2005 (7) TMI 305 - AT - Income Tax

Summary

Issues Involved:
1. Whether the subsidy received by the assessee under M.P. Naya Cinema Gharon Ke Nirman Ko Protsahan Yojna Ke Sahayata Anudan Niyam, 1982 from the State Government was a revenue receipt or capital receipt.

Detailed Analysis:

1. Nature of Subsidy: Capital vs. Revenue Receipt

The primary issue revolves around the classification of the subsidy received by the assessee from the State Government under the M.P. Naya Cinema Gharon Ke Nirman Ko Protsahan Yojna Ke Sahayata Anudan Niyam, 1982. The Tribunal initially held that the subsidy was a revenue receipt, following the judgment of the Apex Court in Sahney Steel & Press Works Ltd. v. CIT (228 ITR 253). The High Court directed reconsideration of this issue.

2. Scheme Details and Eligibility:

The scheme provided grant-in-aid to permanent cinema houses constructed after January 14, 1980. Eligibility conditions included:
- Completion of construction post-January 14, 1980.
- Maintenance of ticket rates within specified limits for one or two years, depending on the town's population.
- Execution of an agreement to continuously exhibit films for three years.

3. Extent and Payment of Grant-in-Aid:

The grant-in-aid was equivalent to the entertainment duty and additional tax paid by the cinema houses for one or two years, depending on the town's population. Payments were made in installments, with the first payment due after one year, subject to compliance with specific rules.

4. Arguments by the Assessee and the Revenue:

The assessee argued that the subsidy was capital in nature, intended to assist in the construction of new cinema houses. The revenue contended that the subsidy was a revenue receipt, meant to assist in the operational phase of the cinema houses, not tied to any capital outlay.

5. Tribunal's Consideration:

The Tribunal analyzed the scheme and the conditions for receiving the subsidy. It noted that the subsidy was payable after the cinema house was constructed and operational, and was contingent upon the cinema house running for three years. The subsidy was not linked to the creation of a new asset but was an incentive for running the cinema house.

6. Relevant Case Law:

The Tribunal referred to several judgments, including:
- Merino Ply & Chemicals Ltd. v. CIT (209 ITR 508), where transport subsidies were held to be revenue receipts.
- Sahney Steel & Press Works Ltd. v. CIT, where incentives given post-commencement of production were treated as revenue receipts.
- Udaya Pictures (P.) Ltd. v. CIT (225 ITR 394), where subsidies for film production were held as revenue receipts.
- Jagapathy Art Pictures v. CIT (240 ITR 625), where subsidies for film production were treated as revenue receipts.
- Tamil Nadu Sugar Corpn. Ltd. v. CIT (251 ITR 843), where purchase tax subsidies were held as revenue receipts.

7. Conclusion:

The Tribunal concluded that the subsidy received by the assessee was a revenue receipt. The subsidy was intended to assist in the business operations of running the cinema house, not for the construction or creation of a new asset. The subsidy was given after the cinema house was constructed and operational, and was contingent upon the cinema house running for a specified period. The order of the CIT (Appeals) was reversed, and the order of the Assessing Officer was confirmed.

8. Final Decision:

Both appeals of the revenue were allowed, affirming that the subsidy received by the assessee was a revenue receipt.