9911796707
TMI Blog2013 (8) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... thodology adopted is to cap it to capital cost of assets will not mean to reduce the cost of asset directly or indirectly in terms of Explanation 10 to Sec. 43(1) - Decided in favour of assessee. - ITA No. 1897/Del/2010 - - - Dated:- 20-4-2012 - Shri R. P. Tolani And Shri A. N. Pahuja,JJ. For the Petitioner : Sh. Anil Chopra FCA Sh. V.K. Garg CA For the Respondent : Sh. Sudesh Garg CIT(DR) ORDER Per R. P. Tolani, J. M :- This is assessee s appeal against CIT(A) s order dated 29-03-2010 relating to A.Y. 2006-07. Following grounds are raised: 1. That the Ld. Commissioner of Income Tax (Appeals) [ld. CIT(A) ] has erred on facts and in law in making an addition of Rs. 2,25,41,765/- in respect of Entertainment Tax (E Tax) excluded from sales, pursuant to grant in aid allowed by the UP State Government as capital subsidy to promote the setting up of multiplex in specified area of the state. The said amount of E Tax, though accepted as capital receipt by the Assessing Officer (Ld. AO), has been treated as revenue receipt by the ld. CIT(A). 2. That the treatment of the said amount of E Tax as revenue receipt as against capital receipt claimed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n erroneous facts and erroneous views and/ or nonappreciation of the facts and law involved. The said claim is neither notional, is a revenue expense and does not constitute a contingent liability. The claim has been incurred and debited to P L a/c as required under binding SEBI guidelines and is admissible in law and there is no provision under the Act against allowance of the same. 9. That the ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs. 34,53,218/- out of interest and indirect expenses u/s 14A in relation to income not forming part of total income. Hardly any expense on the facts involved was incurred for earning of the non-taxable income i.e. dividend on investments. There is no specific identification of any such expenditure for earning of such non-taxable income by the Ld. AO. As such and otherwise too the expenditure assumed or deemed to be incurred on non-taxable income cannot be disallowed. 10. Without prejudice to assessee s ground no. 9 above, the ld. CIT(A) has erred on facts and in law in not deleting the disallowance of Rs. 26,49,794/- in respect of interest said to be indirectly attributable to non-taxable income made by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary licenses for operating cinema halls, vide DM s order Dtd 31-3-2005. The application for Entertainment Tax exemption was duly processed by authorities and vide letter dtd. 16.8.2005, DM Ghaziabad by virtue of powers vested in him by the said scheme granted the eligibility of benefits of exemption of Entertainment Tax to CCPL. 3.1. CCPL management realized that presently they did not have the expertise and wherewithal to operate a highly technical business of multiplexes and approached the assessee which was an established leading brand in multiplexes. Both the parties entered in to a revenue sharing agreement executed on 1-9-2005 effected from 1-4-2005 by which the assessee became operator/proprietor of multiplex business on a lease for 20 years. The agreement obliged the assessee to convert the theatre space into a full fledged, operational multiplex equipped with the latest technology. To make it functional with all the furnishings, equipments, technology and to take all other necessary steps in this behalf. The multiplex license, multiplex operator license, ET subsidy benefits were transferred in the name of the assessee by U.P. Govt. authorities after due processing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as income as returned. The error is hereby rectified. Material facts have been disclosed. The issue involved is a question of law in favour of the assessee. It is settled law that entries in books of account are not decisive of the taxability of receipts, which is to be decided in accordance with correct view in law. Otherwise also the assessee was to be assessed on its correct total taxable income computed under the provisions of the tax and not in accordance with entries in account or a return as filed. 3.3. After considering assessee s explanation, AO held that the grant in terms of waiver of entertainment tax was capital subsidy and an incentive for policy of setting up and operation of permanent cinema halls/ multiplexes during a specific period. Following Hon ble Supreme Court judgment in the case of CIT Vs. Ponni Sugars Chemicals Ltd. (2008) 306 ITR 392, assessee s claim of subsidy being capital in nature was accordingly allowed by AO. 3.4. AO further held that entertainment tax subsidy granted to assessee meant to reduce the actual cost of assets of the multiplex. Therefore, while working out the depreciation, the amount of subsidy was reduced from the actual co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5/- for taxation as revenue receipt. However as an after thought the appellant filed a revised computation claiming the amount of entertainment tax subsidy as capital receipt. (v) The appellant could not give any satisfactory explanation in response to this office notice no. dated 15.02.2010 issued u/s 251(2) of the I.T. Act for enhancement of addition from Rs. 23,04,466/- to Rs. 2,25,41,765/-. There can be no dispute with regard to the fact that the amount collected from customers by way of entertainment tax is of revenue nature. The appellant has been given incentive by the Government for not depositing this amount of revenue/tax. Giving of such incentive cannot alter the basic revenue nature of the amount. The amount of entertainment tax is very much of revenue nature and will remain so even if the appellant