2014 (8) TMI 839 - AT - Income Tax

Entertainment tax subsidies as capital receipts, project expenses allowed, Section 80IB deduction remitted

M/s. Inox Leisure Ltd. Versus The DCIT, Circle-1(2), Baroda

M/s. Inox Leisure Ltd. Versus The DCIT, Circle-1(2), Baroda - TMI Issues Involved:1. Treatment of Entertainment Tax as Revenue or Capital Receipt.2. Deduction under Section 80IB.3. Disallowance of Expenses for Abandoned Projects.Detailed Analysis:1. Treatment of Entertainment Tax as Revenue or Capital Receipt:The primary issue revolves around whether the entertainment tax should be treated as a capital receipt or revenue receipt. The Assessee claimed the entertainment tax as capital receipts, which was denied by the Assessing Officer (A.O) and treated as revenue receipts, relying on the Supreme Court decision in Sahney Steel Press Works Ltd. vs. CIT. The A.O argued that the entertainment tax exemption was granted after the commencement of commercial operations, thus qualifying as revenue receipts.The CIT(A) provided a detailed analysis, noting that the entertainment tax exemptions for multiplexes in Pune, Baroda, Elgin Road, and Salt Lake were previously held as capital receipts in earlier years. The CIT(A) upheld this view, stating that the purpose of the subsidy was to help with the capital outlay for setting up multiplexes, not for supplementing operational revenue. The CIT(A) distinguished between subsidies for capital expenditure and those for operational assistance, following the Supreme Court's 'purpose test' from Ponni Sugars & Chemicals Ltd. The CIT(A) also noted that the Rajasthan High Court in Samta Chavigarh held similar subsidies as capital receipts.The ITAT upheld the CIT(A) decision, affirming that the entertainment tax subsidies for multiplexes in Maharashtra, Gujarat, West Bengal, and Madhya Pradesh were capital receipts. The ITAT also dismissed the Revenue's alternate contention to reduce the subsidy amount from the block of assets for depreciation purposes, citing decisions from the Delhi Tribunal in PVR Ltd. and the Bombay Tribunal in Godrej Agrovet Ltd.2. Deduction under Section 80IB:The A.O denied the Assessee's claim for deduction under Section 80IB for multiplexes at Pune and Baroda, citing deficiencies in meeting technical specifications. The CIT(A) reversed this decision, stating that the multiplexes met the prescribed conditions and directed the A.O to allow the deduction.The ITAT noted that similar issues were remitted to the A.O in earlier years for a fresh examination with the assistance of technical experts. Following this precedent, the ITAT remitted the matter back to the A.O for a fresh decision, ensuring that the technical aspects of the multiplexes' construction were thoroughly examined.3. Disallowance of Expenses for Abandoned Projects:The A.O disallowed expenses incurred by the Assessee for exploring the possibility of setting up new multiplexes, treating them as capital expenditures. The CIT(A) upheld this disallowance.The ITAT, however, reversed this decision, citing the Delhi High Court's ruling in Priya Village Roadshows Ltd., which allowed similar expenses as revenue expenditures for feasibility studies in the same line of business. The ITAT noted that the Assessee's expenses were for technical reports and consultations related to the same business of running multiplexes, not for setting up a new business. Thus, the ITAT allowed the expenses as revenue expenditures.Conclusion:The ITAT upheld the CIT(A)'s decision to treat the entertainment tax subsidies as capital receipts and allowed the Assessee's appeal regarding the disallowance of expenses for abandoned projects. The ITAT remitted the issue of deduction under Section 80IB back to the A.O for a fresh examination.