TaxTMI 
TaxTMI 
2014 (8) TMI 839
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....he material on record are as under. 4. Assessee is a company stated to be engaged in the business of operating the Multiplexes Entertainment Complexes and related services. Assessee electronically filed its return of income for A.Y. 06-07 on 20.12.2006 declaring total income of Rs. 8,17,42,812/-. The case was selected for scrutiny and thereafter the assessment was framed 143(3) vide order dated 29.12.2008 and the total income was determined at Rs. 9,67,67,330/-. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) vide order dated 27.10.2009 granted partial relief to the Assessee. Aggrieved by the order of CIT(A), Assessee and Revenue both are now in appeal before us. We now take up Revenue's appeal in ITA No. 441/AHD/2010 for A.Y. 2006-07. 5. The ground raised by the Revenue reads as under:- 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in deleting addition of Rs. 14,68,89,992/- on account of treating the entertainment tax as revenue receipt as against the claim as capital receipt. 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in not appreciating....
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....ch at Nariman Point (Mumbai), Vaibhav (Jaipur) and Indore, in respect of which entertainment tax exemption was availed for the first time this year. Entertainment tax exemption availed by the company in terms of the respective State policies was claimed by the assessee as capital receipt, which was denied by the AO, relying upon the decision.of the Supreme Court in the case of Sahney Steel Press Works Ltd Vs CIT, 228 ITR 253. 5. In appeal, the Id. AR contended that the said amounts were in the nature of capital receipt, being incentive by way of exemption from entertainment tax and hence they were required to be excluded while computing the taxable income. The break-up of amount is as under: Pune Rs. 13,911,045 Baroda Rs. 37,368,008 Elgin Rd (Kolkata) Rs. 30,992,010 Salt Lake (Kolkata) Rs. 18,553,315 Indore Rs. 1,511,072 Nariman Point(Mumbai) Rs. 44,460,613 Jaipur, (vaibhav) Rs. 2,094,912 Total Rs. 148,890,975 5.2 The Id. AR relied on the detailed submissions made in the course of appeal for earlier years and the orders of CIT(A) for earlier years. It was prayed that since the facts and issue are identical, the decision in the a....
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.... a period of five years, payable by a new cinema hall constructed subject to the condition that commercial exhibition of films in such cinema hall should start up to March, 31, 2000. // No.K4(l)FD/Tax-Div./2000-308 dated March 30,2000 S.O. 383 - In exercise of the powers conferred by sub-section (2) of the section & of the Rajasthan Entertainmentand advertisement Tax Act, 1957 (Act no 24 of 1957),the state Government hereby makes the following amendment in this Department Notification NoF.4(69)FD/tax-Div/95-98 dated 15- 3-199 6,namely:- AMENDMENT In the said notification, the existing expression "upto March 31,2000" shall be substituted by the expression "upto March 31,2002" 5.6 The above notifications have been issued in exercise of powers conferred by sub-section (2) of section 7 of the Rajasthan Entertainments and Advertisements Tax Act, 1957 (Raj. Act No.24 of 1957) which reads as follows:- "Whenever, in the opinion of the state Government reasonable grounds exist for doing so in the public interest, the state Government may by general or special order notified in the official gazette, reduce or remit, whether prospectively or retrospectively, entertainment ta....
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....arry on his business or trade, it would be a trading receipt, but if the object of the subsidy, irrespective of its source, is to enable the assessee to acquire new plant and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt and it will not be open to the Revenue to contend that the subsidy paid in the form of refund of sales-tax paid on raw materials or finished products must be treated as revenue receipt. However, if the monies are given to the assessee for assisting him in the carrying on of the business operations and it is given only after and conditional upon the commencement of production, they must be treated as revenue receipt. 5.9 In Ponni Sugars & Chemicals Ltd. & Others, 219 CTR 105, the Supreme Court laid down the following principle:- "Test to be applied for determining the nature of subsidy is purpose test. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expa....
