2023 (9) TMI 473 - AT - Income Tax

Nature of receipt - Taxability of entertainment tax subsidy received by the assessee - capital or revenue receipt - HELD THAT - As decided in assessee own case 2022 (10) TMI 124 - ITAT DELHI this issue of entertainment subsidy in case of multiplexes and theaters has been dealt by the jurisdictional High Court after analyzing the object and the purpose of the subsidy and came to the conclusion that it is a capital receipt. Also see Chaphalkar Bros 2017 (12) TMI 816 - SUPREME COURT . Claim of Depreciation - Determination of cost of Acquistion - As entertainment tax subsidy granted by the State Government is not for the purpose of utilizing on any particular or specified assets. That being the factual position emerging on record, the reasoning of the assessing officer that such subsidy would go to reduce the cost of assets is unacceptable. More so, when the revenue has failed to bring any material on record to demonstrate that the subsidy has actually gone to reduce the cost of any specified assets on which the assessee claimed depreciation. That being the factual position, no part of the subsidy can be reduced from the written down value to compute depreciation. Payment of service tax - whether provision of service tax is an allowable deduction? - AO disallowed the claim of the assessee on the ground that liability being contingent and dependent on the outcome of the verdict of the Hon ble Supreme Court on this issue - HELD THAT - AO erred in treating the liability being contingent. It is undisputed fact that amount of liability is clear, since 50% of such liability was directed to be paid in three equal installments by the Hon ble Supreme Court and for balance 50%, surety was required to be furnished. Therefore, we do not see any good reason for interfering into well reasoned finding of the learned CIT(Appeals), same is hereby affirmed. Ground of appeal is dismissed.

Summary

Issues Involved:
1. Treatment of entertainment tax subsidy.
2. Allowance of depreciation.
3. Payment of service tax on a payment basis.
4. Assessment of a non-existing company.

Summary:

1. Treatment of Entertainment Tax Subsidy:
The Revenue contended that the entertainment tax subsidy should be treated as revenue in nature, while the CIT(A) treated it as capital in nature. The Tribunal upheld the CIT(A)'s decision, noting that the issue is covered by earlier ITAT decisions in the assessee's own case and by the Hon'ble Supreme Court in CIT Vs. Chapalkar Brothers, which established that such subsidies are capital receipts. The Tribunal found no reason to interfere with the CIT(A)'s order.

2. Allowance of Depreciation:
The Revenue argued against the allowance of depreciation related to the entertainment tax subsidy. The Tribunal upheld the CIT(A)'s decision, which followed the ITAT's earlier ruling in the assessee's own case and the decision in PVR Ltd. Vs. Addl. CIT. The Tribunal agreed that the subsidy did not reduce the cost of any specified assets, thus depreciation should not be disallowed.

3. Payment of Service Tax on a Payment Basis:
The Revenue argued that the provision for service tax should not be allowed as a deduction. The CIT(A) allowed the deduction, stating that the liability was fairly ascertainable and legally existing, supported by the jurisdictional High Court's upholding of the levy. The Tribunal affirmed the CIT(A)'s decision, noting that the liability was not contingent but clear, as directed by the Hon'ble Supreme Court.

4. Assessment of a Non-Existing Company:
The assessee argued that the assessment was invalid as it was made in the name of a company that had dissolved due to a merger. The CIT(A) rejected this claim, and the Tribunal upheld the CIT(A)'s decision, noting that the return filed in the name of the dissolved entity would also be non-est if the merger date was considered.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, affirming the CIT(A)'s decisions on all issues. The judgment was pronounced in open court on 30th August, 2023.