2022 (10) TMI 124 - AT - Income Tax

Taxability of entertainment tax subsidy received by the assessee - Nature of receipts - HELD THAT - While considering the nature and character of entertainment tax subsidy received by multiplexes/cinema hall owners under the very same Scheme the Hon ble Apex Court in case of CIT Vs. Chapalkar Brothers 2017 (12) TMI 816 - SUPREME COURT has held that the entertainment tax subsidy received is in the nature of capital receipt. In fact, in assessee s own case in assessment years 2008-09 and 2009- 10 2013 (6) TMI 73 - BOMBAY HIGH COURT Hon ble Bombay High Court while dismissing the appeals filed by the Revenue has upheld the decision of the Tribunal holding that the entertainment tax subsidy received by the assessee is in the nature of capital receipts. Further, in case of CIT vs. Bougainvillea Multiplex Entertainment Centre (P) Ltd. 2015 (2) TMI 21 - DELHI HIGH COURT has expressed identical view. Undisputedly, Commissioner (Appeals) while deciding the issue has followed the ratio laid down in the decisions cited supra. That being the case, we do not find any infirmity in the order of learned Commissioner (Appeals) on this issue. Accordingly, the order is upheld and grounds raised by the revenue are dismissed. Entertainment tax subsidy is held to be capital in nature, whether, it will go to reduce the cost of acquisition of capital assets resulting in disallowance of depreciation claimed by the assessee on plant and machinery to that extent - 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.

Summary

Issues:
1. Taxability of entertainment tax subsidy received by the assessee.
2. Treatment of entertainment tax subsidy in relation to the cost of acquisition of capital assets and depreciation claimed by the assessee.

Analysis:

Issue 1: Taxability of entertainment tax subsidy
The appeals by the Revenue were based on three separate orders of the Commissioner of Income-Tax (Appeals) concerning assessment years 2010-11, 2011-12, and 2013-14. The primary issue in question was the taxability of the entertainment tax subsidy received by the assessee. The assessee, a corporate entity operating multiplexes, had received this subsidy under a scheme by the Government of Maharashtra to promote capital investment in multiplexes. The assessing officer treated the subsidy as a revenue receipt, leading to additions in the assessment. However, the Commissioner (Appeals) held that the subsidy was of capital nature and therefore not taxable, citing relevant legal precedents. The Tribunal, after examining the Supreme Court's decision in a similar case and other relevant judgments, upheld the Commissioner's decision, dismissing the Revenue's grounds.

Issue 2: Treatment of entertainment tax subsidy in relation to depreciation
The second common issue was whether the entertainment tax subsidy, if considered capital in nature, should reduce the cost of acquisition of capital assets, affecting the depreciation claimed by the assessee on plant and machinery. The assessing officer proposed reducing the subsidy from the written down value of assets before allowing depreciation, citing Explanation 10 to section 43(1) of the Act. However, the Commissioner (Appeals) disagreed, stating that the subsidy was not intended for specific assets and hence should not affect depreciation. The Tribunal concurred, emphasizing that the subsidy did not directly reduce the cost of any particular asset claimed for depreciation. As both parties agreed that the issue was settled in favor of the assessee by a previous decision, the Tribunal upheld the Commissioner's decision, dismissing the Revenue's grounds.

In conclusion, the Tribunal upheld the Commissioner's decisions on both issues, ruling in favor of the assessee and dismissing all appeals by the Revenue.