TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 255
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....the case and in law, the Ld. CIT(A) erred in holding that the entertainment tax exemption of Rs. 1,85,06,998/- and Rs. 1,14,47,905/- in respect of Pune and Baroda Multiplexes respectively are capital receipt which is not exigible to tax [ for A.Y.2004-05 Rs. 7,56,98,490 and for A.Y. 2005-06 Rs. 10,83,19,857]. 1(b) The Ld. CIT(A) 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 of 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. Lead year is A.Y. 2003-04 and facts in brief as emerged from that assessment order passed u/s.143(3) of the Act dated 30/03/2006 are that the assessee-company is in the business of operating a multiplex entertainment complex and running of cinema theatre is the main activity. It has also been noted by the AO that there were two multiplexes with cinema theatres one at Baroda and the other at Pune. It was found that the commercial operation was started during the Financial Year under consideration. Further, it was note....
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....he amount of ET exemption actually availed during the year of Rs. 3,99,54,903 be allowed as a deduction. The Government of Gujarat introduced the New Package Scheme of Incentives for Tourism Projects for the period 1995 to 2000 with a view to encourage tourism sector by attracting higher investments in the areas with tourism potentials and to generate employment opportunities. In line with this Scheme we got the exemption from the Entertainment Tax (ET) for our Multiplex at Baroda with relation to the eligible investments made in construction of the Multiplex. Though we could start availing the exemption only after the commencement of its commercial operations, it was granted to us with reference to the amount so invested by us and which qualifies for the exemption. In this connection we are enclosing copies of the followings for your perusal: a. New Package Scheme of Incentives for Tourism Projects - 1995 to 2000. b. Letter no. COT/NTP/IC/69 dt. 30.01.02 received from Commissionerate of Tourism, Government of Gujarat informing us we are eligible for the ET exemption in respect of the amount invested by us in construction of the Multiplex till 24.10.02. c. Letter No.COT/NTP/IC....
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....he Maharashtra Ordinance No.XXIV of 2001 dt.17.08.2001, i.e. the Bombay Entertainments Duty (Amendment) Ordinance, 2001. The object of the ordinance has been articulated in the statement attached to the ordinance, the relevant portion of which reads as under: "As a result of the onslaught of Cable Television and advancement in the filed of Information Technology, the average occupancy in cinema theatre has fallen considerably and hardly any new theatres have been started in the recent past. Public at large these days prefers to see movies at home. Keeping in view this scenario, a concept of Complete Family Entertainment Centre, more popularly known as 'Multiplex Theatre Complex' has emerged. These Multiplex Theatre Complexes offer various entertainment facilities for the entire family under single roof. However, these complexes are highly capital intensive, their gestation period is also quite longer, and therefore, need Government support and incentive in entertainment duty. The Government of Maharashtra, therefore, considers it necessary to encourage, by giving incentives for the construction of new cinema theatres and to ensure the healthy cultural development in the State of ....
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....riod of 5 years. He has held that the object of the scheme was to enable an assessee to set up a new Unit, hence he has followed the decision of Hon'ble Apex Court in the case of Ponni Sugars & Chemicals Ltd. & Others (supra) and directed the AO not to include in the taxable income. Being aggrieved now the Revenue is before us. 6. From the side of the Revenue, ld. Shri S.K. Gupta, CIT-DR appeared. He has argued that the admitted factual position was that the subsidy was not granted before the commencement of the business. It was not granted for the establishment or construction of multiplex theatre. According to ld.DR Mr.Gupta, the admitted factual position is that the subsidy was given to the assessee when the construction was already over and the business of exhibition of films was started. The subsidy was received after the construction was over and the business was already established for the commercial use of running of the business. For this legal proposition he has placed reliance on Sundaram Exhibitions (P) Ltd. 202 CTR 408 (MP). The ld.DR has also cited Shreeji Chitra Mandir 97 ITD 77 (Indore) and argued that since the asset has already been created, therefore, the su....
