TMI Blog1997 (9) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... iting film was to be allowed a grant in aid for three years. This was linked with the entertainment tax. While in the first year 100% of the entertainment tax was to be reimbursed, in the second year it was 75% of the entertainment tax as collected. In the third year of the running of the cinema the grant-in-aid was payable at 50% of the tax collected. Accordingly, the amount so collected was credited to the entertainment account in the books of the assessee. While in the original return of income, the same was shown as part of the trading receipt, in the revised return it was excluded. This was for the reason that the aforesaid amount in fact constituted a subsidy not amounting to income. The Assessing Officer wrongly treated the entertainment tax as a part of the trading receipt relying on the decisions of the Hon'ble Supreme Court in the cases of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1973] 87 ITR 542; Punjab Distillary Industries Ltd. v. CIT [1959] 35 ITR 519 and Sinclair Murray Co. (P.) Ltd. v. CIT [1974] 97 ITR 615. The learned CIT (Appeals) confirmed the order of the Assessing Officer without considering the assessee's submissions in detail. In fact the assessee showed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public interest any class of audience or spectators from liability to pay tax under the Act. The circumstances mentioned are (a) if the entertainment is wholly of an educational character, partly for educational or partly for scientific purposes by a society not established for profit or solely for the purpose of promoting public health or the interests of agriculture, or a manufacturing industry etc. etc. Sub-section (5) of section 11 provides that where any exemption from payment of tax is granted, the proprietor of such entertainment is to furnish to the District Magistrate such documents and records and in such manner as may be prescribed. Rules on the other hand provide for manner of collection and levy of tax, form of ticket, security and circumstances where the prosecutions could be launched. Thus as per the Act unless and otherwise exempted the proprietor is to pay entertainment tax to the State Government. Under the scheme as relied upon by the assessee, grant-in-aid was provided to the permanent cinema hall constructed in a stipulated period. As per the scheme any party constructing a cinema hall in zone/place of less than one lakh population as per last census of 1981 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid under the account Head of Grant-in-aid/State Relief contribution for the encouragement of construction of New Cinema Halls and other tax 245-articles and services will credit under the Collection head '045 - other tax on articles and services (a) Entertainment tax (i) Collection of taxes'. The enclosed attested/countersigned particulars with the bill will be treated as sub-vouchers." Proforma-I along with the Notification further provides for certain conditions, the relevant clauses are as under :-- "(2) The Cinema Owner will comply the conditions under section 8 of U.P. Entertainment and Betting Act, 1979 and the account of income received from the tickets issued for each show will be prepared in Proforma 'B' according to Rule 13 of U.P. Entertainment and Betting Rules, 1981 but during the period of Grant-in-aid, the amount of tax will be shown separately and at the week-end the weekly statement in prescribed Proforma will be prepared giving the total income from the sale of tickets, the amount of due tax on normal rates, the amount of admissible grant-in-aid on above mentioned rates and net amount of due tax after deducting the amount of Grant-in-aid. (5) It will not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er deducting the amount of grant-in-aid within three days after the weekend in the Government Treasury. As the assessee was not required to deposit equal amount of grant-in-aid, he was to prepare the total bill in Proforma 42-G in respect of admissible grant-in-aid according to the rules as provided. He was then required to prepare the details of quarterly admissible grant-in-aid which was to be countersigned by the District Magistrate. It was on the basis of countersigned bill that the Treasury Officer instead of making cash payment by debiting the amount of grant-in-aid under the head 'Grant-in-aid' was to credit it under the other head as provided under the Rules. Thus while on one hand the entertainment tax as collected was payable to the State Government, on the other hand, the assessee was allowed to retain a part of the collection in the form of grant-in-aid. It was in respect of the latter that the adjustment entries were passed as mentioned above. 5. The above makes it clear that the assessee collected entertainment tax as a part of its receipts, hence it constituted revenue receipt. As for deduction allowable under the Act, the amount was allowed to be paid in the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(2) of the Income-tax Act defines the word 'paid' to mean 'actually paid or incurred' according to the method of accounting on the basis of which the profits or gains are computed. 