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2020 (3) TMI 1145

..... the receipt - HELD THAT:- As decided in SAHNEY STEEL AND PRESS WORKS LIMITED AND OTHERS VERSUS COMMISSIONER OF INCOME-TAX [1997 (9) TMI 3 - SUPREME COURT] if the monies are given to an assessee for assisting him for carrying out the business operation and the money is given only after and conditional upon commencement of the production, such subsidies must be treated as assistance for the purpose of trade. Applying the said legal position to the given case, the purpose of the scheme as evident from Annexure A/2, and in particular Rule 1, is obviously for promoting the construction of new Cinema Theaters. The effective date is given under Rule 3, as ‘14.01.1980’. The eligibility conditions are mentioned in Rule 4 and Rule 5 stipulates the ‘measure of subsidy’, which could be aspired by the assessee. Going by the said Rules, it is quite clear that the extent of benefit payable to an Assessee by way of subsidy is quantified with reference to the entertainment tax as specified under Rule 5([k). But for fixing the extent of benefit payable, Annexure A/2 does no where mention that the purpose of subsidy is to promote the trade or business. On the other hand, it is .....

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..... he Annexure A/2 scheme, providing for payment of subsidy to promote the construction of Cinema Houses, the Appellant put forth a claim and the same was sanctioned granting subsidy for the assessment years 1994-1995, 1995-1996 and 1996-1997, amounting to ₹ 9,34,120/-, 7,00,591/- and 7,00,591/- respectively. Since the above amounts were disbursed towards capital subsidy , it was never included as part of the turnover in the returns filed by the Assessee. However, the Assessing Officer was of the view that it was to be included as part of the revenue subsidy and accordingly, the assessment was finalised as per order dated 11.12.1996 (Annexure A/4) fixing the tax liability accordingly. 5. Met with the situation, the Assessee took up the matter by way of appeal before the Commissioner of Income tax (Appeals-1) Raipur, who considered the matter and held that the order passed by the Assessing Officer was not liable to be sustained, as the disputed amount was liable to be treated as capital subsidy . It was accordingly that Annexure A/6 order dated 28.02.1997 came to be passed, which, however came to be reversed in the second appeal, by the Appellate Tribunal, as per Annexure A/8 ord .....

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..... to the substantial questions of law and other incidental aspects involved. 9. The learned counsel for the Appellant submits that the nature and purpose of the scheme is discernible from Annexure A/2 Rules; which was only for promoting the construction of new cinema theaters, so as to provide help in the film field and never for promoting the running business of the Appellant. This, however was sought to be rebutted by the learned Standing Counsel for the Respondent, particularly with reference to the various provisions in Annexure A/2 Rules, and in particular, the relevant clauses as contained in Rule 5([k). The learned Standing Counsel also submits that in view of the specific observation made by the Apex Court in Sahney Steel & Press Works Ltd. (supra), in particular, paragraphs 10, 13, 17, 18, 19, 23, 24, 27, 31 and 33, the money given to the Assessee for assisting him was virtually for carrying out the business operation. Hence, such money given much after commencement of the operation could be treated only as an assistance for the purpose of trade and was liable to be treated as part of the revenue subsidy , which is liable to be reckoned for fixation of tax. 10. The learn .....

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..... its business entirely as it liked and was not obliged to spend the money for a particular purpose like extension of docks as in the Seaham Harbour Dock Co. case." A specific inference was drawn in the case considered by the Apex Court, that the payments were made to assist the new industries at their commencement of the business and to carry on their business. It was in the said circumstance, that an observation was made in paragraph 19, that the Government was paying out of public funds to the assessee for a definite purpose and if the purpose was to help the assessee to set up its business or complete a project, the monies must be treated as to have been received for the capital purpose . But if the monies are given to an assessee for assisting him for carrying out the business operation and the money is given only after and conditional upon commencement of the production, such subsidies must be treated as assistance for the purpose of trade. Applying the said legal position to the given case, the purpose of the scheme as evident from Annexure A/2, and in particular Rule 1, is obviously for promoting the construction of new Cinema Theaters. The effective date is given under .....

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..... of the receipt in the hands of the Assessee, whether revenue or capital, has to be determined with respect to the purpose for which the subsidy was given and that the point of time at which it is paid, its source or its form were irrelevant. If the object of the subsidy was to enable the assessee to run the business more profitably then the receipt is on the revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit, then the receipt of the subsidy was on capital account . After making such a reference, while giving effect to the law declared by the Supreme Court, the Tribunal appears to have taken a somersault and simply proceeded to hold that the subsidy given in the instant case was to be treated as revenue subsidy exigible to tax, in turn fixing the liability accordingly. 17. We are of the view that the course pursued by the Tribunal is per se wrong and unsustainable in all respects. The finding is not supported by reasoning. It stands contrary to the law declared by the Apex Court as discussed above. For the said reasons, Annexure A/1 stands set aside. 18. Appeals .....

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