TMI Blog2002 (4) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of Travelling expenses has not been pressed for hearing and, therefore, dismissed. 4. The assessee is a private limited company. The Assessee-company derives income from running a cold storage and cinema hall. The Assessing Officer observed that the assessee has credited to General Reserve, Entertainment Tax Subsidy received from the State Government amounting to Rs. 3,42,103.53. The opening balance under this head was Rs. 1,29,965.80 and addition for the year was Rs. 2,18,337. The Assessing Officer required the assessee to explain the nature of the General Reserve and to show cause as to why the entertainment tax collected by the assessee from the public and not paid to the State Government should not be treated as its income. It was explained by the assessee before the Assessing Officer that the assessee was granted subsidy for development of the backward areas where the population was less than 1 lakh. It was claimed before the Assessing Officer that Cinema Halls are the best media of communication and entertainment in these years and with the help of this media the persons residing in those backward areas were made aware of the recent developments of Science and Technology ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 4. English Translation of the Scheme has also been submitted by the ld. Counsel for the assessee for the sake of convenience at pages 14 to 18 of the Paper Book. It is stated by the ld. Counsel that one of the conditions for grant of subsidy was that Cinema owners will have to run the cinema for four years after the period of subsidy of five years is over. The ld. Counsel also referred to the decision of the Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. [1994] 210 ITR 830 and also distinguished the case of the assessee from the case of Sahney Steel Press Works Ltd. v. CIT [1997] 228 ITR 253. According to the ld. Counsel the subsidy given to an assessee to carry on trade is a revenue receipt but the character of the subsidy is to be determined after considering the purpose of scheme. According to the ld. Counsel the quantification of grants-in-aid on the basis of entertainment tax is only a measure to determine the grants-in-aid and it is not a fact that entertainment tax is not payable by the assessee to the Government. The assessee has to deposit Form B (mentioning Entertainment tax) collected by the assessee in the letter box for which keys are in possession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven for acquisition of the capital assets by the assessee or for utilizing the subsidy for establishment of capital asset. There is no obligation on the part of the assessee to utilize the subsidy for subsidy for establishment or acquiring a capital asset. The subsidy is given only after the establishment of the cinema and only after the Cinema starts operating. Subsidy is not relatable to investment or construction of the cinema or plant and machinery installed in the cinema. The ld. D.R. referred to page 2 of the Paper Book 11 filed by the assessee and argued that even the new Units which have been earlier set up and entitled to benefit under 1983 Scheme were also entitled to benefit under 1986 Scheme. The Government evolved the Scheme to make the business more profitable in certain areas where the cinema business was not profitable. There is no obligation on the assessee to acquire any capital assets. There is no restriction on the utilization of subsidy by the assessee and the utilization of the subsidy by the assessee is entirely at the discretion of the assessee. The ld. D.R. also referred to the decision of the Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. and me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 subsidy is taxable, but in the case of the assessee since the Cinema house was established after the Scheme of 1986 came into operation, the subsidy is not taxable because it is a capital receipt. According to the ld. Counsel under the Scheme, the subsidy is not relatable to entertainment tax and entertainment tax is only a measure to determine the amount of subsidy. The counsel stated that it is not correct to say that entertainment tax is not paid under the Scheme because under the Scheme entertainment tax is deemed to have been paid by adjustment. The ld. Counsel stated that in the case of Sahney Steel Press Works Ltd. sales tax was refunded in subsequent years but in the case of the assessee the entertainment tax is adjusted and deemed to have been paid in the same year against grants-in-aid to the assessee under the Scheme of 1986. The ld. Counsel, therefore, distinguished the case of Sahney Steel Press Works from the case of the assessee. 9. In the case of M/s. Sharda Chitra Mandit-Ballia [I.T. Appeal Nos. 649 and 1477 (All.) of 1994], Sri Ajit Dhawan, ld. Counsel for the assessee raised the same arguments which have raised in the case of Mudit Refrigeration Industrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding Entertainment Tax only Rs. 5. The permanent halls availing the facility in accordance with G.O. dated 17th December, 1983 prior to issue of this Government order, can avail this facility on the condition that they fix the rate of admission including Entertainment Tax Rs. 5 only and avail the facility. It is restricted that such Cinema Hall which lies in the area/place whose population according to census of 1981 is 20,000 and are availing the facility in accordance with Govt. order dated 17th September, 1983, will avail the facility of grant upto 4 years only. 3. The benefit of above grant will be admissible to those permanent Cinema Halls which have been granted Licence from 1st January, 1984 to 31st March, 1990 on the condition that site plans of Cinema Hall have been submitted for approval/sanction on 1st January, 1983 or thereafter provided that if any Cinema Hall was running earlier to issue of G.O., dated 17th September, 1983 and later on closed due to any reason, then that Cinema Hall either in old name/or with any other name desires to seek licence in the same premises, this facility will not be admissible to him. Under this Government order of July, 1986, the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahan liye jane hetu/sahayak anudan/rajya sahayata/anshadan" and will deposit the same as tax. The forwarded enclosures will work as voucher.' (e) The Cinema owner will abide by the orders issued from time to time by the prescribed authority in accordance with Entertainment and Betting Tax Act, 1979 and Rules 1961." 