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.... cinema halls. The object of this scheme has been stated in vague amorphous terms i.e., "the state Government being of the opinion that it is expedient in the public interest so to do". In this case, the decision of the Indore Bench of the ITAT in ITO v Shreeji Chitra Mandir, 97 ITD 66, would be applicable since the subsidy has not been related to any capital outlay but has been related to the general objective of "public interest5'. Accordingly, in my opinion, the AO has correctly treated the quantum of subsidy as supplementary trade receipt. The disallowance of Rs. 20,90,912/- is accordingly confirmed. 5.14 In respect of Multiplex at Indore, the Id. AR submitted that the subsidy was granted vide Notification no. (38)-B-5-16-2000-CT-V dated 25th October 2001 issued in exercise of the powers conferred by Section 7 of the Madhya Pradesh Entertainments Duty and Advertisements Tax Act, 1936 (No. 30 of 1936). Section 7 of the said Act reads as under:- "7. The state Government may, by general or special order except - (i) any entertainment or class of entertainment from the operation of section 3; (ii) any advertisement or class of advertisements from the operation of se....
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.... subsidy seeks to encourage the Industry. Such encouragement can be by either of two ways, "(a) By subsidizing the cost of setting up of the Industry or (b) by aiding the profitability of the Industry. In the former case, the subsidy would be capital in nature and in the latter case, it would be revenue in nature. 7. It has thus been held that the subsidies given for the purpose of setting up of the Industry by subsidizing the cost of setting up were capital in nature and those subsidies granted to encourage the setting up of an Industry by making the business (more profitable is revenue in nature. In Ponni Sugars case, which is the latest decision the subject and has taken into consideration other decisions rendered the basic test be applied in judging the character of subsidy and highlighted as under with reference to the facts of the case (para 14): That the test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the Purpose Test. The under point of time at which the subsidy is paid is not relevant. The source is immaterial. The fo....
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....y any other person or authority, it should be deducted or not. Quite obviously, the plain meaning of the Section is that it shall be. But the real question is as to the character and nature of a Subsidy whether it was really intended to subsidise the cost of the capital or was ntended as an incentive to encourage new entrepreneurs to move to backward areas and establish Industries, the specified percentage of the Fixed Capital Cost which is the basis for determining the subsidy being only a measure adopted under the Scheme to quantify the financial aid. 12. This brings us to the question of treatment given by the assessee in its accounts which also gives the pointer as to how the subsidy was utilized, whether for Capital Purposes or as a revenue receipt. It can be seen from the Schemes itself that unlike in the case of Ponni Sugars, there was no stipulation as to what is the specific manner in which the subsidy received were to be used. In an unsigned written submission given by the assessee at the direction of the Bench, it has been clarified the receipts are taken to the Profit & Loss Account. Thus, the subsidy adds to the profit of the year and leads to aiding the profitabili....
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....ew materials were placed or on a closer and more intelligent analysis. Here the review of the earlier decision will be based on concluded criteria laid down by the Apex Court. 16. The issue of West Bengal Entertainment Tax receipts, whether Capital or Revenue has not been adjudicated so far and hence may be adjudicated now, in these appeals. 17. As an alternate ground, it is submitted that if the subsidies are held to be capital in nature, then the application of the provisions u/s. 43(1) Explanation X with reference to the definition of "Actual Cost" may be applied and the value of the assets be reduced accordingly, to the extent of subsidy received and the depreciation to be granted only on that basis. As a matter of fact, the Apex Court in the P.J. Chemicals case cited (Supra) would set the basis for this, where it was held that if subsidies are meant to directly or indirectly meet the cost of a Capital Asset, then only can such subsidies be held to be Capital subsidies. The decision that the subsidies in this case is Capital subsidies would lead to the consequential conclusion that the amount of such subsidy has to be reduced from the cost of the capital asset specificall....
