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of <h1>Kerala High Court: Film production subsidy from State Govt taxable income</h1> <h3>Commissioner Of Income-Tax Versus Udaya Pictures (P.) Ltd.</h3> The High Court of Kerala ruled in favor of the Revenue, determining that the subsidy received by a private limited company engaged in film production from ... Film Business Issues Involved: Taxability of subsidy amount received by a private limited company engaged in film production from the Kerala State Government for producing new regional films during the assessment year 1979-80.Summary:The High Court of Kerala was presented with a case concerning the taxability of a subsidy received by a private limited company engaged in film production from the Kerala State Government for producing new regional films during the assessment year 1979-80. The assessee claimed the subsidy amount as a capital receipt and hence exempt from taxation. However, the Commissioner of Income-tax invoked powers u/s 263 of the Income-tax Act, 1961, to enhance the assessment by including the subsidy amount in the total income of the assessee. The Income-tax Appellate Tribunal ultimately held that the subsidy received by the assessee is not taxable, leading to the Revenue filing a reference application before the High Court for a decision.The assessee contended that the subsidy received from the Government would become income only after five years of production from the date of subsidy or the commencement of production, whichever is later. The High Court referred to previous cases and decisions, including those of the Supreme Court and Division Benches, to analyze the nature of such subsidies. It was established that the subsidy received by the assessee was not a capital receipt but income liable to tax, based on the purpose and nature of the subsidy as an inducement to encourage film production in the State.In conclusion, the High Court ruled in favor of the Revenue, stating that the subsidy received by the assessee from the Government was income liable to tax. The judgment was forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.
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