9911796707
TMI Blog1984 (10) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. He held the amount to be revenue receipt taxable in the hands of the assessee. On appeal, the Commissioner (Appeals) confirmed the order of the ITO. It is, thus, that the matter is in appeal before the Tribunal. 2. The learned counsel for the assessee has pointed out that these amounts paid as subsidies were merely incentives for production and granted in the nature of awards or gifts. The amount was not taxable at all in the first place, being not in the nature of income. It is alternatively contended that it is not taxable in the hands of the present assessee. The subsidy was not given on the basis of the cost of the film or on the basis of expenses. It does not depend on the language of the film nor on the facts of the expenditure thereof. The payment was made merely as an incentive to produce films within the State. The letters produced in this connection, according to the learned counsel, indicate that the subsidy is granted when a picture is produced in the Kerala State. It is not connected with any expenditure incurred by the assessee nor with any depreciable asset. The sole aim was for promotion of film industry in the State. A lump sum was granted without any spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue receipt and income, the learned counsel has relied on the decisions in Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473 (Bom.), CIT v. Wheel Rim Co. of India Ltd. [1977] 107 ITR 168 (Mad.), Kesoram Industries Cotton Mills Ltd. v. CIT [1978] 115 ITR 143 (Cal.) and CIT v. Swadeshi Cotton Mills Co. Ltd. [1980] 121 ITR 747 (All.). Since the subsidy is received in the assessee's capacity as a film producer and it has necessarily worked for the same, it cannot be said to be a casual receipt. It is also not a capital receipt. The Central Government subsidy scheme referred to by the assessee, according to the learned counsel, has nothing to do with the present subsidy. The letter is not related to a capital expenditure or a capital outlay. Films are clearly the stock-in-trade of the assessee and a trading asset. Any receipt in connection with the films should, therefore, be only on revenue account. The decision in Smt. Peethambari Devi's case clearly supports the department's case. Referring to rule 4 of the Scheme, it is pointed out that the award of the subsidy clearly depends on the quality of the film. In this respect, it cannot even be said to be similar to the Centr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year under appeal, the firm was constituted of five partners. The subsidy amount, the subject-matter of the present appeal, was received on 25-3-1978 during the previous year by the firm constituted of five partners. The assessee's claim is that the amount received is a capital receipt and is not taxable. It is also claimed that at any rate, the present firm only received the amount but it accrued under the rules to the earlier firm. 7. The relevant portions of the rules for the grant of subsidy to full length feature film produced in Kerala State are as under : "1. (ii) These rules shall come into force from 1st April, 1975. (iii) Subject to such relaxations that may be considered by Government, they shall apply to all full length feature films entirely produced, processed, recorded and re-recorded in the State of Kerala and duly certified for public exhibition by the Central Board of Film Censors (Government of India). 2. (ii) 'Producer', means any individual, body of individual association or company, corporate or otherwise, as the case may be, whose name is mentioned as producer in the credit titles of the film duly certified by the Central Board of Film Censors. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged or authorised to be paid to any other persons. It shall be paid only to the producer of the film soon after the release of the film. (i) No film produced and certified prior to 1st April 1975, shall be eligible for subsidy. (iv) If a full length feature film is made in more than one language version simultaneously, only one version of the film shall be eligible for consideration of the subsidy. " An order of the State Government dated 25-7-1976 specifies the purpose of the subsidy as under : " Even though quite a large number of feature films are produced every year, majority of them including films in Malayalam are produced in places outside the State. Government have been considering the question of adopting measures for encouraging the production of feature films in the State. As the first step in this direction, Government has formulated a scheme under which subsidy amounting to Rs. 25,000 will be granted to full length feature films entirely produced in the State and duly certified for public exhibition by the Central Board of Film Censors (Government of India). " Under its G.O. dated 25-2-1976, our orders were passed on 25-3-1978 sanctioning the subsidy of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, not a requisite for the grant of subsidy that the alleged producer should be even a highly technically qualified man. Normally, the producer is a person who produces a thing. It would perhaps include a person who gets together the necessary finance, organisation, etc., and produces the article in this case, a film. He can also, if he has got the necessary finance, hand it over to someone who carries out the production. This point is stressed because we find that the rules do not expect any technical or other expertise from the part of the person who produces the feature film in the State and who is eligible