TaxTMI 
TaxTMI 
TaxTMI 
2015 (2) TMI 21
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.... exemption from entertainment tax payment. It claimed deduction to the extent of entertainment tax collected in the corresponding financial years terming the amounts as capital receipts. The Assessing Officer disallowed the said claims but, on appeal, the Commissioner Income Tax (Appeals) [CIT(A)] rejected the contention of the Revenue and allowed the deduction claimed by the assessee. The appeal of the Revenue against the said order of CIT(A) was turned down by Income Tax Appellate Tribunal (hereinafter referred to as "the ITAT"). 3. The Revenue urges the following question of law; which is hereby framed: "Whether the ITAT has not erred in law and on facts in holding that the entertainment tax subsidy granted to the respondent during the relevant year(s) is a capital receipt?" 4. Before coming to the question of law, certain basic facts need to be noted. 5. In ITA No. 587/2013, the dispute relates to assessment year 2006-2007. The assessment order under Section 143(3) of the Act was passed on 15.12.2009, inter alia, declining the deduction on account of entertainment tax in the sum of Rs. 1,33,74,83....
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..... 3,00,28,647/-. The CIT(A) in appeal No. 149/2010-2011 rejected the view of the Assessing Officer restoring the deduction vide order dated 18.10.2011. 10. The orders of CIT(A) concerning the assessment years 2008-2009 and 2009-2010 were challenged by the Revenue by way of income tax appeal Nos. 146 and 2164/Del/2012 which were heard with cross objection Nos. 43 and 243/Del/2012 filed by the assessee. Both the said appeals and the cross objections were disposed of through common order of ITAT passed on 19.07.2013 with similar result as noted earlier. 11. Entertainment tax is leviable under Uttar Pradesh Entertainment and Betting Tax Act, 1979, Section 3 whereof to the extent necessary may be extracted as under:- 3. Tax on payment for admission to entertainment - (1) Subject to the provision of this Act, there shall be levied and paid on all payments for admission to any entertainment, other than an entertainment to which Section 4 or Section 4-A or Section 4-B applies or a compounded payment is made under the proviso to this sub-section an entertainment tax at such rate not exceeding one hundred and f....
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....Rs. 1.4 Crores and which have at least three cine halls; shall be entitled exemption of Entertainment Tax 100% for the first year and 75% for second and third years.‖ 15. The Government of Uttar Pradesh promulgated on 12.11.2001, bringing into effect a modified scheme, extending the benefits available under the scheme issued on 13.07.1999, in furtherance of incentives to promote setting up of multiplexes exhibiting cinema through another order, English translation of the relevant portion whereof is provided as under:- "Sub. Amendment in G.O. No. 1161/11/KSV-6-99-Twenty-R(12)/98 dated 13.7.99 issued with a view to promote scheme for opening of Multiplexes Cine Halls in the State of U.P.‖ "Under Film Policy, 1999 the Govt. with a view to promote opening of multiplexes theatres issued a G.O. No. 1161/11/KSV-6-99-Twenty-R(12)2/98 dated 13.7.99. The multiplexes opening under this scheme shall have the provision of granting entertainment tax exemption 100% for the first year and 75% each for second and third years. ........... [emphasis supplied] 16. It is not in dispu....
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....o such Multiplexes at present under construction, who have obtained permission for construction under the Scheme of Government Order, dated 12.11.2001, but could not obtained licence up to 31.03.2005. 5. Apart from above, this ‗Encouragement Scheme' will be applicable on those Multiplexes, who have got constructed after demolition of old Cinema Halls, subject to, they fulfill standards as prescribed for construction of Multiplexes and guidelines. 6. Following Grant will be allowed to Multiplex Cinema Halls, too being constructed under present -Encouragement Scheme‖ violating Government Orders issued earlier relating to encouragement of Multiplex Cinema Halls, i.e. Government Order No. 1161/11 TRS-6-99-Twenty-R(12)/98, Dated 13th July, 1999; Government Order No. 2532/11 TRS-6-2000-Twenty-R(12)/98, Dated 17th January, 2001; Government Order No. 813/11 TRS-6-2001-Twenty-R(12)/98, Dated 04th April, 2001 and Government Order No. 2226/11 TRS-6-2001-Twenty-R(12)/98 TC, Dated 12th November, 2001 respectively- (a) For o....
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....3 of Uttar Pradesh Entertainment and Taxation Rules, 1981 and amount of payable tax in the period of Grant shall be shown separately. Compliance of conditions of section 8 of U.P. Entertainment and Betting Act, 1979 shall be necessary for Multiplex Owner. (j) It won't be necessary to deposit tax amount in cash equivalent to Grant by Multiplex Owner and it will be presumed in this regard that according to directions issued under Rule-24 of Uttar Pradesh Entertainment and Betting Rules, 1981, amount equivalent to Grant is deposited, but it will be required for necessary adjustment in accounts, but Multiplex Owner shall submit details of total amount of permissible Grant of that month along with aforesaid Bill, which shall be counter-signed by District Magistrate. Thus, on the basis of counter-signed Bill, the Treasury Officer instead of making payment of Grant in cash, shall get it deposited under the Head of Accounts ―2045 Miscellaneous tax on goods and services‖ in Grant No.90 and under the head of ―Establishment-20-Additional Charge/Contribution/State Aid‖ related to Fee - Ayojanettar....
