TMI Blog1990 (8) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of financial assistance to Marathi film producers for their ensuing ventures. By the said resolution, it was decided by the Government of Maharashtra that its total receipts on account of entertainment duty on Marathi films exhibited in the previous year shall be earmarked for implementation of the said scheme. The objectives underlying the scheme are set out in a subsequent Government resolution dated June 7, 1975, as under : (i) "To promote production of better Marathi films generally. (ii) To help production of Marathi colour films in preference to black and white films." (c) By Government resolution dated June 7, 1975, the Government of Maharashtra prescribed rules governing the said scheme. The said rules prescribed conditions of eligibility for grant of financial assistance to producers of new Marathi films. It is obvious that the said scheme was announced by the Government of Maharashtra to encourage and induce film producers to produce new Marathi films. Rule 4 of the said rules provided that any producer of a Marathi film as defined in the said rules, whose film had been exhibited in the State of Maharashtra may apply to the Collector of Bombay (Entertainment Duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entertainment tax collection of Rs. 2,82,943.90 from the previous production of the assessee known as "Aandhala Narto Dola" during the year 1974-75. The said subsidy was released to the assessee so as to assist the assessee to acquire a new capital asset so as to meet part of the cost of the new film in public interest. The Income-tax Officer held that the said sum of Rs. 2,10,085 received by the assessee from the Government of Maharashtra constituted revenue receipt and was, therefore, taxable. Being aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals)-II, Bombay. By his well-considered order dated January 25, 1980, the Commissioner held that the said amount was not taxable. During the course of his order, the Commissioner of Income-tax referred, inter alia, to Circular No. 142 dated August 1, 1974, issued by the Central Board of Direct Taxes. The said circular in terms applied only to 10% Central Outright Grant Subsidy Scheme for industrial units in backward areas and dealt with the question as to whether the receipt of such subsidy would constitute a revenue receipt or capital receipt in the hands of the recipient for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjective of supplementing the trade receipts or recoupment of revenue expenditure already incurred by the assessee. Both learned counsel have cited a large number of cases in support of their rival contentions on the question whether the financial assistance of Rs. 2,10,085 in this case is liable to be treated as a revenue receipt or as a capital receipt. Reference to these cases shall be made in the later part of this judgment while dealing with the submission of counsel on either side. Before a reference is made to the authorities cited by counsel on either side and their submissions, it appears to be appropriate to refer to Circular No. 541 dated July 25, 1989, issued by the Government of India, as the said circular is directly relevant for the purpose of this matter. The said circular dealt with the subject-matter of "subsidy granted by the State Government to producers for the production of feature films in regional languages". Paragraphs 2 and 3 of the said circular read as under : "2. The income-tax authorities have been treating the subsidy as revenue receipt incidental to the carrying on of the business of film production and have been charging it to tax. Different Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar problem. In the matter before the High Court of Kerala, replantation subsidy was received by the assessees from the Rubber Board and the question which arose before the court was whether the receipt of such subsidy was income and the same was taxable. The Full Bench of the High Court of Kerala held in this case that it was not possible to characterise the replantation subsidy granted to the rubber growers as a subsidy to "swell" the profits of the assessees. On behalf of the Revenue, reliance was placed on the judgment of the Hon'ble Supreme Court in Meenakshi Achi (V. S. S. V) v. CIT [1966] 60 ITR 253, in the above-referred Kerala case. While distinguishing the above-referred Supreme Court judgment, the Full Bench of the High Court of Kerala held that, in the case before the Hon'ble Supreme Court, the subsidy was granted against the expenditure incurred by the assessees for maintaining the rubber plantation and the said case was, therefore, clearly distinguishable and had no applicability to the case of a subsidy having a different objective. Expenditure incurred by rubber growers for maintaining the rubber plantation would be a revenue expenditure. If the subsidy was grante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducers of feature films in the State was in the nature of an inducement for production of capital asset and was, therefore, not a revenue receipt. The High Court of Andhra Pradesh referred to the earlier judgment of the High Court of Andhra Pradesh in CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39 and also to the judgment of the House of Lords in the case of Ostime (H. M. Inspector of Taxes) v. Pontypridd and Rhondda joint Water Board [1946] 14 ITR (Suppl.) 45; [1946] 28 TC 261. The view expressed by the High Court of Andhra Pradesh in Chitra Kalpa's case [1989] 177 ITR 540 was accepted by the Central Board of Direct Taxes in its Circular No. 541 dated July 25, 1989. We are somewhat surprised to find that the controversy is still being pursued by the Department notwithstanding the above-referred circular. We shall now refer to various authorities cited by learned counsel for the Revenue who has endeavoured his best to convince us that the subsidy in question should be treated as a revenue receipt notwithstanding the Circular No. 541 dated July 25, 1989 issued by the Central Board of Direct Taxes accepting the ratio of the judgment of the High Court of Andhra Pradesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idy. The Government of West Bengal agreed to meet part of the administrative expenditure of the assessee in consideration of the assessee rendering certain services as stipulated in the agreement. With respect, the said judgment has no applicability at all to the case under consideration. It was observed in the said case at page 729, after referring to the judgments of the House of Lords in Seaham Harbour Dock Co's case [1931] 16 TC 333 and Glenboig Union Fireclay Co. Ltd. v. CIR [1922] 12 TC 427, that if the grant was given not as a supplementary trading receipt, it could not be treated as a revenue receipt. We have already held that, in this case, the subsidy was granted by the Government of Maharashtra to film producers not as a supplementary trading receipt and that its underlying objective was totally different. We are thus unable to appreciate how this judgment can assist the Revenue. Mr. Jetley then relied upon the judgment of this court in Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473. In that case, the assessee-company and Tata Chemicals Ltd., two of the companies which were manufacturing soda ash, found it difficult to carry on the business profitably and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ratio of the judgment in [1989] 177 ITR 540, is applicable to this case. We agree with the view taken by the High Court of Andhra Pradesh in the above case. Mr. Jetley has submitted that we should not follow the ratio of the judgment of the Andhra Pradesh High Court in Chitra Kalpa's case [1989] 177 ITR 540 on the ground that the said ratio runs counter to the law declared by the Hon'ble Supreme Court in Meenakshi Achi's case [1966] 60 ITR 253. In our considered judgment, the ratio of the above referred Andhra case does not run counter to the judgment of the Hon'ble Supreme Court. It is not of any significance that no reference is to be found to the judgment of the Hon'ble Supreme Court in Meenakshi Achi's case [1966] 60 ITR 253 in the above-referred Andhra Pradesh High Court judgment. We are unable to accept the said submission. We are of the view that the answer to the question whether the receipt of a particular subsidy amounts to a capital receipt or a revenue receipt would depend upon the nature and content of the subsidy, the scheme, its objective and the purpose for which the subsidy is granted. Having regard to the nature, scope and object of the subsidy in the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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