for the grant of the subsidy. In other words, vide as the qualifications of the recipient of the subsidy are, except in the broad sense of producing films within the State, no qualifications are expected. Apart from the criteria the committee of the judges, granting the subsidy, would perhaps decide from time to time, no explicit criteria for the awarding of the subsidy exists. Apart from production of the film itself, neither the exhibition nor box office or other success is also provided for. All these indicate that the Government in awarding the subsidy has fixed its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Without such a specific requirement specified in the rules, in our view, it would not be proper to connect the receipt of the subsidy with the carrying on of the business. If, for instance, while the assessee may carry on a business, but the films which receive the awards are produced by someone else, could it be said that the assessee would be entitled to receive the awards merely because the award producing films were traded on by the assessee ? In our opinion, the answer is certainly 'no'. In the case of certain awards of grants as incentives, there might be the requirement of carrying on a business. In other cases, the awards or incentives could be given only to persons carrying on a business. In such cases, it is the inevitable circumstance of conducting a business which leads to the acquisition of the award or grant. In our opinion, the same cannot be said of the awards in the present case. It is more so because for the reasons detailed in the earlier paragraphs, the rules have not taken note of any business aspect in production or release of movie films at all. In fact, the second aspect of the question raised by the learned counsel for the assessee lends an answer to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has done in the years 1975 to 1977. It has nothing to do with whatever business he may do in 1978. In other words, even if the assessee has closed its business in 1977, the subsidy relating to the years 1975 to 1977 could have been received by it if granted late on account of the procedure involved in the grant only in a subsequent year. If he has closed the business in 1977, he would be receiving the subsidy after the business is closed. Since the subsidy is granted to each film separately on its own merits and satisfying certain conditions, it could certainly not be regarded as the product of the business in existence in 1978, since it was clearly referable to certain activities performed in 1975 to 1977. Even if, therefore, the same assessee continues the business for all these years and in 1978, the award whenever received would be traceable and relevant to the business conducted by the assessee in the earlier year. If treated as an income, it cannot be regarded as relevant to the year under appeal at all. 13. Apart from the above, we are not sure that the mere fact of treating the assessee as the same for these years would be sufficient to regard the subsidy as a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be assessed. One has to see who carries on the business under that name. In the present case, one has to see who produced the film even though under that name. Obviously, the persons who produced the film using the name 'Excel Productions' in 1975 to 1977 apparently were not the same persons who did the business in 1978 and who received the subsidy. In fact, the group of people who were known as Excel Productions in the title of the feature films, as recognised by the Central Board of Film Censors, cannot be said to be the same group of people who received the award in 1978. In law the former group could certainly lay a claim to the award and even demand it, if received by another set of people. The assessee's claim, therefore, that the partnership as constituted during the previous year relevant to the year under appeal, has not received the subsidy, at any rate exclusively or beneficially as its income has also to be accepted. In our view, it is not necessary, therefore, to go into the question whether the same firm continues or not for this purpose. 15. It is necessary to look into the decisions cited on behalf of the parties. In Smt. Peethambari Devi's case, it was claimed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the profits, the subsidy, it was advised, could be regarded as being in the nature of capital receipt. In the present case, there is no relation between the subsidy and the fixed capital of any business. That the subsidy would, therefore, go to strengthen the fixed capital base of the business also cannot be urged. 17. Much stress has been laid by the learned counsel for the department on the decision of the Andhra Pradesh High Court in the case of Chandajee Khubajee Co.. This was a case where a firm was in existence since the year 1924-1925 with changes in composition from time to time continued up to the assessment year 1971-72. The firm was assessed to sales tax, which was allowed as a trading liability in the earlier years 1962-63 to 1965-66. It obtained a refund during the accounting year relevant to the assessment year 1971-72. The High Court upheld the assessment of the amount refunded under section 41(1). In this case the fact that there were changes in the constitution of the firm did not make any difference to the applicability of section 41(1), was stressed. Their Lordships, however, relied on an important fact, viz., that there was no material on record to show ..... X X X X Extracts X X X X X X X X Extracts X X X X
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