TaxTMI 
TaxTMI 
TaxTMI 
2014 (5) TMI 319
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....esaid has arisen on and in the following facts and circumstances: While conducting assessment proceedings in relation to the respondent-assessee, the Assessing Officer ('AO') observed that the assessee firm, running a cinema talkies in the name of Samta Chavigrah at Pratapgarh, had shown receipts of Rs.18,26,286/-, which included entertainment tax of Rs.9,13,143/-; and after showing total receipts of Rs.18,26,286/- in the Profit and Loss Account, the assessee had transferred Rs.9,13,143/- to entertainment subsidy account and thereby, had shown only the receipts of Rs.9,13,143/- during the relevant period. The Assessing Officer wanted to know the nature of this subsidy and also a justification for the assessee's claim of this amount as deduction. The assessee explained that there was a scheme of the Government of Rajasthan to encourage construction of new cinema halls by providing such a subsidy in the form of entertainment tax for a particular period. A copy of notification issued in this regard was placed before the Assessing Officer. But the Assessing Officer did not agree with the assessee and treated this amount as its income. The Appellate Commissioner ['CIT(A)....
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....ccounts of the assessee as a liability under the head 'Capital Subsidy Reserve'. Obviously, a grant-in-aid has to be treated as a capital receipt, even if it is given after the business has been setup. This was precisely held by the Hon'ble Allahabad High Court in the case of Kalpana Palace v. CIT [2004] 141 Taxman 392 [Allahabad], a case which has also been relied by the ld. CIT(A). In our considered opinion, the Assessing Officer is not correct in treating the entertainment subsidy in question as a revenue receipt and therefore, the ld.CIT(A) is justified completely in deleting the entire addition. In this way ground No.2 of revenue's appeal also fails." In challenge to the order aforesaid, it has strenuously been contended on behalf of the Revenue that in view of the pronouncement of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253and CIT v. Rajaram Maize Products [2001] 251 ITR 427, the findings recorded by the CIT(A) and ITAT are erroneous and the Appellate Authorities have erred in deleting the addition of Rs.9,13,143/-. It is contended that collection of entertainment tax was optional for the assessee par....
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....bsp; "5. Manner of payment of tax.-(1) Subject to other provisions of this Act, the entertainment tax shall be levied in respect of each person admitted on payment and shall be calculated and paid on the number of admission. (2) The entertainment tax shall be due and recoverable from the proprietor. (3) The proprietor shall submit such returns relating to payments for admission to an entertainment to such authority, in such manner and within such period as may be prescribed." It is clear that the entertainment tax is to be paid to the State Government, on all payments for admission to an entertainment at the prescribed rate; and is levied in respect of each person admitted on payment and is to be collected and paid on the number of admissions. The entertainment tax is due and recoverable from the proprietor, who is essentially the owner of the particular entertainment or who may be incharge of the management, as per clause (8) of Section 3 of the Act of 1957. However, under sub-section (2) of Section 7 of the Act of 1957, on being satisfied about existence of reasonable ground for doing so in the public interest, the State Government may, by ....
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.... unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant." In Kalpana Palace (supra), the grant by the State Government had been to promote construction of cinema buildings in smaller towns and the grant related to the amount of entertainment tax even after the business had been set up. The Hon'ble Allahabad High Court found it to be a capital receipt and said:- "8. Applying the principles laid down by the apex Court in the aforementioned case to the facts of the present case, we find that grant-in-aid was given in order to promote construction of cinema buildings in the small towns having population upto one lakh according to 1981 census. Thus, it was for the establishment/setting up of cinema halls and the manner in which the grant-in-aid related to the amount of entertainment tax is of no consequence. Thus, even though grant-in-aid was given after the business has been set up, it would still be relata....
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....ulated question had been from Madhya Pradesh but the referred decision had been of the Hon'ble Supreme Court, Rajaram Maize Produce (supra), wherein, the principles in Sahney Steel & Press Works Ltd. (supra) were referred and it was found that the power subsidies were of revenue nature and had to be taxed accordingly. In the present case, it is more than apparent that the State Government proceeded to exempt entertainment tax for a period of 5 years payable by a "new" cinema hall constructed, subject to the condition that commercial exhibition of films in such cinema hall was required to be started by 31.03.2000. In the scheme of the Act of 1957, where entertainment tax is determined and recoverable from the proprietor of the entertainment and is levied with reference to the number of admissions to the entertainment, when the State Government had exempted such proprietor of new cinema hall from payment of entertainment tax on the given condition, in our view, the object was clearly to promote the construction of new cinema halls. Merely because the amount was not directly meant for repaying the amount taken for construction of the cinema hall, its purpose could not be consider....