2(b) reads as under: 2(a) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of ₹ 35,96,000/- on account of expenditure of ₹ 2,96,000/- by way of professional fees for registration of trade mark and ₹ 33,00,000/- towards stamp duty on documentation for loans ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the cases of Ciba of India Ltd. 69 ITR 692 (SC), Mihir Textile 287 ITR 232( Guj.), and Kanpur Cigarettes Pvt.Ltd. 287 ITR 485( All.). In the case of Century Spinning 15 ITR 105( Bom.) on identical facts it was held that the professional fees, etc. paid for trade-mark is an expenditure of Revenue nature. Respectfully following these decisions and the decisions cited by the ld.CIT(A), we hereby affirm the relief and dismiss this part of the ground. 12.1. About the controversy of expenditure on Stamp Duty, a sum of ₹ 10 lacs was paid for registering the memorandum in respect of loan taken from ICICI Bank Pune. Again, on two different dates, ₹ 10 lacs each were paid as stamp duty for registering a composite hypothecation deed in respect of loan taken from UTI Bank Pune. Further, a sum of ₹ 3 lacs was also paid as a stamp duty for registering a supplementary deed in respect of loan taken from UTI Bank for Baroda Unit. The argument is that the expenditure was business necessity and incurred wholly and exclusively for running the business. There is a direct decision of Orissa Cement Ltd. vs. CIT 73 ITR 14(Del) as also the decision of India Cements Ltd. vs. CIT 60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air conditioning area, toilets, administrative area, etc. It was noted by the ld.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 located at the 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 43,839 sq.ft. and in the case of Baroda unit is 40,281 sq.ft. Hence, I am of the opinion that the AO was not justified in denying the deduction u/.80IB on this ground. unquote . He has also given a finding that the lobbies at Baroda and at Pune were contiguous therefore connected. His finding was quote So far as the other objection of the AO is concerned i.e., that the area of the lobbies was less than 3 sq.ft. per seat, it is pertinent to note that the total number of seats in the Pune unit was 1316 and in the Baroda unit was 1318. Hence the areas of the lobbies in the two multiplexes should have been minimum of 3948 sq.ft. and 3954 sq.ft. As per the certificate of the Chartered Accountant furnished in Form No.10CCBA, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 250 sq.ft. A multiplex is required to be centrally airconditioned. 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 say after providing a reasonable opportunity of hearing to the assessee. It is for the assessee as also for the AO to take assistance from a technical person, such as, an Architect or a Civil Engineer to ascertain the fulfillment of the conditions as prescribed under the Statute of I.T. Act. With these observations, ground may be treated as allowed but for statistical purposes. 16. Ground No.4 for A.Ys. 2003-04 2005-06 and Ground No.3for A.Y. 2004-05 read as under:- 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in cancelling the enhancement of book profit for the purpose of section 115JB by the amount of provision for gratuity amounting to ₹ 5,10,000/-. 16.1. As per the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd forward exchange risks of US $. In terms of the said agreement the Bank had agreed to pay amount in Rupee which was sufficient to supplant Rupee liability of principal amount and interest. In turn, the assessee was to pay the Bank the FRA i.e. a Fixed rate of interest. The fluctuation in FRA and US $ being proportional to the Dollar rate, therefore, depending upon the movement of foreign currency in currency option market the liability had incurred. The AO has noted that the arrangement was a swap transaction therefore the assessee was at liberty to cancel the arrangement in the event of the fluctuation resulting into a detrimental adverse fluctuation. The assessee was also at liberty to book the gain pursuant to swap transaction at an opportune time owing to favourable swing in the currency open market . As per AO, in effect the assessee had entered into a swap transaction with ICICI Bank and therefore actually playing with currency option market with the element of fixed interest rate. However, there was an element of gain or loss which could be materialized depending upon the fluctuation in currency option market. The loss so arrived by the assessee, as per AO was in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be ascertained and then accordingly to treat the admissibility of loss as claimed by the assessee. We hold so and this ground of the Revenue may be treated as allowed but for statistical purposes only. 22. In the result, appeals of the Revenue are partly allowed but for statistical purposes only. (B) Assessee s appeals, ITA Nos.1991 1992/Ahd/2009 for A.Ys. 2004-05 2005-06 23. (a) Ground No.1 for A.Y. 2004-05 is as under:- 1. In confirming the disallowance of ₹ 21,32,001 in respect of abandoned project at Gurgaon. (b) Ground No.1 for A.Y. 2005-06 is as under:- 1. In confirming the disallowance of ₹ 23,24,528 in respect of abandoned projects Andheri and Allahabad. 23.1. Facts for both the years are almost identical as narrated in the respective assessment orders passed u/s.143(3) respectively dated 13/11/2006 and 31/12/2007. For A.Y. 2004-05, a sum of ₹ 21,32,001/- was stated to be in respect of a new project at Gurgaon. Undisputedly, the said project was abandoned. The impugned amount was stated to be in respect of project report, consultation and cost of travel, etc. On one hand, the argument of the assessee was that in the course of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO has mentioned that on examination of the nature of expenditure it was found that the same was in respect of project report, advisory consultation, cost for travel and other related activities. For A.Y. 2005-06, expenditure incurred was ₹ 22,69,624/- in respect of a project at Andheri, Bombay and a sum of ₹ 54,904/- incured for a project at Allahabad. Both the projects were abandoned. For both the years, the assessee has not claimed the expenditure in its computation of income but made a claim through notes annexed to the computation of income. The nature of expenditure was alike for both the years, i.e. expenditure on project report, consultation, cost of travel and other related activities. From these facts, it is clear that the assessee, in fact, wanted to pursue the like nature business already in existence, i.e. running of a multiplex and exhibition of cinematic films. It is also evident, as noted by the AO, that the expenditure was towards technical reports and financial feasibility of the project and those project reports were obtained from the experts. From the side of the Revenue, those expenditure were on capital field and therefore required to be capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heatre for conversion into a multiplex and operation and management thereof. The assessee availed of the services of an architect and paid him ₹ 2,05,000 as fee. However it was found that the project was not financially and technically viable and hence the assessee dropped the project. Likewise, there was a proposal to take over a cinema theatre for the purpose of conversion into a four-screen cinema complex. Detailed technical and financial feasibility was carried out and building plans were prepared by a consultancy group. In this connection the assessee incurred an expenditure of ₹ 12,39,239. On subsequent market research the assessee preferred to retain the single-screen cinema and the proposal of conversion of the cinema into a multiplex was shelved. The assessee claimed the expenses as revenue expenditure. The Revenue held it to be a capital expenditure on the ground that the expenses were incurred for creating a new asset. However, the Tribunal allowed the expenses as business expenditure under section 37 of the Income-tax Act, 1961. On appeal : Held, dismissing the appeal, that the feasibility studies conducted by the assessee were for the same and existing b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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