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TMI Blog2004 (8) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... 256(1) of the Act would also decide the aforementioned income-tax appeal. The reference and the appeal, as they raise a common question of law, have been heard together and are being decided by a common judgment. For the sake of brevity, the facts of Income-tax Reference No. 46 of 1995 are given below: The applicant is a registered partnership firm and is engaged in the business of cinema exhibition. During the relevant assessment year 1990-91, the cinema building was completed and business was started. For the assessment year 1990-91, it had filed the return on August 29, 1990, showing a loss of Rs. 2,57,830 and subsequently it had filed a revised return under section 139(5) of the Income-tax Act showing a loss of Rs. 3,01,820. The Income-tax Officer vide order dated March 5, 1991 completed the assessment at the income of Rs. 21,921. The Income-tax Officer has disallowed the supervision charges for construction of cinema building, depreciation on cinema building at 33.33 per cent and has also held that the grant-in-aid of Rs. 3,06,752, received by the assessee from the State Government for the construction of permanent cinema building in backward area, is a revenue receipt and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that the State Government had issued the Government order dated July 21, 1986, for providing grant-in-aid and incentives for construction of permanent cinema halls during a specified period. The subject of the Government order dated July 21, 1986, is reproduced below: "Sthayee cinema grihon ke nirman ko protsahan dive jane ke vishishta avadhi men banaye gaye sthayee cinema bhavanon ko sahayak anudan sweekrita kiye jane ki yojana ka Vistar." In paragraph 1 of the aforesaid Government order it has been specifically stated that the intention for grant-in-aid is for encouraging construction of new cinema halls. However, grant-in-aid is related to the amount of entertainment tax. The question as to whether subsidy received from the Government is capital receipt or revenue in nature, is no more res integra. The apex court in the case of Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253 has held as follows: "... The basic principle to be applied for determination as to whether a subsidy payment is in the nature of capital or revenue, has been stated by Viscount Simon in Ostime v. Pontypridd and Rhondda Joint Water Board [1946] 14 ITR (Suppl.) 45, 47 (HL); [1946] 28 TC 261 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the cost of Government or any local body; (d) Refund of water rate in respect of water drawn from a Government source or from a source maintained by any local body but returned purified to it; (e) Liability on account of assessment of land revenue or taxes on land used for establishment of any industry, shall be limited to the amount of such taxes payable immediately before the land is so used; (f) The following additional incentives will be allowed to new industrial units set up in the ayacut areas of Nagarjunasagar, Pochamad and K.C. Canal in the Ramagundam-Kothagudem areas and in the following eight backward districts;..." The apex court has held as follows: "The salient feature 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 incentives 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 to the extent stated in the notification. Exemption was given also from payment of water rate. Refund was also provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e early days to enable them to come to a competitive level with other established industries.... By no stretch of imagination can the subsidies whether by way of refund of sales tax or relief of electricity charges or water charges be treated as an aid to the setting up of the industry of the assessee. As we have seen earlier, the payments were to be made only if and when the assessee commenced its production. The said payments were made for a period of five years calculated from the date of commencement of production in the assessee's factory. The subsidies are operational subsidies and not capital subsidies." Applying the principles laid down by the apex court in the aforementioned case to the facts of the present case, we find that the grant-in-aid was given in order to promote construction of cinema buildings in small towns having population up to one lakh according to the 1981 census. Thus, it was for the establishment/setting up of cinema halls and the manner in which the grant-in-aid related to the amount of entertainment tax is of no consequence. Thus, even though the grant-in-aid was given after the business has been set up, it would still be relatable to the constructio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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