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Issues:
1. Treatment of film subsidy as revenue receipt. 2. Appeal against levy of interest under section 217. Analysis: Issue 1: Treatment of film subsidy as revenue receipt The High Court considered whether the film subsidy of Rs. 2 lakhs received by the assessee should be treated as a revenue or capital receipt. The court referred to a previous case, CIT v. Chitra Kalpa [1989] 177 ITR 540 (AP), where it was held that such subsidies are granted as an inducement to encourage film production in the state and are not taxable as revenue receipts. The court agreed with this reasoning and held that the subsidy received by the assessee was not taxable as a revenue receipt. Therefore, the court answered the first question in the affirmative, ruling against the Revenue. Issue 2: Appeal against levy of interest under section 217 The second issue involved whether the appeal against the levy of interest under section 217 was maintainable. The Tribunal had waived interest for the assessment year 1980-81 and reduced it to Rs. 15,000 for 1981-82. The Supreme Court precedent in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 was cited, stating that interest levied under section 217 is part of the assessment process. The court discussed that if the assessee denies liability to file returns or pay advance tax, an appeal against the interest levy is permissible. However, if the assessee admits liability, then no appeal lies. In this case, the court found that the assessee had denied liability to pay tax on the subsidy, making the interest levy consequential. The court held that grounds related to interest can be raised in an appeal if other grounds are present. Therefore, the court ruled against the Revenue, stating that the appeal against the interest levy was maintainable. The court answered the second question in the negative, in favor of the assessee. In conclusion, the High Court decided in favor of the assessee on both issues, ruling that the film subsidy was not a revenue receipt and that the appeal against the levy of interest under section 217 was maintainable.
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