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....bed forms showing such receipts. The scheme provides for presumption of deposit (deemed deposit), necessary adjustment of accounts being monitored by the District Magistrate who would countersign the corresponding bills. 19. It is the contention of the assessee that the object and purpose of the scheme is to extend the incentive to multiplex industry and not for reimbursing the cost of any specific asset used therein and further that the grant of subsidy by the State Government depends not only on the commencement of the multiplex but also is linked to its operation since the ultimate aim is to promote cinema industry by establishing permanent and long-term operational multiplex. 20. Coming to the case of the assessee in the matters before us, it needs to be noted that it had started its business operation with effect from 02.12.2005 and on the basis of application made to the District Magistrate (the authority competent under the local entertainment tax law), it claims to have been granted exemption certificates in terms of the Government order dated 27.09.2005 in respect of the multiplex in question for each of the assessment years in question. 21. The assessee had filed its r....
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....emption from payment of entertainment tax for a period of five years under the notification dated 27.09.05. In accordance with the eligibility certificate issued by the Distt. Magistrate, Bougainvillea got an entertainment tax exemption of about Rs. 134 lacs during the FY ended 31.03.06. The above amount was credited by the co. in its books of accounts as income. However, while filing the return of income, the same has been claimed to be exempt in accordance with the decision of Hon'ble Supreme Court in the cases of Sahney Steel and Press Works Ltd. us. CIT 228 ITR 253 wherein the Hon'ble SC has held that the character of receipt of a subsidy in the hands of the recipient would depend upon the purpose for which the subsidy has been granted. In case the subsidy has been granted for the purpose of setting up a business, the same would constitute a project subsidy and be capital receipt in the hands of the recipient. However, if a subsidy has been granted for carrying out business operation and is given with the view to augment the profit of the business, same would constitute to be a revenue receipt. ... In view of the above decision of the Hon'ble SC which has very cat....
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....mencement and, thus, it had not become available for production of or bringing into existence any new asset. He also noted that there is no restriction here regarding the use of the exempted amount which was available to the assessee with full freedom as to its utilization. Referring to Sahney Steel (supra), the Assessing Officer further added that if subsidy is granted year after year, post setting up of the new industry and commencement of production, such receipt could only be for purposes of carrying on of the business. 24. Similar view was taken by the Assessing Officer in the subsequent three assessment years resulting in similar disallowance. 25. In appeals before the CIT(A), the assessee inter alia, referred to judgment of Supreme Court in Commissioner of Income Tax v. Ponni Sugars and Chemicals Ltd. [(2008) 306 ITR 392 (SC) : (2008) 9 SCC 337] to hold that it is the object for which subsidy/assistance is given is what determines its nature, the form of the mechanism through which the same is granted being irrelevant. The first appellate authority found that the entertainment tax subsidy availed of by the assessee was a capital receipt since it was limited by the cost of ....
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....et up its business or complete a project as in Seaham Harbour Dock Co.'s case (supra), the monies must be treated as to have been received for capital purpose. But if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade. [emphasis supplied] 29. In Ponni Sugars (supra), the assessee company had received subsidy under a similar incentive subsidy scheme wherein a manufacturer could avail a higher free sale sugar quota with permissibility to retain the excise duty collected on the sale price of free sale sugar in excess of the normal quota, paying to the Government only the excise duty collectable on the price of levy sugar. The assessee under the said scheme was obliged to utilize the subsidy only for repayment of term loans undertaken by it for setting up new units or for expansion of existing business. The assessee in that case had also claimed the incentive received to be a capital receipt not to be included in its taxable income. The Revenue had resisted the claim on the ground that incen....
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....in judging the character of a subsidy. That test is that the character of 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 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 assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. 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. 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 irrel....
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....n arranging the requisite equipment installed therein, it naturally follows that the purpose is to assist the entrepreneur in meeting the expenditure incurred on such accounts. Given the uncertainties of a business of this nature, it is also possible that a multiplex owner may not be able to muster enough viewership to recover all his investments in the five year period. 34. Seen in the above light, we are of the considered view that it was unreasonable on the part of the Assessing Officer to decline the claim of the assessee about the subsidy being capital receipt. Such a subsidy by its very nature, was bound to come in the hands of the assessee after the cinema hall had become functional and definitely not before the commencement of production. Since the purpose was to offset the expenditure incurred in setting up of the project, such receipt (subject, of course, to the cap of amount and period under the scheme) could not have been treated as assistance for the purposes of trade. 35. The facts that the subsidy granted through deemed deposit of entertainment tax collected does not require it to be linked to any particular fixed asset or that is accorded "year after year" do not ....