Subsidy character depends on dominant purpose: incentives for multiplex construction were held capital receipts, not revenue.

The character of a subsidy depends on its dominant purpose: where the object is to promote the setting up or expansion of a capital project, the receipt is capital in nature; where it is intended to support day-to-day business operations, it is revenue. Applying that test, the SC held that exemption and partial remission of entertainment duty for multiplex theatre complexes were designed to encourage construction of new capital-intensive multiplexes, and the timing, source, or form of the concession was not decisive. The subsidy was therefore treated as a capital receipt and not taxable as revenue. The same conclusion applied to the West Bengal scheme.

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Issues: Whether the subsidy granted by way of exemption and partial remission of entertainment duty for multiplex theatre complexes was a capital receipt or a revenue receipt.

Analysis: The controlling test is the purpose for which the subsidy is given. If the object is to enable the recipient to set up or expand a capital project, the receipt is capital in nature; if the object is to assist the running of business operations, it is revenue. The point of time at which the subsidy is paid, its source, and the form in which it is granted are not decisive. Applying that test, the statutory scheme showed that the concession was designed to encourage construction of new multiplex theatre complexes, which were capital intensive and required governmental support. The exemption for the first three years and partial remission thereafter was only the mechanism chosen to achieve that capital incentive. The same principle applied to the West Bengal scheme, which likewise aimed at encouraging development of multiplex theatre complexes.

Conclusion: The subsidy was held to be on capital account and not taxable as revenue receipt.

Final Conclusion: The Department's appeals failed because the subsidy scheme was held to be a capital incentive intended to promote construction of multiplex theatre complexes.

Ratio Decidendi: The character of a subsidy in the hands of the recipient depends on its dominant purpose, and where the object is to promote the setting up of capital assets or new industrial facilities, the receipt is capital notwithstanding that it is granted after commencement of operations or through a business-linked mechanism.

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