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....ppellate Tribunal that the amount of subsidy received by the assessee is on capital account cannot be faulted. Accordingly, both the appeals are dismissed with no order as to costs." 8. We have heard both the sides at length. We have carefully perused the orders of the authorities below in the light of the compilation filed and case laws referred. We have examined the relevant clauses of the scheme. A new package scheme of incentive for tourism project 1995- 2000 dated 20th December-1995 was pronounced by the Govt. of Gujarat, Information, Broadcasting & Tourism Department by Resolution No.NTP-1095/1983-C dated 20.12.1995. As per the scheme, in order to give a boost to tourism sector by attracting higher investment in the areas with tourism potential and to generate employment opportunities the state government was pleased to introduce certain new packages which were for the projects for a period of 1995 to 2000. It has been informed by ld.AR that the said period was later on extended. As per clause 4.2 "New Tourism Unit" means a project set up for the first time. The original investment means investment on fixed capital. As per the eligibility, there was a clause No.4.4 "ineligi....
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....e days prefers to see movies at home. Keeping in view this scenario, a concept of Complete Family Entertainment Centre, more popularly know as 'Multiplex Theatre Complex' has emerged. These Multiplex Theatre Complexes offer various entertainment facilities for the entire family under single roof. However, these complexes are highly capital intensive, their gestation period is also quite longer, and therefore, need Government support and incentive in entertainment duty. 2. The Government of Maharashtra, therefore, considers it necessary to encourage, by giving incentives for the construction of new cinema theatres and to ensure the healthy cultural development in the State of Maharashtra. 3. Government has, therefore, with a view to commemorate birth centenary of Chitrapati late Shri V. Shantaram, decided to grant concession in entertainments duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State." 8.1. Our attention has also been drawn that it was obligatory on the part of the multiplex owners to run the theatre for 10 years and in case of breach the Collector was authorized to recover the entertainment duty alongwith interest as if no conc....
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....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 is collected is of no consequence. Thereafter, a conclusion was drawn as under:- "In the light of the above discussion we can therefore summarize our conclusion that broadly speaking the subsidy can be of two types. (i) For the purpose of helping the growth of an industry . (ii) For the purpose of supplementing the profits of an industry. 10.1. To ascertain whether in a particular case the subsidy in questio....
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....age 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, 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....
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....rectly linked to the assets of the company. Therefore, these expenses were clearly in capital in nature. 9.1. It was noted by the AO that a sum of Rs. 2,96,000/- was claimed which was on account of Registration of Trade marks. It has also been noted by the AO that a sum of Rs. 10 lacs was paid as stamp duty pertaining to ICICI Bank Loan. It has also been noted by the AO that a sum of Rs. 20 lacs was paid as stamp duty in respect of UTI Bank Loan. As per AO, all those expenditure were capital expenses. The total claim was computed by the AO at Rs. 35,96,000/- and disallowed by treating the same as capital expenditure. The matter was carried before the first appellate authority. 10. The ld.CIT(A) has discussed two case laws; namely, CIT vs. Finley Mills Ltd. 20 ITR 475(SC), in respect of Expenditure on Registration of trade-mark and India Cements Ltd. 60 ITR 52(SC) in respect of Expenditure on Stamp Duty, etc. for obtaining loan from the Bank. He has opined that the issue is squarely covered by those precedents, hence allowed the claim. 11. From the side of the Revenue, ld.DR's contention was that the trade-mark gives an enduring benefit, therefore, the expenditure connected to th....
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....erefore, goes in favour of the assessee. In the result, this ground of the Revenue is dismissed. 13. Ground No.3 for A.Ys.2003-04, 2005-06 and Ground No.2 for A.Y. 2004-05 read as under: 3(a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing to allow deduction u/s.80IB as claimed by the assessee company. 3(b) The Ld. CIT(A) 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 & 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. 13.1. The assessee has operated two multiplex theatres; one at Baroda and other at Pune. In the course of assessment proceedings, the AO has examined the lay out and building plans of those two theatres. On verification, it was noted by the AO that as per Rule 18DB, it was required that the total built-up area should not be less than 22500 sq.ft. and should atleast consists 50% of the total built-up area for multiplex. Further, it was noted that as per Rule 18 DB sub-rule-(i) clause(e) there sh....
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....rd Dictionary meaning of the term "lobby" and held that the corridors are to be considered as a part of the lobby. Finally, it was held that the AO was not justified in denying the deduction u/s.80IB of the Act. 14.1 Now the Revenue is before us. Revenue's objection is that the technical question of applicability of Rule 18DB should not have been decided by ld.CIT(A) without obtaining an assistance from a qualified person. Ld.CIT(A) could have referred the matter to the District Valuation Officer to get his comments. It was a dispute to be decided on the basis of a spot enquiry so as to ascertain the specification of building construction in the light of the provisions of The Act, but the help of an expert was not taken by the first appellate authority and therefore faulted in granting the exemption. 15. During the course of hearing, ld.AR Mr.S.N.Soparkar had sought permission to place on record the construction plan for both the multiplexes of Baroda and Pune. Those plans were filed before us. The Maps and Site plans now placed before us are technical and for us it is not easy to ear-mark the areas prescribed for lobby, for projector room, area of theatre and the area occupied, ....
