1988 (8) TMI 34 - HC - Income Tax

Film production subsidy ruled non-taxable under Income-tax Act

Commissioner Of Income-Tax Versus Chitra Kalpa

The High Court of Andhra Pradesh held that a subsidy of Rs. 50,000 granted to an assessee for producing a feature film was not taxable as a revenue ... Assessment Issues Involved:1. Whether the subsidy of Rs. 50,000 is taxable as a revenue receipt.2. Applicability of the judgment in CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39 to the present case.Summary:Issue 1: Taxability of the Subsidy as Revenue ReceiptThe High Court of Andhra Pradesh examined whether the subsidy of Rs. 50,000 granted by the Government of Andhra Pradesh to the assessee for producing a feature film in the state is taxable as a revenue receipt. The Tribunal had concluded that the subsidy was not in the nature of income and thus not taxable under the Income-tax Act, 1961. The court noted that the subsidy was granted to encourage film production in the state and was an inducement rather than assistance for business operations. The subsidy was a lump sum cash grant, not tied to any specific production costs or business activities, and was too small to significantly impact the producer's profits. Therefore, the court held that the subsidy could not be regarded as income liable to tax.Issue 2: Applicability of CIT v. Sahney Steel and Press Works Ltd.The Revenue argued that the case was covered by the judgment in CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39, where subsidies were considered revenue receipts. However, the court distinguished the present case from Sahney Steel. In Sahney Steel, the subsidies were granted to assist the business operations and included various forms of financial assistance like sales tax refunds, power tariff refunds, and other incentives aimed at reducing operational costs and increasing profitability. In contrast, the subsidy in the present case was a one-time cash grant intended as an inducement to produce films in Andhra Pradesh, without any direct connection to the business operations or profitability of the producer. The court concluded that the ratio of Sahney Steel did not apply to the present case, supporting the Tribunal's view that the subsidy was not taxable as a revenue receipt.Conclusion:The High Court affirmed the Tribunal's decision, holding that the subsidy of Rs. 50,000 granted to the assessee was not taxable as a revenue receipt. The court distinguished the present case from the Sahney Steel judgment, emphasizing the different nature and purpose of the subsidies involved. The question was answered in favor of the assessee and against the Revenue.