TaxTMI 
TaxTMI 
2013 (8) TMI 513
X X X X Extracts X X X X
X X X X Extracts X X X X
....6) 286 ITR 1; and in CIT vs. Varinder Agro Chemical Ltd. (2007) 290 ITR 147. 2. On the facts and circumstances of the case, the Ld. CIT (A) has erred in deleting addition of Rs.1,14,39,079/- (Rs. 19,66,337/-) on account of capitalisation of advertisement expenses ignoring that fact that benefit of enduring nature was drawn by the assessee." 2. The common grounds of Cross Objections read as under:- " That the Ld. CIT (A) has erred on facts and in law in not deciding the alternate issue relating to deduction of entertainment tax of Rs.6,75,56,204/- (Rs. 5,60,49,044/- for Assessment Year 2009-10) deemed to have been paid to the Government as per the Entertainment Tax Subsidy Scheme of the Government of U.P. under the provisions of section 43B of the Income Tax Act, 1961." 3. So far as regards Ground No.1 in both the appeals filed by the department, the Assessing Officer made disallowance of Entertainment Tax Subsidy. The assessee had deducted Entertainment Tax from the total income in the computation. In the Notes to Accounts, in Clause (5) it had been mentioned that the company collected Entertainment Tax on sale of tickets of cinema operation; that the UP State Governmen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ined shall be deemed to have been paid to the State Government; that the amount of exemption was credited by the assessee company as income in its books of account; that however, in the return of income filed, the same was claimed as exempt in accordance with the decision of the Hon'ble Supreme Court in the case of 'Sahney Steel and Press Works Ltd.', 228 ITR 253 (SC), wherein it had been held that the character of receipt of a subsidy in the hands of the recipient would depend upon the purpose for which the subsidy have been granted, that in case the subsidy have been granted for the purpose of setting up a business, it would constitute a project subsidy and be capital receipt in the hands of the recipient, that however, if a subsidy has been granted for carrying out business operation and is given with a view to augment the profit of the business, the same would constitute a revenue receipt; that subsequently, the Hon'ble Supreme Court had, in 'CIT vs. Ponni Sugars and Chemicals Ltd.', 174 Taxman 87 (SC), approved the ratio in 'Sahney Steel' (supra), holding that the test to be applied in judging the character of a subsidy is to determine the character of the receipt in the hands....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it liked, which was also a fact in the assessee's case; that like in 'Sahney Steel' (supra), in the assessee's case also, the subsidy had also been granted for production or bringing into existence of any new asset; that in 'Sahney Steel', it had also been held that if the subsidies are granted year after year after the setting up of the new industry and commencement of production, such subsidies could only be treated as assistance given for the purpose of carrying on of the business of the assessee; that in the assessee's case also, the subsidy had been received year after year after the commencement of the multiplexes. It was in this manner that the Assessing Officer held the receipt of the subsidy in the hands of the assessee to be a taxable revenue receipt. 6. By virtue of the orders under appeal, the Ld. CIT (A) deleted the additions on account of disallowance of entertainment tax subsidy. 7. At the outset, the ld. counsel for the assessee has submitted before us that this issue stands covered in favour of the assessee by the decision of the Tribunal in the assessee's own case, for Assessment Year 2006-07, vide order dated 22.03.2013 (copy at pages 119-141 of the assesse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the record and ultimately accepted by both the authorities. We, therefore, confine ourselves to the issue about the nature of subsidy being capital or revenue, therefore, we do not wish to go into other issues about the discrepancies in application, assessee's eligibility for subsidy or income being illegal in nature. (ii) Coming to the nature of subsidy, ld. CIT(Appeals) held it to be revenue in nature: (a) relying on the judgment of Hon'ble Supreme Court in the case of Sahney Steel 228 ITR 253 (SC); (b) It has been further held that the grant received by assessee was not related to any asset or capital out lay as the payment of subsidy was made after completion of multiplex theatre based on its running for a period of three years. (c) The amount of subsidy was only quantified to the limit of cost of asset and the amount of entertainment tax collected by the assessee. (d) The benefit is given on the basis of collecting the E. Tax from the cinema viewers, which is a trading receipt. Retaining it and not paying a trading receipt to the Govt.amounts to revenue receipt. (e) Since the entertainment subsidy is trading receipt the consequent subsidy will