TaxTMI 
TaxTMI 
TaxTMI 
2014 (8) TMI 839
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....e 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 the fact that the incentive given to the assessee for as....
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....ct 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 appeals for earlier years may be followed. 5.3 I have considered the submissions of the Id. AR and the ....
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....ma 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 tax with which any entertainment or class of entertainments is chargeable " 5.7 It was submitted by the Id. AR that Sec 7(2) of Rajasthan Entertainment ....
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....quire 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 expand the existing unit then the receipt of the subsidy was on capital account. Form or the mechanism through which the subsidy is given is irrelevant. " 5.10 Th....
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....erest 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 sec 3-A " Section 3 referred above in section 7 is the charging section. 5.15 The Id. AR. submitted that the subject of the scheme reads "The Government policy in respect of est....
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....he 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 form of subsidy is immaterial. The main eligibility condition in the Scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the ass....
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.... 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 profitability which is the main criteria for determining as to whether the subsidy is capital or revenue. As a matter of fact, in the F Y. relevant to the A.Y. 2007- 08, the assessee has paid out dividend at 10% which arises p....
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....eceipts, 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 specifically or on a pro-rata basis. The additional ground raised by the Revenue may be decided accordingly. The decisions in CIT V. Paliwal Glass Works (2010) 326 ITR 407 (ALL) and in the Alfa Laval India Limited V. DCIT, Pune, (2009) 116 ....
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....bmitted 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 further the same also could not be reduced from the block of assets for the purpose of calculation of depreciation. 12. We have heard the rival submissions and perused the material on record. The issue in the present appeal is with respect to....
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....i 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 disbursement of the subsidy, one that the Government can given a cash subsidy or in the alternate, second, by a specific scheme can allow a beneficiary to retain any cess or duty collected on behalf of the Government. Due to this reason, the manner through which a duty ....
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...., 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 the subsidy for its business. On account of that fact, it was concluded that in view of foregoing discussion, the subsidy received by that assessee was held as revenue in nature hence exigible to tax. 8.6. As far as the decision of Shreeji Chitra Mandir (supra) is concerned....
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....ra 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 given thoughtful consideration to the rival submissions and having examined the record, we find nothing of error or illegality on the part of the appellate authorities in allowing the questioned amount as capital subsidy; and we are clearly of the view that formulated question deserves....
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....n 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. 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 ent....
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..... 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 Commissioner of Excise, who in turn was to make the payment of subsidy under intimation to the Collector. It was also found by the Tribunal that if the owners of the Cinema Houses have taken loan from Rashtriya Film Development Corporation or M.P.State Film Development Corporation, then the subsidy would be given ....
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....ndirectly. 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 any asset. 13.6. In view of these facts and circumstances, we hold that E. Tax subsidy was not given to meet the cost of any specific asset. Our view is further fortified by the coordinate Bench judgment in the case of Sasisri Extractio P. Ltd. (supra) in which case incentive subsidy received for setting up of new unit for m....
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....cal; 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 asset on which depreciation can be allowed. It is only in such situation that apportionment has to be made to the cost of depreciable asset. For the reasons stated above, we allow ground No. 1 raised by the assessee." 13.The Tribunal thus has held that the subsidy of Rs. 20 lacs received by the assessee could not be reduced from the value o....
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....s 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. 22,69,624/-in respect of a project at Andheri, Bombay and a sum of Rs. 54,904/- incured for a project at Allahabad. Both the projects were abandoned. For both the years, the assessee has not claimed the expenditure in its computation of income but made a claim through notes annexed to the computation of income. The nature of expenditure was alike for both the years....
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....ct. 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 hence the assessee dropped the project. Likewise, there was a proposal to take over a cinema theatre for the purpose of conversion into a four-screen cinema complex. Detailed technical and financial feasibility was carried out and building plans were prepared by a consultancy group. In this connection the assessee incurred an expenditure of Rs. 12,39,239. On subseq....
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.... 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 deciding the issue in Revenue's appeal for A.Y. 06-07 hereinabove have dismissed the appeal of the Revenue We for the same reasons stated therein dismiss the ground of Revenue. In the result, this ground of Revenue is dismissed. 2nd ground is with respect to claim of deduction u/s. 80IB. 28. During the course of assessment proceeding, A.O noticed that Assessee has claimed deduction....
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.....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.ft. per seat, it is pertinent to note that the total number of seats in the Pune unit was 1316 and in the Baroda unit was 1318. Hence the areas of the lobbies in the twomultiplexes should have been minimum of 3948 sq.ft. and 3954 sq.ft. As per the certificate of the Chartered Accountant famished in Form No.lOCCBA, the area of the lobby in Pune multiplex was 5375 sq.ft. and the area of the lobbies o....