Purpose test for subsidy: entertainment tax remission for a new cinema hall was treated as a capital receipt, not taxable revenue.

A tax remission granted under a State notification for a newly constructed cinema hall was held to be a capital subsidy, because the purpose of the scheme was to encourage construction and commencement of a new unit, not to supplement trading receipts. The character of the assistance depended on the object of the scheme under the purpose test, so its form as an exemption from entertainment tax and the fact that patrons paid the tax did not alter its capital nature. The receipt was therefore not taxable as revenue, and the addition was deleted.

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Issues: Whether the exemption from entertainment tax granted to a new cinema hall under the State notification was a capital receipt by way of subsidy or a revenue receipt liable to tax.

Analysis: The tax was leviable under the Rajasthan Entertainments and Advertisements Tax Act, 1957 on payments for admission, but the State Government was empowered to reduce or remit the tax in public interest. The exemption notification granted a five-year remission for a newly constructed cinema hall, subject to commencement of commercial exhibition within the stipulated time. Applying the purpose test, the character of the receipt depended on the object of the scheme and not on the form, source, or timing of the assistance. The scheme was intended to promote construction of new cinema halls, and the remission operated as an incentive linked to capital investment rather than to the carrying on of business. The fact that the assessee collected the tax from patrons did not change the nature of the Governmental assistance, because the remission was granted to the proprietor as a subsidy connected with the setting up of the cinema hall.

Conclusion: The remission was a capital subsidy and not a revenue receipt; the addition was rightly deleted and the assessee succeeded.

Ratio Decidendi: The nature of a subsidy is determined by the purpose for which it is granted, and a tax remission given to promote construction or establishment of a new unit is a capital receipt even if it is implemented through exemption from tax otherwise collectible in the course of business.

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