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2015 (2) TMI 21 - HC - Income TaxEntertainment tax subsidy - whether a capital receipt? - Held that - Any subsidy granted for setting up a business would constitute a capital receipt in the hands of the recipient, in the case of subsidy granted to the assessee co. pursuant to a scheme, the purpose of which was to encourage setting up of multiplexes in the state of UP and not augmentation of profit of the multiplex, the receipt by the assessee co. constitute a capital receipt. ITAT in the impugned orders has taken a correct view of law on the basis of available facts to conclude that the assessee is entitled, in terms of the UP Scheme, to treat the amounts collected towards entertainment tax as capital. The question of law raised in these appeals is, thus, answered in the negative against the revenue/appellant. - Decided in favour of assessee
Issues Involved:
1. Whether the entertainment tax subsidy granted to the respondent during the relevant years is a capital receipt. Detailed Analysis: Common Question of Law The four income tax appeals under Section 260-A of the Income Tax Act, 1961, raise a common question of law and are decided through a common judgment. The core issue is whether the entertainment tax subsidy granted to the respondent during the relevant years is a capital receipt. Background and Facts The respondent, engaged in running multiplex cinema halls and shopping malls, claimed a deduction for entertainment tax collected, terming it as capital receipts. The Assessing Officer disallowed these claims, but the Commissioner of Income Tax (Appeals) [CIT(A)] allowed them. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision. Assessment Years and Disputes - Assessment Year 2006-2007: The deduction of Rs. 1,33,74,831/- was disallowed by the Assessing Officer but allowed by CIT(A) and upheld by ITAT. - Assessment Year 2007-2008: The deduction of Rs. 6,12,57,194/- was similarly disallowed but later allowed by CIT(A) and upheld by ITAT. - Assessment Year 2008-2009: The deduction of Rs. 6,75,56,204/- followed the same pattern. - Assessment Year 2009-2010: The deduction of Rs. 5,60,49,044/- was also disallowed initially but later allowed by CIT(A) and upheld by ITAT. Legal Framework and Government Schemes The Uttar Pradesh Entertainment and Betting Tax Act, 1979, allows the State Government to exempt any class of entertainment from payment of entertainment tax. The State Government had schemes to promote the establishment of multiplexes, offering 100% exemption from entertainment tax for the first year and 75% for the next two years. Assessing Officer's Findings The Assessing Officer concluded that: 1. The subsidy was received after the commencement of business. 2. It was not linked to any fixed assets. 3. There was no stipulation on how the subsidy should be used. CIT(A) and ITAT's Rulings CIT(A) and ITAT found that the entertainment tax subsidy was a capital receipt, as it was limited by the cost of the project and linked to setting up cinema halls. They relied on the Supreme Court's judgment in Commissioner of Income Tax v. Ponni Sugars and Chemicals Ltd., which held that the purpose of the subsidy determines its nature. Supreme Court Precedents - Sahney Steel and Press Works Ltd. vs. CIT: The subsidy was considered revenue receipt as it was given after the commencement of production. - Ponni Sugars and Chemicals Ltd.: The subsidy was deemed capital receipt as it was meant for setting up new units or expanding existing ones. Court's Analysis The court analyzed that: 1. The subsidy was designed to promote the establishment of new multiplexes. 2. The subsidy was to offset the expenditure incurred in setting up the project. 3. The purpose test, as laid down in Ponni Sugars, indicated that the subsidy was a capital receipt. Conclusion The court concluded that the ITAT had correctly interpreted the law, and the entertainment tax subsidy should be treated as a capital receipt. The appeals of the Revenue were dismissed, but the Assessing Officer was directed to verify the expenditure incurred by the assessee to finalize the assessments. Final Judgment The appeals of the Revenue were dismissed, and the Assessing Officer was instructed to assess the extent of capital subsidy the respondent could claim over the assessment years in question.
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