be revenue in n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in that case Govt. could not have ensured the long term operation. In order to promote the scheme, release of incentive required operators to put in their best efforts. The release of subsidy upfront would have come directly from the coffers of the Govt. To avoid such pressure, instead it has been provided in the form of viewership and entertainment tax collection. (viii) The Hon'ble Supreme Court has clearly held that mode and method of release of subsidy will not determine the character. Similarly, the source of the subsidy is also irrelevant i.e. whether the subsidy comes directly from the coffers of the Govt. or it is sourced from instalment of E.Tax. It was modulated in such a way that the assessee derived it from alternate resources which in this case is cinema viewers or thereby entertainment tax collection. The scheme was designed to promote the investors in entertainment industry to establish new multiplexes. The object and purpose is to promote ailing cinema industry as a whole. In our considered view, Hon'ble Supreme Court judgment in Ponni Sugars & Chemicals Ltd. (supra) answers the question before us and is fully applicable to assessee's case (ix) The issue is f....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... interpreted in a liberal manner. The purpose of the U.P. Govt. being to promote the cinema industry as a whole, only because the basis for determining the subsidy is capped at the capital assets, will not mean that he scheme is to meet the cost of any specified asset directly or indirectly. Therefore, the amount of such subsidy cannot be held to reduce the actual cost of asset u/s 43(1) Explanation 10 of the Act. 13.4. Ld. DR has filed written submission, which we have referred hereinabove in para 11E(ii). While arguing it to be revenue subsidy, has pleaded that there was no obligation on assessee to utilize the subsidy in any specified manner. Similarly, ld. CIT(Appeals) also while holding the subsidy to be revenue in nature, has given a finding that the subsidy was not relatable to any specific asset of the multiplex. 13.5. Department cannot aprobate and reprobate on the same issue. While stressing the subsidy as revenue in nature both ld. CIT(Appeals) and ld. CIT(DR) have offered a view that subsidy was not intended to be utilized in specified manner. The view make it clear that the subsidy was not provided for meeting the cost of any asset. 13.6. In view of these fact....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The assessee company claimed advertisement and sale promotion expenses in the Profit & Loss Account. The Assessing Officer asked the assessee to show cause as to why the same be not capitalized and restricted to 1/5th of the total expenses, as per the assessment order in the earlier year. On considering the assessee's reply, the Assessing Officer observed that in the preceding Assessment Year, under similar circumstances, the Assessing Officer had made disallowances in the light of 'Madras Industrial Investment Corporation Ltd. vs. CIT', 225 ITR 802 (SC). The disallowance in both the years was made in accordance therewith. 14. The Ld. CIT (A) followed the first appellate orders for Assessment Years 2006-07 and 2007-08 for deleting the disallowance. 15. The ld. counsel for the assessee has contended that this issue is also covered in favour of the assessee by the Tribunal order (supra) dated 22.03.2013 for Assessment Years 2006-07 and 2007-08. The Ld. DR, on the other hand, contended that the Ld. CIT (A) has erred in deleting the additions correctly made ignoring that benefit of enduring nature was drawn by the assessee. The Ld. DR has sought to place reliance on the observat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....advertisement and promotional activities are to be recognized as an expense when it is incurred. Learned First Appellate Authority has examined the case of the assessee and after putting reliance upon the judgment of Hon'ble Gujarat High Court in the case of DCIT vs. Core-Health Care Ltd. reported in 308 ITR 263 and the judgment of Hon'ble Delhi High Court in the case of CIT vs. Dalmia Cement reported in 254 ITR 377 held that expenses incurred by the assessee are to be allowed in this year. 10. The learned counsel for the assessee at the very outset submitted that this issue is no more in dispute. It has been held by various Hon'ble High Courts that expenses incurred on advertisement is to be allowed in the year of incurrence. He made reference to the following decisions: * CIT vs. Geoffrey Manners and Co. Ltd. [2009] 315 ITR 134 (Bom.). * CIT vs. Liberty Group Marketing Division [2009] 315 ITR 125 ( P & H ); *. CIT vs. Salora International Ltd. [2009] 308 ITR 199 (Delhi); * Hindustan Commercial Bank Ltd. 21 ITR 353 (All.); * CIT vs. Mogul Lines Ltd. 46 ITR 590 (Bom.); * Sutlej Cotton Mills Ltd. vs. CIT 116 ITR 541 (Ker.); * CIT vs. Berger Paints India Ltd. ....