35.2 Several cases have come to notice where taxpayers do not discharge their statutory liability such as in respect of excise duty, employer's contribution to provident fund, Employees' State Insurance Scheme, etc., for long periods of time, extending sometimes to several years. For the purpose of their income-tax assessments, they claim the liability as deduction on the ground that they maintain accounts on mercantile or accrual basis. On the other hand, they dispute the liability and do not discharge the same. For some reason or the other, undisputed liabilities also are not paid. 35.3 To curb this practice, the Finance Act, 1983, has inserted a new section 43B to provide that deduction for any sum payable by the assessee by way of tax or duty under any law for the time being in force or any sum payable by the assessee as an employer fund or any other fund for the welfare of employees shall irrespective of the previous year in which the liability to pay such sum was incurred, be allowed only in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date." The assessee's case falls in clause (a) wherein the expression used is "actually paid" by specified date. There is no qualification of payment by cash or by issue of a cheque or draft or by any other mode as laid down for clause (b) of section 43B of the Act. Therefore, what is to be seen is whether this would cover the mode of discharging of liability as laid down by the authority to whom the payment is to be made. From the discussion as made earlier it is clear that the State authority allowed the assessee to make payment it respect of entertainment tax equivalent to grant-in-aid by way of adjustment entries. Instead of first making the payment in cash or in cheque and then receiving the amount back, the State authority permitted the assessee for making the payment by way of adjustment entries. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd service charges in respect of bank portion of the building. According to the learned AR the bank portion of the building is mixed up with cinema portion. Passages and entrance being common, the whole structure is commercial in character. Therefore, the income should have been brought to tax under the head "Profit gains of business" and not "property" and other sources as done by the Assessing Officer and as confirmed by the learned CIT (Appeals). Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Karnani Properties Ltd. v. CIT [1971] 82 ITR 547. The learned DR on the other hand, submitted that as the property was given on rent in view of the rent lease deed the same has to be brought to tax under the head "property" and the receipt for services under the head 'other sources". There being no infirmity in the order of the teamed CIT (Appeals) the same needs to be upheld. 8. We have carefully considered the rival submissions. We find that as per the lease deed the property was given to the bank for a period of 10 years with the option of renewal for 5 years to the lessee. The lessee was also provided with certain facilities for which he was charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities.' In the case of assessee it is not so. No material was placed before us to show that the services rendered by the assessee to the bank were as a result of activities continuously carried on in an organised manner. On the other hand, all the facilities which were available the premises were perforced to be availed of by the bank. Accordingly we would uphold the order of the learned CIT (Appeals) on the issue. 9. In the next ground common to both the appeals it has been contended as under :-- "2(iv) That, without prejudice to the ground raised in Ground No. (III) above, the authorities below erred in not properly evaluating the written down value of the Cinema Portion of the combined Commercial Building for purposes of depreciation when its proper cost of construction was available on record and, consequently in allowing depreciation at a figure lower than the one at which it was properly admissible." It was the argument of the learned AR that the entire building should be apportioned between the cinema and the bank on the basis of cost of construction as adopted for the purpose of allowing depreciation. We find force in the argument of the learned AR and would direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovert the material as placed on page 22 of the Paper Book. 14. On going through the information as placed before us we find that there were three directors who were paid the salaries as under :-- Assessment Year 1986-87 Assessment Year 1988-89 1. Shri R.K. Dutta Rs. 14 , 000.00 (@ Rs. 3,500 Rs. 63,000.00 (@ Rs. 3,500 P.M. for 4 months) P.M. for 18 months). 2. Shri S.K. Dutta Rs. 8,000.00 Rs. 18,000.00 (@ Rs. 1,000 P.M. (@ Rs. 1,000 P.M. for 8 months). for 18 months) 3. Smt. Sushma Dutta Rs. 10,000.00 Rs. 45,000.00 (@ Rs. 2,500 P.M. (@ Rs. 2,300 P.M.for 4 months). for 18 months). -------------------------------------- ------------------------------------- Rs. 32,000.00 Rs. 1,26,000.00 -------------------------------------- ------------------------------------- The above would show that there was no increase in the payment of salaries per month to all the directors. The increase in the amount was on account of the salaries being paid for 18 months in assessment year 1988-89 as against 8 months in assessment year 1986-87. On the facts as pleaded we would delete the addition as sustained by the learned CIT (Appeals). 15. The next ground raised in assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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