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....amount was added back for the purpose of computation of book profit u/s.115JB of the Act. 17. Following Echjay Forgings (P) Ltd. 251 ITR 15(Bom), ld.CIT(A) has held that provisions for gratuity and leave encashment were made on actuarial basis, hence allowable. Moreover in the case of Bharat Earth Movers v/ s CIT 245 ITR 428( SC) it was held a provision is made for meeting the liability under the leave encashment scheme proportionate with the entitlement earned by the employee on accumulation as applicable on the relevant date, then the liability is not a contingent liability. 18. On hearing the submissions of both the sides, we find no fallacy in the judgement of the ld.CIT(A) specially when the issue was decided following a High Court decision wherein it was held that if a provision is made on the basis of a actuarial valuation, then the liability is nothing but an ascertained liability, therefore, should not be added in the computation of "book profit" for the purpose of the provisions of section 115JB of the Act. This ground of the Revenue is, therefore, dismissed. 19. Now we are left with one more ground for A.Y. 2005-06, i.e. Ground No.1; reproduced below:- 1(a) On the fa....
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....ions of FEMA, a company could not enter into a transaction in foreign currency without an underlying transaction. The arrangement of currency swap transaction was one of the available modes for guarding against the risk of increased interest payment due to fluctuation in the foreign currency exchange rate. He has also noted that in the preceding year, the assessee had gained from such swap arrangement. The burden of higher interest was not in the nature of speculative loss. 20.1 From the side of the Revenue, ld.DR Mr. S.K.Gupta has supported the order of the AO and argued that a transaction which was entered into with an expectation of gain or loss is nothing but a speculative transaction. The assessee has not taken delivery of any commodity and entered into the said transaction with a motive to gain on fluctuation of currency rate. Due to this reason, it was rightly considered by the AO as a transaction in the nature of speculation which was wrongly reversed by the CIT(A). 21. On hearing the submissions of both the sides, we have noticed that it was not an independent transaction of swapping in foreign currency but the transaction was connected with the bank loan. It has been st....
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....its business operation, commented by the Revenue authorities. Placing reliance on E.I.D. Parry (India) Ltd. vs. CIT 257 ITR 253, the AO has disallowed the claim. It is worth to mention that the impugned expenditure was not claimed in the computation of income but out of abundant precaution the said claim was made through notes annexed to the computation of income. 24. When the matter was carried before the first appellate authority, ld.CIT(A) has discussed few case laws, viz. E.I.D. Parry (India) Ltd.(supra), CIT vs. Prithvi Insurance Co. Ltd. 63 ITR 632, CIT vs. Coromandal Fertilizers 247 ITR 417 and CIT vs. Sehasayee Paper & Boards Ltd. 243 ITR 421. On reading of those judgements, though ld.CIT(A) has commented that quote "Although some High Courts have held that expenditure incurred on feasibility studies, project viability studies, and the like are to be allowed as revenue expenditure in the case of abandoned projects, here the facts are slightly different." unquote. He has concluded that in case the project was completed and commenced a business, then the expenditure should have been capitalized and should have formed the cost of the project. In the opinion of ld.CIT(A), the ....
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.... in the project, Legal fees, etc. for the period from 1975 to 1978. However, the assessee sought the claim as deductible expenditure for the assessment year in question, i.e. A.Y. 1981-82. It is also noticed by the Hon'ble Court that the expenditure was incurred for the purpose of setting up a "New Project". It has also been noted by the Hon'ble Court that the expenditure had been incurred in the years prior to the Assessment Year in question. After recording those findings on fact, it was held that by the subsequent event of closure of the project; it did not convert an expenditure in the nature of capital into a Revenue Expenditure. The expenditure was setting up of a "New Project" which was clearly in the capital field. An observation of the quote is worth reproduction:- "The expenditure incurred on that capital project was not something which could be regarded as revenue expenditure laid out exclusively and wholly for the purposes of business of the 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 distinc....