2013 (6) TMI 73 - HC - Income Tax

Revenue receipt or capital receipt - entertainment duty subsidy - applicability of decision in Sahney Steel and Press Works Ltd. v. CIT 1997 (9) TMI 3 - SUPREME Court - held that - 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. - capital in nature - decided in favor of assessee.

Summary

Issues:
- Entertainment duty subsidy nature: revenue or capital receipt

Analysis:
The judgment deliberates on whether the entertainment duty subsidy granted to the assessee by the State Government for constructing multiplexes should be categorized as a revenue receipt or a capital receipt. The Revenue argues that the subsidy should be considered a revenue receipt based on the precedent set by the apex court in the case of Sahney Steel and Press Works Ltd. v. CIT. However, the court references the judgment in CIT v. Ponni Sugars and Chemicals Ltd., which emphasizes that the purpose for which the subsidy is provided is crucial in determining its character. The court highlights that if the subsidy aims to facilitate the establishment of a new unit, then it should be classified as a capital receipt.

In this case, the Income-tax Appellate Tribunal noted that the objective behind granting the entertainment duty subsidy was to promote the construction of multiplex theatre complexes. The court underscores that the subsidy was intended to support the capital-intensive nature of these complexes and to encourage the development of new cinema houses. Therefore, regardless of whether the multiplexes were built using internal funds or borrowed capital, the subsidy should be treated as a capital receipt. The court concludes that the subsidy was not intended for loan repayment but to foster the growth of cinema houses through multiplex construction. Consequently, the court upholds the Tribunal's decision that the subsidy received by the assessee is a capital receipt, leading to the dismissal of both appeals without costs.