has been exempted from making payment thereof to the Government s account. By giving the incentive, the Government has merely reduced the expenses of the appellant. (vi) Considering the facts and circumstances of the case and legal position on the issue, I hold that the amount of Rs. 2,25,41,765/- was a revenue receipt and the same is liable for taxation. I, therefore, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was issued to assessee on 15-2-2010; assessee filed its reply dated 12-3-2010 and again on 19-3-2010. ld. CIT(Appeals) heard the assessee on 19-3-2010 and the order was passed on 29-3-2010. Thus the assessee was not given sufficient time to address the issues which CIT(A) considered in rebuttal of assessee s evidence. Thus assessee could not comply with the issues raised in enhancement. In the absence of proper opportunity to file complete evidence before CIT(A). In these circumstances assessee has no choice but to adduce additional evidence, which it could not file due to no further query by CIT(A). 4.1. Under these circumstances it is justified for assessee to submit this additional evidence before ITAT in order to properly represent its appeal. It is pleaded that in the interest of justice, additional evidence may be admitted. 5. Ld. DR is heard on admission of additional evidence. 6. We have heard rival contentions and gone through the relevant material available on record. In view of the fact that ld. CIT(Appeals) proposed to enhance the assessment and the hearing has been completed within a short time and assessee could not respond to CIT(A)s propositions by way of reb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and such multiplexes cine halls which have an investment of more than Rs. 1.4 Crores and which have at least three cine halls; shall be entitled exemption of Entertainment Tax 100% for the first year and 75% for second and third years. 6.3. Thereafter, in furtherance of incentives to promote setting up of multiplexes exhibiting cinema, another G.O. dated 12-11-2001 was issued, which is as under: Sub. Amendment in G.O. No. 1161/11/KSV-6-99-Twenty- R(12)/98 dated 13.7.99 issued with a view to promote scheme for opening of Multiplexes Cine Halls in the State of U.P. The first para of the scheme reads as under:- Under Film Policy, 1999 the Govt. with a view to promote opening of multiplexes theatres issued a G.O. No. 1161/11/KSV-6-99-Twenty-R(12)2/98 dated 13.7.99. The multiplexes opening under this scheme shall have the provision of granting tax entertainment tax exemption 100% for the first year and 75% each for second and third years. . Various other circulars are placed on record by the assessee. Only main circulars are referred for the sake of brevity. 6.4. From the said G.O., it may be seen that the object of Govt. policy was to promote opening of long te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other resources etc., as per the facts relevant to each separate multiplex was to be invested and carried out by assessee PVR. Leasehold improvements included various items like false ceiling, flooring, plastering, lighting, racks etc. 6.8. The object and purpose of the scheme is to help/ promote the setting up of multiplexes industry and the subsidy is meant to extend the incentive to multiplex industry and not for reimbursing the cost of any specific asset used therein. It is given for promoting the activity of setting up of the multiplexes as distinct from specific asset of the multiplex. The subsidy is granted by state govt. depending not only on commencement of the multiplex but also linked to its operation and attracting viewers. This is so because the purpose of the scheme is to promote cinema policy conceived by U.P. Govt. i.e. establishment of permanent and long term operational multiplexes. 6.9. Coming to the issue of initial application for eligibility and multiplex structure being owned by CCPL and thereafter its transfer to assessee. A legal opinion from Sr. Advocate of Delhi Shri A.N. Haxer, was obtained, the following part elaborately deals with this issue which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders. In G.O. No. 1161(1)/11-KSV-6-99-Twenty- R(12)/98 it was observed that inspite of various promotional schemes, the new cine multiplexes were not being set up in a large numbers as was expected and even the viewer ship in the cine halls had been declining. It was therefore felt that a better scheme to attract investment for setting up modern Multiplex with latest technology was the need of the hour. The Querist, based on such assurance invested in the State of Uttar Pradesh since being a pioneer in the field it alone had the wherewithal to setup multiplexes and being the owner of the well established brand name PVR it could also attract better viewership. In the G.O. No. 2226(11)-T.R.-6-2001-Twenty-R(12)/98-TC dated 12.11.01 it was clarified that The multiplexes theatre where the cost of construction concerning the Cinema Theatre (excluding the cost of construction made for commercial purposes namely shops, hotels, swimming pool etc) (and including the cost of installation of the equipments, furnishing/decoration etc.) has already been obtained before a prescribed period of five years then for remaining period of five years the multiplexes cinemas shall not be entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso to this sub-section] an entertainment tax at such rate not exceeding [one hundred and fifty percent] of each such payments as State Government may from time to time notify in this behalf, and the tax shall be collected by the proprietor from the person making the payment for admission and paid to the Government in the manner prescribed. .. Proprietor under the Act is defined under section 2(m). Section 2(m) is reproduced below: 