TaxTMI 
TaxTMI 
2014 (3) TMI 1133
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....roceedings in relation to the respondent-assessee, the Assessing Officer ('AO') observed that the assessee firm, running a cinema talkies in the name of Samta Chavigrah at Pratapgarh, had shown receipts of Rs. 18,26,286/-, which included entertainment tax of Rs. 9,13,143/-; and after showing total receipts of Rs. 18,26,286/- in the Profit and Loss Account, the assessee had transferred Rs. 9,13,143/- to entertainment subsidy account and thereby, had shown only the receipts of Rs. 9,13,143/- during the relevant period. The Assessing Officer wanted to know the nature of this subsidy and also a justification for the assessee's claim of this amount as deduction. The assessee explained that there was a scheme of the Government of Rajasthan to encourage construction of new cinema halls by providing such a subsidy in the form of entertainment tax for a particular period. A copy of notification issued in this regard was placed before the Assessing Officer. But the Assessing Officer did not agree with the assessee and treated this amount as its income. The Appellate Commissioner ['CIT(A)'], however, accepted the plea of the assessee after relying, inter alia, on the State....
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....as a capital receipt, even if it is given after the business has been setup. This was precisely held by the Hon'ble Allahabad High Court in the case of Kalpana Palace v. CIT [2004] 141 Taxman 392 [Allahabad], a case which has also been relied by the ld. CIT(A). In our considered opinion, the Assessing Officer is not correct in treating the entertainment subsidy in question as a revenue receipt and therefore, the ld.CIT(A) is justified completely in deleting the entire addition. In this way ground No.2 of revenue's appeal also fails." 4. In challenge to the order aforesaid, it has strenuously been contended on behalf of the Revenue that in view of the pronouncement of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/94 Taxman 368 and CIT v. Rajaram Maize Products [2001] 251 ITR 427/119 Taxman 492 (SC), the findings recorded by the CIT(A) and ITAT are erroneous and the Appellate Authorities have erred in deleting the addition of Rs. 9,13,143/-. It is contended that collection of entertainment tax was optional for the assessee particularly when the exemption had been granted but when the same had indeed been collected, it ....
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....ntertainment tax shall be levied in respect of each person admitted on payment and shall be calculated and paid on the number of admission. (2) The entertainment tax shall be due and recoverable from the proprietor. (3) The proprietor shall submit such returns relating to payments for admission to an entertainment to such authority, in such manner and within such period as may be prescribed." 8. It is clear that the entertainment tax is to be paid to the State Government, on all payments for admission to an entertainment at the prescribed rate; and is levied in respect of each person admitted on payment and is to be collected and paid on the number of admissions. The entertainment tax is due and recoverable from the proprietor, who is essentially the owner of the particular entertainment or who may be incharge of the management, as per clause (8) of Section 3 of the Act of 1957. 9. However, under sub-section (2) of Section 7 of the Act of 1957, on being satisfied about existence of reasonable ground for doing so in the public interest, the State Government may, by general or special order notified in the Official Gazette, reduce or remit the entertainment tax with which any e....
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....is irrelevant." 11. In Kalpana Palace (supra), the grant by the State Government had been to promote construction of cinema buildings in smaller towns and the grant related to the amount of entertainment tax even after the business had been set up. The Hon'ble Allahabad High Court found it to be a capital receipt and said:- "8. Applying the principles laid down by the apex Court in the aforementioned case to the facts of the present case, we find that grant-in-aid was given in order to promote construction of cinema buildings in the small towns having population upto one lakh according to 1981 census. Thus, it was for the establishment/setting up of cinema halls and the manner in which the grant-in-aid related to the amount of entertainment tax is of no consequence. Thus, even though grant-in-aid was given after the business has been set up, it would still be relatable to the construction of cinema halls. Thus, it would be a capital receipt." 12. In the case of Inox Leisure Ltd. (supra), the Hon'ble Gujarat High Court concluded that the entertainment tax exemption enabling the assessee to set up a new unit or to expand the existing unit was a capital receipt. In the cas....
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....f 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 entertainment tax on the given condition, in our view, the object was clearly to promote the construction of new cinema halls. Merely because the amount was not directly meant for repaying the amount taken for construction of the cinema hall, its purpose could not be considered to be other than that of promoting construction of new cinema hall. As held consistently by the Courts, the source of funds for construction of such cinema hall is irrelevant; and it would also not matter if the grant would be available after the business has been set up. 16. In our view, in the totality of the circumstances; and particularly looking to the scheme of the Act of 1957 as also the object and purport of the exemption notificatio....