10. Now the question arises whether the subsidy or grants-in-aid under July, 1986 Scheme in the form of exemption from paying the entertainment tax in certain proportion as mentioned above from 1st to 5th years subject to certain conditions is a revenue receipt or capital receipt. It is clear from the Scheme notified by the State Government vide notification No. 30-EB-6(15)/85-Vitta (Ma. Ka.) Anubhag dated 21-7-1986 that the cinema owners were entitled to grants-in aid or subsidy from the State Government where the applications for licence to construct cinema have been submitted from 1-1-1984 to 31-3-1990 on the condition that the site plans for cinema halls have been submitted for approval/sanction on 1st January, 1983 or thereafter subject to certain conditions. One of the conditions was that cinema hall will charge the maximum admission rates including entertainme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision 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. There was no room or basis for dissociating the subsidy from the business of the assessee as the subsidy was given for setting up and development of business and not for any other unrelated purpose. The subsidy granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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. 13. 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 cinematographic films. During the accounting year relevant to the assessment year 1979-80, the assessee had received a sum of Rs. 37,500 as subsidy from the Kerala State Government for producing new regional films. In the return filed by the assessee, this amount was shown as a capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 question whether the subsidy was revenue or capital receipt. The refund of sales tax was in respect of taxes levied after commencement of production and upto a period of five years from the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as assistance for the purpose of the trade." 16. In the case of Jagapathy Art Pictures v. CIT [1999] 240 ITR 625 (Mad.), the facts of the case were that the assessee received subsidy from the Government of Andhra Pradesh for the production of Telegu 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 Head Note 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 assessee to make the movie and it had not been utilised for the purpose of making the movie. The subsidy amount was paid only to encourage people like the assessee to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 subject 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 management may not be in trouble in the running of the sugar factories in initial years. The measure of payment of subsidy was also closely interlinked with the purchase of sugarcane b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such grants-in-aid or subsidy in the hands of recipient - whether revenue or capital will have to be determined by having regard to the object and purpose for which the grants-in-aid/subsidy is given as per test laid down by the Hon'ble Supreme Court in the case of Sahney Steel Press Works Ltd. and other High Courts in the cases cited above. If the grants-in-aid are given by way of assistance to an assessee in the carrying on of his trade or business, it has to be treated as a trading receipt and the source of funds is quite immaterial. Phraseology employed by the State Government under the Scheme mentioned in the notification dated 20-7-1986 would not make any difference in the nature of receipt. The document of notification must be construed upon reading the same in its entirety. The object or purpose in framing the Scheme cannot be deciphered only from the preamble, heading or subject mentioned in the notification. 23. The grants-in-aid or subsidy to cinema owners is admissible only after the commencement of the business and during course of running of the business. The grants-in-aid is admissible for a period of 4 or 5 years calculated from the date of commencement of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n backward areas. The assistance by the State Government is to support the cinema hall so set up so that they can stand on their own legs and overcome the handicaps. Therefore, grants-in-aid are given for augmenting the revenue of the cinema hall and is to be considered as revenue receipt. 25. The ld. Counsel for M/s. Mudit Refrigeration Industries, Allahabad, Shri Ajit Dhawan relied on the decision of Hon'ble Bombay High Court in the case of Menezes Farmaco. In this case the issue before the Hon'ble Bombay High Court was whether the central subsidy received by the assessee can be deducted from the actual cost of the asset for the purpose of calculating depreciation. In this case the Hon'ble Bombay High Court followed the decision of Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. and held that the amount of central subsidy cannot be deducted from the actual cost for calculating depreciation. The question whether the subsidy was revenue receipt or capital receipt was not before the Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. The issue before the Supreme Court in Sahney Steel Press Works Ltd.'s case, on the other hand was whether the subsidy received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of two cases of this Tribunal and the decisions of the Hon'ble Courts came to the conclusion that the subsidy given by the State Government with reference to entertainment tax is a revenue receipt. 29. Therefore, on the issue of subsidy, the appeal of the assessee fails. No other ground was pressed for hearing. 30. In the result, I.T.A. No. 2446 (All.) is dismissed. (i) ITA Nos. 649 and 1477 (All.)/1994 (M/s. Sharda Chitra Mandir, Ballia). (ii) ITA Nos. 841 and 1479 (All.)/1994 (M/s. Narayanai Bhrigu Ashram, Ballia). (iii) ITA Nos. 932 and 1967 (All.)/ 1994 (M/s. Rajshri Palace, Ballia). (iv) ITA No. 1465 (All.)/ 1994 (M/s. Shyam Palace, Ballia) and (v) ITA Nos. 34 and 1131 (All.)/1995 (M/s. Raj Palace, Mau). 31. In the aforesaid appeals, the only common issue pressed was whether the entertainment tax retained by the assessee to the extent of grants-in-aid or subsidy from the State Government is a revenue receipt or capital receipt. We have decided above this issue in the case of Mudit Refrigeration Industries, Allahabad, ITA No. 2446 (All.)/92 against the assessee and in favour of the Revenue and for the detailed reasons given above in paragraphs 10 to 28, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of transaction has not been satisfactorily explained. In the circumstances, the addition is in order towards unexplained cash credit." 38. We have heard the ld. Counsel for the assessee as well as the ld. D.R. The ld. Counsel for the assessee has stated that other creditor has filed confirmatory letter regarding the loan given by him which is placed at page 13 of the Paper Book. The Id. Counsel, therefore, argued that cash credit of Rs. 18,000 should be treated as genuine. On the other hand, the ld. D.R. Supported the order of the AO and, contended that there is no evidence to show the source of income of Sri Mohanlal Singh. 39. We have considered the facts of the case, rival submissions and the material on record. The assessee has filed photo copy of confirmatory letter dated nil signed by one Sri Mohanlal Singh. It is stated in the confirmatory letter that he has given loan of Rs. 18,000 to Ritu Priya. It is stated that this amount was received by him from the sale of potato at Nagpur. The letter of Sri Mohanlal Singh does not at all prove genuineness of the cash credit of Rs. 18,000. There is no evidence to show the source of income of Shri Mohanlal Singh and how he rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
