2008 (1) TMI 197 - HC - Income Tax

Grant-in-aid received by the appellant to promote the construction of new and permanent cinema halls in backward areas as per the Government policy dated July 21, 1986 revenue receipt or capital receipt revenue plea that subsidy is post-construction, therefore, it should not be treated as capital receipt, is not acceptable in case of Kalpana Palace v. CIT 2004 -TMI - 10402 - ALLAHABAD High Court , money received by the appellant will be treated to be capital receipt and not revenue receipt

Summary

Issues Involved:
Interpretation of grant-in-aid as revenue or capital receipt under State Government scheme for promoting cinema hall construction in backward areas.

Detailed Analysis:

1. Interpretation of Receipt Nature:
The primary issue in this case revolved around determining whether the grant-in-aid of Rs. 6,07,788.94 received by the appellant under the State Government scheme should be categorized as a revenue receipt or a capital receipt. The Income-tax Appellate Tribunal considered it a revenue receipt, while the appellant contended it should be treated as a capital receipt.

2. Precedent from Previous Case:
A significant aspect of the judgment was the reference to a prior case, Kalpana Palace v. CIT [2005] 275 ITR 365, where a Division Bench of the court had ruled in favor of the assessee, declaring the subsidy as a capital receipt. The court found the present case to be similar to the Kalpana Palace case, indicating consistency in the treatment of such subsidies.

3. Department's Argument and Court's Analysis:
The learned standing counsel for the Income-tax Department argued that the subsidy, being post-construction, should be treated as a revenue receipt. However, the court noted that the Division Bench had already considered such aspects in the Kalpana Palace case, suggesting that the post-construction nature of the subsidy had been addressed previously.

4. Lack of Challenge to Precedent:
Another critical point highlighted was that there was no evidence presented to show that the Department had rejected the legal position established in the Kalpana Palace case or had pursued the matter further to the Supreme Court. This lack of challenge to the precedent added weight to the appellant's argument.

5. Final Decision and Rationale:
After considering the facts and circumstances, the court allowed the appeal, concluding that for the assessment year 1992-93, the money received by the appellant under the State Government scheme for promoting cinema hall construction in backward areas should be treated as a capital receipt and not a revenue receipt. The judgment aligned with the precedent set in the Kalpana Palace case, ensuring consistency in the interpretation of such subsidies.

6. Outcome:
Ultimately, the appeal was allowed, affirming the categorization of the grant-in-aid as a capital receipt for the specified assessment year. The decision provided clarity on the treatment of similar subsidies under State Government schemes, emphasizing the importance of precedent and consistent legal interpretation.