1983 (4) TMI 116 - AT - Income Tax

Summary

Issues:
Assessability of subsidy received by a film producer as income-tax.

Detailed Analysis:
The appeal in this case concerns whether a subsidy received by a film producer is assessable to income-tax. The assessee, a film producer, received a subsidy from the Andhra Pradesh Government for producing a feature film. The assessee argued that the subsidy was a capital receipt and not liable to income-tax. The Income Tax Officer (ITO) disagreed, stating that the subsidy was a revenue receipt and should be taxed. The Appellate Assistant Commissioner (AAC) allowed the claim based on a decision by the Cuttack Bench, which held a similar subsidy to be a capital receipt. The revenue appealed, citing a conflicting decision by the Madras Bench 'A'. The Special Bench was convened to resolve this conflict.

The revenue contended that the subsidy reduced the cost of production of the film, which was revenue expenditure. They argued that as the film was treated as stock-in-trade, any amount received related to acquiring stock-in-trade should be considered a revenue receipt. The revenue emphasized that the subsidy was provided to encourage the film industry but did not create any new capital asset. On the other hand, the assessee argued that the subsidy was discretionary and should be considered a capital receipt. They pointed out that the subsidy aimed at infrastructure development and capital investment, not revenue generation. The assessee relied on a previous decision by the Delhi High Court to support their position.

After considering the submissions, the Special Bench held in favor of the revenue. The subsidy conditions required the film to be produced in Andhra Pradesh, but it did not involve any capital expenditure by the assessee. The subsidy only reduced the cost of production, which is considered revenue expenditure as per Income-tax Rules. The Bench disagreed with the Cuttack Bench's decision, stating that the subsidy did not meet any capital expenditure by the assessee. The Bench rejected the argument that the subsidy was discretionary and should be treated as a bounty, as it was directly connected to the professional activity of the assessee. Consequently, the subsidy was deemed part of the assessee's income and was subject to taxation. The order of the AAC was set aside, and the assessment order was restored.

In conclusion, the subsidy received by the film producer was held to be a revenue receipt and assessable to income-tax. The Special Bench rejected the argument that the subsidy was a capital receipt, emphasizing that it only reduced the cost of production and did not involve any capital investment by the assessee.