Entertainment tax exemption held to be capital subsidy where remission was aimed at promoting new cinema hall construction.

Entertainment tax exemption granted to a newly constructed cinema hall under the Rajasthan Entertainments and Advertisements Tax Act, 1957 was treated as a capital subsidy because the remission was designed to encourage construction and establishment of new cinema halls, not to subsidise business operations. The character of the receipt was determined by the object of the assistance, and the book entries showing collection and remittance of tax were not decisive. On that basis, the amount was held not to be a revenue receipt, and deletion of the related addition was justified.

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Issues: Whether the entertainment tax exemption granted to a new cinema hall under the Rajasthan Entertainments and Advertisements Tax Act, 1957 was a capital subsidy or a revenue receipt, and whether the addition of the collected but remitted amount was rightly deleted.

Analysis: The levy of entertainment tax under Section 4(1) of the Rajasthan Entertainments and Advertisements Tax Act, 1957 is on payments for admission, with the tax being recoverable from the proprietor under Section 5. Section 7(2) empowers the State Government to reduce or remit the tax in public interest, and the notification in question exempted entertainment tax for five years for a newly constructed cinema hall commenced within the specified time. Applying the purpose test, the character of the receipt depends on the object of the assistance. The exemption was intended to promote construction and establishment of new cinema halls, not to assist in carrying on the business more profitably. The manner in which the assistance was given, including collection entries in the books, was not determinative. The remission was therefore an incentive linked to capital outlay and not an operational subsidy.

Conclusion: The exemption was a capital subsidy and not a revenue receipt. The deletion of the addition was justified and the question was answered in favour of the assessee.

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