TaxTMI 
TaxTMI 
2018 (4) TMI 132
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....eals, the appeal for A.Y. 2008-2009 is decided as under. ITA.No.3094/Del./2014 - A.Y. 2008-2009 : 4. Briefly, the facts of the case are that assessee- company is engaged in the business of running of hotel, trading of IMFL, real estate and running of mall and multiplexes. The assessee revised the return of income whereby the entertainment tax receipt was shown as capital receipt against revenue receipt shown in the original return of income. The A.O. asked the assessee as to why the receipt on account of entertainment tax should not be treated as revenue receipt. The assessee filed written submissions before the A.O. which is reproduced in the assessment order which reads as under : "Perusal of the letter issued by the UP State Govt, to JAM Multiplex a unit of Shipra Hotels Ltd. for grant of entertainment tax subsidy and based on the relevant scheme of UP Govt, (available on the website of UP Govt. Tax Deptt.) reveals that the subsidy was granted to JAM multiplex under the UP Govt's incentive scheme for "promotion for construction of multiplex" and the overall quantum of subsidy is limited to cost of construction of JAM multiplex (excluding the cost of land). Entertainment ta....
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....e and findings in paras 4.1 to 4.4 of the order are reproduced as under : 4.1 "It is averred by the Appellant that the U.P. Government gave subsidy to promote setting up of multiplexes. The scheme was devised to allow a grant to be calculated on the basis of cost of Building and Machinery (excluding cost of land). As per this scheme a subsidy equivalent to the cost of building and Machinery was allowed to be collected as entertainment tax with the operator/owner of the said multiplex being allowed to retain an amount equivalent to the eligible amount over a period of 5 years. To canvass the view that this receipt is capital in nature, the Id.AR has relied upon the following cases:- (i) PVR Ltd. vs. Addl. CIT (ITA.No.897/Del./2010, Order dated 20.04.2012). (ii) ITO vs. Birla VXL Ltd., (Tax Appeal Nos.316 to 318 of 2012 (Gujarat). 4.2 The facts of the case and position of law has been considered. It is clear that the said subsidy is linked to capital investments in setting up Multiplexes. Accordingly, the intention of the U.P. Govt, is clearly to promote this line of business through offsetting the capital cost to some extent, incurred by the owner/operator. Clearly this rece....
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....he aforesaid subsidy scheme done by way of Ordinance and then by Amended Act. The Object and Reasons of the Scheme are reproduced in the Judgment of the Hon'ble Supreme Court in which the Government decided to grant concession in entertainment duty to multiplex theatre complex to promote construction of new Cinema Houses in the State. The subsidy was for first 03 years from the date of commencement of the Multiplex Theatre Complex, on which, no duty was charged and for the subsequent 02 years, it has charged @ 25%. The Hon'ble Supreme Court decided the issue as under : "To take the facts of one of the matters before us, namely, Civil Appeal Nos. 6513-6514 of 2012, the assessment order in that case (dated 21.01.2006) found that the aforesaid scheme was really to support the on- going activities of the multiplex and not for its construction. Since the scheme took the form of a charge on the gross value of the ticket and contributed towards the day to-day running expenses, the Assessment Officer held that it was in the nature of a revenue receipt. The appeal filed before the Commissioner met with the same fate and was dismissed substantially on the same reasoning. However, the I....
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....imited 2008 (9) SCC 337 and after discussing these judgments, held : "Since the object of subsidy was to promote construction of multiplex theatre complexes, in our opinion, receipt of subsidy would be on capital account. The fact that the subsidy was not meant for repaying the loan taken for construction of multiplexes cannot be a ground to hold that subsidy receipt was on revenue account, because, if the object of the scheme was to promote cinema houses by constructing multiplex theatres, then 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. In the light of the aforesaid objects of the Scheme framed by the State Government, the decision of the Income Tax Appellate 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" Shri P.S.Narasimha, learned ASG appearing on behalf of the Revenue, assails the judgment passed by the High Court. According to him, there may be no doubt that the large object said to be achieved in the grant of subsidy by way of complete a....
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....or after 01.01.1969 with investment capital not exceeding Rs. 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. Concession was also available for subsequent expansion of 50% and above. The incentives were in the form of, inter alia, refund of sale tax on raw materials, machinery and finished goods. This Court held, on the facts of that case, that as no financial assistance was granted to the assessee for setting up of the industry, the idea of the subsidy scheme was to provide a helping hand for five years in order to enable the industry to be viable and competent. In doing this, in paragraph 9 of the said judgment, the test stated by Viscount Simon in Pontypridd and Rhondda Joint Water Board v. Ostime (1946) 1 ALL ER 668 was referred to. In paragraph 10, the Court went on to apply the aforesaid test and stated that, since funds were made available to the assessee to assist it in carrying on its trade and business, there can be little doubt that the object "of various assistances under the subsidy scheme was to enable the assessee to run the business more profitably". The judgment of the House of Lords in Seaham Ha....
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....any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. Applying the test of Viscount Simon in the case of Ostime it must be held that these subsidies are of revenue character and will have to be taxed accordingly." The next important judgment that was referred to is the judgment in Ponni Sugars & Chemicals Limited (supra). On the facts in that case, incentives given under a scheme relating to sugar production were in the nature of a higher free sale sugar quota, and also allowing the manufacturer to collect excise duty on the sale price of free sale sugar in excess of the normal quota but to pay to the government only the excise duty payable on the price of levy sugar. Clause 7 of the aforesaid scheme was set out in para 3 of the judgment as follows:- "The beneficiaries of the incentive scheme shall ensure that the surplus funds generated through sale of the incentive sugar are utilised for the repayment of term loans, if any, outstanding from the Central financial institutions. The ....
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....ermined 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 utilised 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 irrelevant." Sahney Steel was distinguished, in para 16 by then stating that this Court found that the assessee was free to use....
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....articular manner is irrelevant, as has been held in both Ponni Sugar and Sahney Steel. Mr. Ganesh, learned Senior Counsel, also sought to rely upon a judgment of the Jammu and Kashmir High Court in Shri Balaji Alloys vs. C.I.T. (2011) 333 I.T.R. 335. While considering the scheme of refund of excise duty and interest subsidy in that case, it was held that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production has started, and that the incentives in the form of excise duty or interest subsidy were not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery. After setting out both the Supreme Court judgments referred to hereinabove, the High Court found that the concessions were issued in order to achieve the twin objects of acceleration of industrial development in the State of Jammu and Kashmir and generation of employment in the said State. Thus considered, it was obvious that the incentives would have to be held capital and not revenue. Mr. Ganesh, learned Senior Counsel, pointed out that by an order dated 19.04.2016, this Court stated that ....