2015 (1) TMI 1412 - AT - Income Tax

Nature of receipt - entertainment duty collected by the assessee - revenue or capital expenditure - Held that - After considering the impugned order and on perusal of record, we are of the opinion that the ld.CIT(A) is justified in holding entertainment duty collected by the assessee is a capital receipt as it is in conformity with the decision of the jurisdictional High Court in CIT V/s Chapahalkar Brothers 2013 (6) TMI 73 - BOMBAY HIGH COURT . Accordingly, we affirm the order of ld. CIT(A) and dismiss the ground taken by the revenue.

Summary

Issues:
1. Treatment of entertainment duty collected by the assessee as capital receipt or revenue receipt.

Analysis:
The appeal was filed by the revenue against an order passed under section 143(3) of the Income Tax Act, 1961 for the assessment year 2009-10. The main ground raised by the revenue was regarding the treatment of entertainment duty collected by the assessee. The revenue contended that the CIT(A) erred in considering the entertainment duty as a capital receipt based on a decision of the Hon'ble Bombay High Court, while the Revenue had not accepted the said decision and had filed an SLP pending before the Hon'ble Supreme Court.

The assessee, engaged in running multiplex theatres in Maharashtra, collected a sum towards entertainment tax during the year under consideration. The Maharashtra Government granted exemption from entertainment tax to encourage the establishment of multiplexes. The AO treated the amount collected as revenue receipt, but the CIT(A) relied on the decision of the Hon'ble Bombay High Court in CIT vs. Chapahalkar Brothers, where it was held that the subsidy of entertainment tax by the Government of Maharashtra was a capital receipt. The High Court emphasized that the subsidy was for promoting new cinema houses, making it a capital receipt.

The Hon'ble Bombay High Court, in its decision, referred to the Ponni Sugars case to explain the character of a subsidy. It highlighted that the purpose of the subsidy determines its nature, stating that if the subsidy aims to set up a new unit or expand an existing one, it is a capital receipt. The High Court held that the object of the subsidy scheme, which was to promote the construction of multiplexes, was crucial, irrespective of whether the funds were borrowed or self-financed.

The Tribunal, after considering the arguments and the decisions cited, upheld the order of the CIT(A) and dismissed the appeal of the revenue. It concurred with the CIT(A) that the entertainment duty collected by the assessee should be treated as a capital receipt in line with the decision of the jurisdictional High Court. The Tribunal found the decision of the High Court binding and justified the treatment of the amount as a capital receipt. Therefore, the appeal of the revenue was dismissed based on the established legal principles and precedents cited in the judgment.