TMI Blog2005 (7) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... heard. The ld. counsel for the assessee has submitted copy of the scheme circulated by the M.P. Govemment under M.P. Naya Cinema Gharon Ke Nirman Ko Protsahan Yojna Ke Sahayata Anudan Niyam, 1982. English translation of the scheme submitted by the ld. counsel for the assessee is reproduced below: "Cinematograph (Certification) Rules, 1984 No. B-5-56-V SR-82, dated 23rd October, 1982 Rules made under para 5 of Notification No. B-5-14-V-SR-81, dated 12th January, 1982 of the Government of M.P. (1) Title: These rules may be called 'Grant-in-aid rules of incentive planning for construction of new cinema houses in M.P., 1982'. (2) Extent: They shall be force in the whole of the Madhya Pradesh. (3) Effectuality: These rules shall be applicable on such permanent cinema houses, the construction whereof was commenced from 14th January, 1980 or thereafter. (4) Eligibility for grant-in-aid: Under these rules, the grant shall be given only to such permanent cinema houses. (A) The construction whereof was completed accordingly commencing from 14th January or thereafter; and (B) Continuously for one year (in case of towns having population of 1,00,000 or moreover) or two year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall keep the cinema house running for at least 3 years from commencement of exhibition and if he closes earlier to it the whole grant amount received by him may be realised from him as a remaining revenue. During the period of 3 years he may not sale or donate the building and land of cinema. (D) The instalments of grant amount shall not be paid until the person receiving grant produce bank guarantee equivalent to said amount or solvency certificate of discharged property. If the guarantee violates the condition or for any other reason if there is a condition of realisation of sum of money it may be realised from Bank Guarantee or from the property described in solvency certificate as the first charge and residue revenue. (E) Within two weeks from the date of receipt of application form collector shall make enquiry, as he thinks fit and send the report with his recommendation to the Commissioner of Excise, M.P. (F) The Commissioner of Excise shall pass an order upon such application forms, within one month and shall inform to the State Government and Collector, accordingly. (G) On receipt of order of the Commissioner of Excise, M.P. the Collector to the concerned distric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year. (ii) In case of eligible cinema houses constructed in cities with population less than 1,00,000 subsidy equal to entertainment tax and additional tax, if any collected for two years. However, in case of special area development authority, the subsidy is equal to entertainment tax and additional tax, if any, collected for two years, whatever may be the number of population. 4.2 Subsidy is to be given in instalments as determined by the administration. First payment of subsidy will be paid after one year if the cinema house satisfy the conditions under rule 8(C) and 8(D). 4.3 Each eligible cinema house is required to file application in prescribed form to the Collector upto the specified date under rule 7 with all necessary information. If the cinema house is closed before three years, then all the subsidy will be deposited by such cinema houses. Otherwise, such subsidy will be recovered from such cinema houses. Within a period of three years, owners of the cinema houses will not sell or gift the eligible cinema houses. The subsidy will not be given until the owners of the cinema houses secure a bank guarantee and submit a certificate of property having no charge. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perating in a backward area. Therefore, the subsidies were inseparably connected with the profitable conduct of the business and the Tribunal held that the transport subsidy represented receipt of Revenue nature. The decision of the Tribunal was confirmed by the Hon'ble Calcutta High Court. This decision was also followed by the Calcutta High Court in the case of Sarda Plywood Industries Ltd. v. CIT [1999] 238 ITR 354. In this case, the Hon'ble Calcutta High Court also considered the decision of the Andhra Pradesh High Court in the case of CIT v. Sahney Steel Press Works Ltd. [1985] 152 ITR 39. In the case of Sahney Steel Press Works Ltd., the Hon'ble Andhra Pradesh High Court in respect of sales-tax refund received by the assessee under a Government order issued by the State Government of Andhra Pradesh held that the payment would constitute the income of the assessee. As the assessee had a right and was entitled to recover the incentives through a court of law, the refund allowed was inseparably connected with the business carried on by the assessee. The benefits were available only from the date the industrial undertaking commenced production and for a period of five years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o question to be asked as to whether such subsidy should be a capital receipt. But where the subsidy is meant to fill the whole or the shortfall in the return from the industry so set us as recompense for undertaking the unknown risks and odds in establishing industries in backward areas, the subsidy would definitely be in the form of replenishment of the profit to remove its deficiency attributable to the backwardness of the areas where the industry operates. In both the cases, the entrepreneur is meant to be assisted by lending financial support so that the industry so set as up can stand on its legs and overcome the handicap. Where the subsidy is a one-time support by supply of part of capital, the subsidy cannot come in for taxation as revenue but where it is a recurrent recoupment of profit insufficiency it has but to be treated as a payment for augmentation of the Revenue of the undertaking set up." 6.2 In the case of CIT v. Udaya Pictures (P.) Ltd. [1997] 225 ITR 394 (Ker.). The facts of the case were that the assessee was a private limited company engaged in the business of production of cinematography films. During the accounting year relevant to the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of water drawn from a Government source or from a source maintained by any local body but returned purified to it. 6.4 The Hon'ble Supreme Court considered the salient features of the scheme formulated by the Andhra Pradesh Government was that the incentives were not available, unless and until production had commenced. The availability of the incentive would be limited to a period of five years from the date of commencement of production. The incentives were to be given by way of refund of sales tax and also by subsidy on power consumed for production, etc. Refund was also provided for water rate in respect of water drawn from Government sources. The important point noted in this case was that all the incentives were production incentives in the sense that the assessee will be entitled to these only after it goes into production. The scheme was not to make any payment directly or indirectly for the setting up of the industries. It is only after the industries had been set up and production has been commenced that the incentives were to be given. The Hon'ble Supreme Court considered that the manner in which incentives were given is of no consequence for determining the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade." 6.5 In the case of Jagapathy Art Pictures v. CIT [1999] 240 ITR 625 (Mad.) the facts of the case that the assessee received subsidy from the Government of Andhra Pradesh for the production of Telgu films. Under the subsidy scheme subsidy was paid to the producer only after the picture has been certified by the Central Board of Film Censors. The Tribunal held that it was a revenue receipt. The Hon'ble Madras High Court as per Headnote held as under: "Held that the subsidy was not paid during the course of the production and was not meant to assist the producer in financing the moving which was filmed in the State. The payment made to the assessee was in the circumstances merely a supplementary trade receipt, the assessee's eligibility for receiving the subsidy being the prior production of the picture in the State of Andhra Pradesh and its certification by the Central Board of Film Censors. The amount paid to the assessee was not an amount paid to assist the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from other sources. It was revenue receipt." 6.7 In the case of Tamil Nadu Sugar Corpn. Ltd. v. CIT [2001] 251 ITR 843 (Mad.) the assessee received purchase tax subsidy from the State Government. The assessee returned the same as part of its income and claimed that the same be excluded in the computation, of the total income, since the subsidy paid, was for setting up of sugar factories. Again the Hon'ble Madras High Court followed the decision of Sahney Steel Press Works Ltd.'s case and held as under: "Held dismissing the petitions, that under the scheme subsidy equivalent to the quantum of purchase tax was given to the sugar factories for a period of five years from the date of the commencement of production. The subsidy was given by way of assistance to the sugar factories on the commencement of production and it was not given for setting up of the factories and the subsidy was given only to tide over the difficulties that may be experienced by the management in the actual running of the sugar factories. The object behind the grant of subsidy was not to set up a new sugar factory, but to run the factory efficiently. In other words, the subsidy was given so that the mana ..... X X X X Extracts X X X X X X X X Extracts X X X X
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