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....tiplex and supported his order. With respect to the additional ground and alternate contention of the Revenue, with respect to the reducing the capital subsidy from the cost of assets in view of explanation 10 to Section 43(1), he submitted that the subsidy amount cannot be reduced from the block of assets and for which he relied on the decision of the Hon'ble Mumbai Tribunal in the case of Godrej Agrovet Ltd. in ITA No. 1629/Mum/2009. He placed on record the copy of the aforesaid decision at page 57 to 65 of the paper book and pointed to the relevant para at page 63 and 64 of the paper book. Ld. A.R. submitted that Hon'ble Delhi Tribunal in the case of PVR Ltd. in ITA No. 1897/Delhi/2010 (order dated 20.04.2012) has decided the issue in favour of the Assessee. He pointed to the relevant findings of Hon'ble Tribunal at page 53 to 55 of the paper book. He also relied on the decision in the case of CIT vs. Ellora Time Pvt. Ltd. in Tax Appeal No. 1109/A/2010 order dated 16.08.2011 decision of Hon'ble Gujarat High Court. He thus submitted that the amount of entertainment tax received by the Assessee was capital in nature and therefore not taxable and furthe....
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....* vi. Kanyakumari District Co-operative Spinning Mills Ltd. (264 ITR 684) vii. Reliance Industries Ltd. (273 ITR 16) viii Kalpana Palace (275 ITR 365) ix. R.B. Narain Singh Sugal Mills Ltd. (85 ITD 552) NB:-[ * The latest citation is CIT vs. Ponni Sugars and Chemicals Limited (2008) 306 IRR 392 (SC)] 8.3 The Tribunal has examined the scheme and then opined that it was a benevolent scheme for the benefit to the exhibitors/ multiplex owners. The subsidy was meant to grant economic assistance to set up a multiplex. The subsidy was collected as entertainment duty on sale of tickets. It was found by the Tribunal that such collection was not a trade receipt of the assessee because the entertainment duty was collected on behalf of the Government. It was collected under a specific direction and it was also utilized under those directions. The said collection of duty had no nexus with the day-to-day function or running of the multiplex. The collection of the duty was not with an objective to supplement the trade receipt. The subsidy was meant for the recoupment of a capital expenditure already incurred by the assessee. It was held that there can be two ways for the disburs....
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....theatres. It was held that irrespective of the fact that the multiplexes have been constructed out of own funds or borrowed funds the receipt of subsidy would be on capital account. We have to follow this verdict primarily due to the reason that the very scheme in question, now before us, has been considered by the Honble Court in this judgement. 8.5. As far as the decision of Sundaram Exhibitions (P) Ltd.(supra) is concerned, as cited from the side of the Revenue by Id.CIT-DR, Mr.Gupta, we have thoroughly examined of that case. It was found by the Hon'ble Court that quote "From a careful perusal of these rules, we may draw an inference that the financial assistance was provided to encourage the cinema owners in this line of business so that they may construct another cinema house, but in the instant case, no efforts were made on behalf of the assesses to construct any other cinema house and he has used the subsidy received from the State Government in its business entirely." Unquote. Therefore, the basic distinction which was drawn by the Hon'ble M.P. High Court was that no efforts were made by the assessee to construct any other cinema house and that assessee had used ....
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....ide accordingly and these grounds are dismissed. 13. Before us, Revenue has not brought any binding decision of jurisdictional High Court or Apex Court in its support. Further, since the facts in the year under appeal in the case of Multiplexes located in the State of Maharashtra and Gujarat are identical to that of earlier years, we respectfully following the decision of the Co-ordinate Bench and for the reasons given by the Co-ordinate Bench in the Assessee's own case for earlier years, find no reason to differ with the views of the Co-ordinate Bench and hold the subsidy to be capital in receipts. 14. With respect to the Multiplexes located at Jaipur in the State of Rajasthan, we find that ld. CIT(A) after considering the Government notifications no. 293 and 383 (supra) had denied the claim of Assessee but however, the Hon'ble High Court of Rajasthan in the case of CIT vs. Samta chavigarh (2014) 44 Taxmann. com 337 (Raj) after referring to the notification S.O. no. 293 of Government of Rajasthan and considering the decision of Hon'ble Supreme Court in the case of Ponni Sugar and Chemicals Ltd. and the decisions of other High Courts held as under:- 6. Having g....
