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TMI Blog2013 (8) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent : Smt. Anuradha Misra, CIT, DR ORDER Per Bench:- These are Department's appeals and Assessee's Cross Objections for Assessment Years 2008-09 and 2009-10 against the orders of the CIT (A)-VI, New Delhi. Common issues are involved in both the appeals and Cross Objections. The common grounds of appeal read as under:- "1. The Ld. CIT (A) has erred on facts and in law in deleting addition of Rs.1,33,74,831/- (₹ 5,60,49,044/- for Assessment Year 2009-10) on account of disallowance of entertainment tax subsidy ignoring that subsidy which is granted for the purpose of setting up of a business can be held to be only on capital account. Reliance is placed on the decision of the Hon'ble Punjab Haryana High Court in CIT vs. Abhishek Industries Ltd. (2006) 286 ITR 1; and in CIT vs. Varinder Agro Chemical Ltd. (2007) 290 ITR 147. 2. On the facts and circumstances of the case, the Ld. CIT (A) has erred in deleting addition of Rs.1,14,39,079/- (₹ 19,66,337/-) on account of capitalisation of advertisement expenses ignoring that fact that benefit of enduring nature was drawn by the assessee." 2. The common grounds of Cross Objections read as under:- " That the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1979; that this was to encourage setting up of multiplexes in the State by granting them exemption from payment of entertainment tax by way of grant-in-aid for the first three years; that later, the scheme was modified and the exemption was extended by two years, for multiplexes commencing operation on or after 31.03.2005; that vide Notification dated 27.11.2005, the scheme was extended for a further period of five years, i.e., in respect of multiplexes set up on or before 31.03.2010; that the assessee commenced its multiplex operation w.e.f. 02.12.2005; that it was granted exemption vide order/eligibility certificate dated 17.03.2006 passed by the District Magistrate; that in Clause (6) thereof, it was clearly mentioned that the entertainment tax collected but retained shall be deemed to have been paid to the State Government; that the amount of exemption was credited by the assessee company as income in its books of account; that however, in the return of income filed, the same was claimed as exempt in accordance with the decision of the Hon'ble Supreme Court in the case of 'Sahney Steel and Press Works Ltd.', 228 ITR 253 (SC), wherein it had been held that the character of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the subsidy was on revenue account and not on capital account; that 'Sahney Steel' (supra), in fact, went against the assessee and not in its favour; that therein, it had been held that if the subsidy was given to the assessee for assisting him in carrying out business operations and it was given only after and conditionally upon commencement of production, such subsidy must be treated as assistance for the purpose of trade; that in the assessee's case also, the subsidy had been received after commencement of operation, as assistance in the course of carrying out of the business operations; that it had been held in 'Sahney Steel' (supra), that the subsidy received was on revenue account, since the assessee was free to use the money in its business entirely as it liked, which was also a fact in the assessee's case; that like in 'Sahney Steel' (supra), in the assessee's case also, the subsidy had also been granted for production or bringing into existence of any new asset; that in 'Sahney Steel', it had also been held that if the subsidies are granted year after year after the setting up of the new industry and commencement of production, such subsidies could only be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from entertaining such a plea, without there being a specific ground taken by revenue. Both the authorities have ultimately held the receipt in question to be entertainment subsidy only. AO held it to be capital receipt and ld. CIT(Appeals) by using his power of enhancement held it to be revenue in nature. In our considered view, as long as the receipt in question has been held to be entertainment subsidy in the hands of the assessee, it is of no use to devolve into some alleged discrepancies in the assessee's application for license and eligibility to entertainment tax and assessee's revenue sharing agreement. The fact of the matter remains that the revenue sharing agreement and the Govt. of U.P. notification holding the assessee as eligible for subsidy is on the record and ultimately accepted by both the authorities. We, therefore, confine ourselves to the issue about the nature of subsidy being capital or revenue, therefore, we do not wish to go into other issues about the discrepancies in application, assessee's eligibility for subsidy or income being illegal in nature. (ii) Coming to the nature of subsidy, ld. CIT(Appeals) held it to be revenue in nature: (a) relying