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2018 (4) TMI 132 - AT - Income TaxEntertainment subsidy received by the assessee under Uttar Pradesh Government Scheme for promotion of construction of multiplexes - relief under section 80IB - revenue or capital receipt - Held that - In the case of the assessee, the Uttar Pradesh State Government issued a letter to the assessee for grant of entertainment tax subsidy and based on the relevant Scheme of Uttar Pradesh Government, it reveals that subsidy was granted to multiplexes under Uttar Pradesh Government s Incentive Scheme for Promotion for construction of Multiplexes and overall quantum of subsidy is limited to the cost of construction, (excluding cost on land). Entertainment subsidy received by the assessee under Uttar Pradesh Government Scheme for promotion of construction of multiplexes was, thus, capital receipt. The object of grant of subsidy was in order that the persons come forward to construct Multiplex Theatre Complexes. The idea being that exemption from entertainment duty was granted for 05 years. It is also provided in the Scheme that if the cost is recovered prior to 05 years, for rest of the period, the entertainment tax would be leviable. As per the Scheme, subsidy equivalent to the cost of building and machinery was allowed to be collected as entertainment tax with the operator/owner of the said Multiplex, being allowed to retain the amount, equivalent to the eligible amount over a period of 05 years. The issue is, therefore, covered in favour of the assessee in the case of CIT-1, Kolhapur vs. M/s. Chaphalkar Brothers, Pune (2017 (12) TMI 816 - SUPREME COURT). The Departmental Appeal has no merit - Decided in favour of assessee.
Issues Involved:
1. Whether the entertainment tax collected should be treated as a capital receipt or revenue receipt. Issue-wise Detailed Analysis: 1. Treatment of Entertainment Tax Collected: The primary issue in these appeals was whether the Ld. CIT(A) was justified in treating the entertainment tax collected by the assessee as a capital receipt. The assessee, engaged in running a hotel, trading IMFL, real estate, and operating a mall and multiplexes, revised its return of income to show the entertainment tax receipt as a capital receipt instead of a revenue receipt. The A.O. argued that the entertainment tax subsidy granted by the State of U.P. was given after the multiplex had started operations, with the purpose of helping the multiplex run profitably, thus classifying it as a revenue receipt. This treatment placed the subsidy outside the purview of Section 80IB of the I.T. Act, as it was considered "attributable" rather than "derived" from the business. The assessee contended that the subsidy was granted under the U.P. Government's incentive scheme for the promotion of multiplex construction, limited to the cost of construction (excluding land). The assessee cited three Allahabad High Court judgments supporting the classification of such subsidies as capital receipts. The Ld. CIT(A) agreed with the assessee, noting that the subsidy was linked to capital investments in setting up multiplexes, intended to offset the capital cost incurred by the owner/operator. The Ld. CIT(A) directed the A.O. to treat the receipt as a capital receipt, reduce the cost of the relevant block of assets (Building and Machinery), and adjust the claim of depreciation accordingly. The Department appealed, arguing that the subsidy was for meeting day-to-day business expenses and thus should be treated as revenue receipt. The assessee countered by referencing the Supreme Court judgment in CIT-1, Kolhapur vs. M/s. Chaphalkar Brothers, Pune, which ruled that similar subsidies were capital receipts. The Tribunal examined the rival submissions and the material on record, including the Supreme Court judgment, which emphasized the "purpose test" to determine the nature of the subsidy. The judgment clarified that the object of the subsidy was to promote the construction of multiplexes, a capital-intensive endeavor, and not to support day-to-day operations. The Tribunal concluded that the entertainment tax subsidy received by the assessee was indeed a capital receipt, aligning with the Supreme Court's ruling. Consequently, the Tribunal dismissed the Department's appeals for the assessment years 2008-2009, 2009-2010, and 2010-2011, upholding the Ld. CIT(A)'s decision to treat the entertainment tax collected as a capital receipt. Conclusion:In conclusion, the Tribunal affirmed that the entertainment tax subsidy granted under the U.P. Government's incentive scheme for multiplex construction should be treated as a capital receipt. This decision was based on the purpose of the subsidy, which was to promote the construction of multiplexes, a capital-intensive activity, rather than to support day-to-day business operations. The Department's appeals were dismissed, and the Ld. CIT(A)'s orders were upheld.
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