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.... Government may, by general or special order notified in the Official Gazette, reduce or remit the entertainment tax with which any entertainment or ckss of entertainments is chargeable. While exercising such powers, the State Government issued the exemption notification in question on 15.03.1996 in SO No. 293 that reads as under: -- "S.O. 293.- In exercise of the powers conferred by sub- section (2) of Section 7 of the Rajasthan Entertainments and Advertisements Tax Act, 1957 (Rajasthan Act No.24 of 1957), the State Government being of the opinion that it is expedient in the public interest so to do, hereby exempts entertainment tax (including additional entertainment tax) for a period of five year, payable by a new Cinema Hall constructed subject to the condition that commercial exhibition of films in such cinema hall should start upto March 31, 2000."........................ 15. 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....
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....nt of entertainment tax capitalized as subsidy; and that the referred decisions do not operate against the assessee. 15. Thus, respectfully following the decision of Hon'ble Rajasthan High Court cited hereinabove, we hold that the subsidy in respect of Multiplex located at Jaipur to be capital in nature. 16. With respect to the Multiplexes in the State of Madhya Pradesh, we find that the Co-ordinate Bench of Tribunal while deciding the case in the case of Assessee in ITA No. 1984, 2299 & 2300/AHD/2009 (supra) distinguished the decision in the case of Shreeji Chitra Mandir 97 ITR 77 Indore by noting as under: 8.6. As far as the decision of Shreeji Chitra Mandir (supra) is concerned, as cited by the ld.DR Mr.Gupta, the Respected Co-ordinate Bench Indore has examined the scheme. The subsidy was to be given in installments as determined by the administration. Each eligible cinema house was required to file application in prescribed form to the Collector. After the receipt of application from the owners of the cinema houses, the Collector of the District will make such enquiries as he may consider it necessary and obtain necessary information to make recommendations to the ....
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....ra) has held that "actual cost" should be 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 llE(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, Id. 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 Id. CIT(Appeals) and Id. 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 ....
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....y is granted as percentage of fixed capital cost taken as basis for determining the subsidy, that would only be a measure adopted under the Scheme to quantity subsidy. The Court therefore held that it was not a payment directly or indirectly to met any portion of the actual cost. Language of Explanation 10 to section 43(1) is also identical; and therefore by virtue of insertion of Explanation 10, it cannot be said that decision in the case of P.J. Chemicals (supra) has been superseded by amendment in law. This is the reasoning adopted by Vishakhapatnam Bench of IT AT. Respectfully following the same, we hold that the amount of subsidy cannot be reduced from the block of asset for computing depreciation. With regard to the arguments of learned Departmental Representative that proviso to Explanation 10 makes it clear that irrespective of the nature of the subsidy, amount of subsidy has to be reduced from the actual cost of capital asset, we are of the view that the same is applicable in a case where subsidy is granted with an intention to subsidize the cost of the capital in the form of capital asset and where some of capital assets are depreciable asset and some are not capital asse....