on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operational and modern multiplexes equipped with the latest technology as far as possible. Thus applying the purpose test the entertainment subsidy in question is capital in nature. (vii) The mode of payment of subsidy is not important and merely because it is linked with the collection of entertainment tax, will not be decisive to ascertain its character. This is so because the Govt. by amended scheme desired the construction of new multiplexes and further modulated the scheme in such a manner that these multiplexes work for a longer time i.e. 5 years. The incentive was released in such a manner that it will ensure the long term operation i.e. attracting the viewers and collection of E. Tax. One of the ways could have been to give upfront subsidy, in that case Govt. could not have ensured the long term operation. In order to promote the scheme, release of incentive required operators to put in their best efforts. The release of subsidy upfront would have come directly from the coffers of the Govt. To avoid such pressure, instead it has been provided in the form of viewership and entertainment tax collection. (viii) The Hon'ble Supreme Court has clearly held that mode and meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture, the alternate ground does not survive. 13.2. Coming to the next ground about applicability of Explanation 10 to sec. 43(1), ld. counsel has relied on Hon'ble Supreme Court judgment in the case of CIT Vs. P.J. Chemicals Ltd. (supra) and ITAT Vishakhapatnam Bench judgment in the case of Sasisri Extractions Ltd. Vs. ACIT (2008) 307 ITR (AT) 127. The scheme of the U.P. Govt. has been spelt out above. The incentive does not refer to acquire any particular asset; the object and purpose of the scheme was to promote the cinema industry by promoting the construction of multiplexes to ward of effects of cable television. 13.3. Hon'ble Supreme Court judgment in the case of CIT Vs. P.J. Chemicals Ltd. (supra) has held that "actual cost" should be interpreted in a liberal manner. The purpose of the U.P. Govt. being to promote the cinema industry as a whole, only because the basis for determining the subsidy is capped at the capital assets, will not mean that he scheme is to meet the cost of any specified asset directly or indirectly. Therefore, the amount of such subsidy cannot be held to reduce the actual cost of asset u/s 43(1) Explanation 10 of the Act. 13.4. Ld. DR has filed wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Year 2006-07 and 2007-08 were deleted by the CIT (A) by referring to, inter alia, 'Ponni Sugar' (supra) and that the facts and circumstances in the years under consideration were similar to those in the earlier years. This has not been disputed before us. 11. Before us, the aforesaid Tribunal order has not been shown by the Department to have been set aside, cancelled or even stayed on appeal. The facts remaining the same, following the decision of the co- ordinate Bench, Ground No.1 raised by the department in both the appeals before us is rejected. 12. Ground No.2 in both the appeals of the department challenges the action of the Ld. CIT (A) in deleting the addition on account of capitalization of advertisement expenses. 13. The assessee company claimed advertisement and sale promotion expenses in the Profit Loss Account. The Assessing Officer asked the assessee to show cause as to why the same be not capitalized and restricted to 1/5th of the total expenses, as per the assessment order in the earlier year. On considering the assessee's reply, the Assessing Officer observed that in the preceding Assessment Year, under similar circumstances, the Assessing Officer had mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has fulfilled both these conditions. It further drew our attention towards the accounting counting standard No. 26 issued by the Institute of the Chartered Accountants. According to the assessee, the institute has issued accounting standard whereby, it provided that an intangible assets should be recognized, if it is probable that the future economic benefit that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably. Internal generated brand, publishing title etc. should not be recognized as intangible assets and if it is not an intangible assets then expenses incurred on such an item will be allowable in the year of incurrence. It was also pointed out expenditure on advertisement and promotional activities are to be recognized as an expense when it is incurred. Learned First Appellate Authority has examined the case of the assessee and after putting reliance upon the judgment of Hon'ble Gujarat High Court in the case of DCIT vs. Core-Health Care Ltd. reported in 308 ITR 263 and the judgment of Hon'ble Delhi High Court in the case of CIT vs. Dalmia Cement reported in 254 ITR 377 held that expenses incurred by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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