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....ssee. 23. Aggrieved by the order of CIT(A), Assessee is now in appeal before us. Before us, the ld. A.R. submitted that identical issue in the case of Assessee was before Hon'ble Tribunal for A.Y. 04-05 & 05-06. Hon'ble Tribunal vide order dated 09.09.2011 has decided the issue in favour of Assessee. He therefore submitted that since the facts of the case in the year are identical to that of earlier year, the expenses be allowed. Ld. D.R. on the other hand relied on the order of A.O and CIT(A). 24. We have heard the rival submissions and perused the material on record. We find that for earlier years in ITA No. 1984/AHD/2009 identical issue was before the co-ordinate Bench of Tribunal and the same was decided in favour of Assessee by holding as under:- 27. We have heard both the sides. For A.Y. 2004-05, an expenditure of Rs. 21,32,001/- was in respect of the project at Gurgaon, however, that project was abandoned. The AO has mentioned that on examination of the nature of expenditure it was found that the same was in respect of .project report, advisory consultation, cost for travel and other related activities. For A.Y. 2005-06, expenditure incurred was Rs. 22,69,62....
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....assessee as what the assessee was trying to start was a new business for the manufacture of a new project. The expenditure incurred therein was clearly capital expenditure and not revenue expenditure." 27.1. Therefore, the distinction is that in the above cited precedent, the assessee was setting up a new project for the purpose of manufacturing of a new product. On the other hand, in the present appeal, now before us, the assessee is running a multiplex cinema theatre and the expenditure was in respect of a new project for the same line of business of running of multiplex and cinema theatre. Undisputedly, the expenditure was towards project report and consultation fees, etc. On identical facts in the case of CIT vs. Priya Village Roadshows Ltd, (supra), the Hon'ble Delhi High Court has held as under:- "The assessee was involved in the business of running cinemas. There was a proposal before the assessee to take over a cinema theatre for conversion into a multiplex and operation and management thereof. The assessee availed of the services of an architect and paid him Rs. 2,05,000 as fee. However it was found that the project was not financially and technically viable and ....
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....als) erred in restricting the addition on account of treating the entertainment tax as revenue receipt as against the claim as capital receipt from Rs. 19,21,88,772/- to Rs. 2,44,25,134/-. l(b). The Ld.CIT(Appeals) failed to appreciate that the subsidy received by the assessee after completion of cinema house and commencement of operation is clearly a revenue receipt exigible to tax, as held by the Indore Bench aof ITAT in the case of ITO vs Shreeji Chitra Mandir, 97 ITD 77 and M .P. High Court in the case of Sundraram Exhibitions (P) Ltd. 202 CTR 408. 2(a). On the facts and in the circumstances of the case and in law, the Ld.CIT(Appeals) erred in directing the Assessing Officer to allow deduction u/s.80IB as claimed by the assessee company. 2(b). The Id.CIT(Appeals) failed to appreciate that the decision of the Assessing Officer rejecting the claim of deduction u/s.80IB was based on a physical inquiry conducted at Pune Multiplex and Baroda Multiplex when it was found that the assessee has not satisfied the conditions prescribed under Rule 18DB for grant of deduction u/s.80IB of the Act. 1st ground is identical with ground no. 1 of Revenue appeal for 06-07. We while dec....
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....s also discussed the factual as also legal aspect in detail. On examination of the prescribed Rule 18DB and the provisions of section 80IB(7A) of the I.T. Act, he has commented that the AO while considering the built-up area of the cinema theatre had excluded the common areas comprising of projection room, stair cases, air conditioning area, toilets, administrative area, etc. It was noted by the Id.CIT(A) that only auditorium was considered. Ld. CIT(A) has given a finding quote "If the air-conditioning unit, projection room, stairways, gangways, etc. are taken into consideration, the total built-up area of the cinema theatres hcc.tcd at ike multiplexes at Baroda and Pune would exceed the minimum prescribed are of 22,500 sq.ft. The total built-up are a in case of Pune unit is 43,839 sq.ft. and in the case of Baroda unit is 40,281 sq.ft. Hence, I am of the opinion that the AO was not justified in denying the deduction n/.SOIB on this ground. " unquote . He has also given a finding that the lobbies at Baroda and at Pune were contiguous therefore connected. His finding was quote "So far as the other objection of the AO is concerned i.e., that the area of the lobbies was less than 3 sq.....