2 (m) proprietor in relation to any entertainment includes any person (i) connected with the organization of the entertainment, or (ii) charged with the work of admission to the entertainment, or (iii) responsible for, or for the time being in charge of, the management thereof The Querist falls under the said definition of proprietor liable to pay tax under section 3 of the Act. The Querist is the owner of the brand PVR which it has developed with its sole efforts and investment. Even the intention of the parties while entering into the aforesaid Memorandum of understanding was that space in the building would be licensed to the Querist on long term basis and the Querist alone would be responsible for the investment in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of multiplexes and is entitled to E tax subsidy. Further, it is borne out from the certificates that the subsidy is for the promotion of the new multiplexes and to the new multiplexes irrespective of the fact as to in whose name the license is. 7. Learned counsel for the assessee further contends that the observation of the CIT(Appeals) that license and eligibility for subsidy was granted to CCPL Developers Pvt. Ltd. and therefore the assessee was not at all entitled to claim exemption of E. Tax subsidy, is not correct. This objection is fully met by the above opinion which analyses the terms owner, operator, liability, license, transfer, subsidy etc. of entertainment tax etc threadbare. These facts clearly emerge from record that initially though the application for eligibility was filed by CCPL Developers Pvt. Ltd.; as already mention they were not equipped to operate the multiplex theaters. Thereafter by way of a duly executed written agreement dtd 1-9-2005 effective from 1-3-2005 between assessee and CCPL the multiplex structure was transferred to assessee on a lease of 20 years, who transformed the same into a fully functional, modern multiplex. Thereafter both the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment subsidy scheme. (d) The eligibility of subsidy does not devolve only because of ownership. It is the operator/ license holder as defined under the Cinematography Act, 1918, who is eligible for subsidy. The assessee has been recognized as operator/ license holder of the multiplex and has earned the subsidy. The meaning and purport of word operator which has been answered in detail by legal opinion mentioned above. The issue for examination before ITAT is the nature of subsidy and not its eligibility in assessee s hands. The same is unambiguously held by both AO and CIT(A) as assessee s subsidy receipt. 7.2. Ld. counsel then relied on Hon ble Supreme Court judgment in the case of CIT V. Ponni Sugar and Chemicals Ltd. (supra), holding as under: The character of the receipt of subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on revenue acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the achievement of long term object of the scheme. (v) The assessee entered into agreement with CCPL by way of a written agreement, which has been duly scrutinized by U.P. Govt. authorities and has not been challenged in any manner. The written agreement by two unrelated parties and accepted by authorities cannot be called in question. The assessee is held to be operator/ licensee as per the provisions of Cinematographic Act. Accordingly it has been held eligible for license and E. Tax subsidy. The subsidy instalments have been duly released by due verification and in terms of exemption certificate. 7.5. It may be pertinent to mention that after the hearing of this appeal was initially concluded, Bombay High Court judgment dated 8th June, 2011 in the case of CIT Vs. M/s Chaphalkar Brothers, Pune, rendered in ITA nos. 1036 1147 of 2010, came to be notice of the Bench. The judgment was rendered on the same subject matter i.e. entertainment tax subsidy for multiplexes. The appeal was refixed for clarification to enable both the parties to respond to the Hon ble Bombay High Court judgment in the case of M/s Chaphalkar Brothers (supra). 7.6. Learned counsel for the assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o set up a new unit then the receipt of subsidy would be on capital account. 4. In the present case, as noted by the Income Tax Appellate Tribunal, the object of granting entertainment duty subsidy by the State Government was as follows: 1. As a result of the onslaught of Cable Television and advertisement in the field of Information Technology, the average occupancy in cinema theatre has fallen considerably and hardly any new theatres have been started in the recent past. Public at large these days prefer to see movies at home. Keeping in view this scenario, a concept of Complete Family Entertainment Centre, more popularly known as 'Multiplex Theatre Complex' has emerged. These Multiplex Theatre Complexes offer various entertainment facilities for the entire family under single roof. However, these complexes are highly capital intensive, their gestation period is also quite longer, and therefore, need Government support and incentive in entertainment duty. 2. Government has, therefore, with a view to commemorate birth centenary of Chitrapati late Shri V. Shantaram, decided to grant concession in entertain duty to Multiplex Theatre Complexes to promote construction of new ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions framed including the issue of Sales Tax incentive being a capital receipt. It is pleaded that the order of Mumbai Special Bench in the case of Reliance Industries Ltd. has not been stayed by Hon ble Supreme Court, therefore it is still binding on ITAT. It is thus vehemently pleaded that in view of Hon ble Supreme Court judgment in the case of Ponny sugar and chemicals, Bombay High court in the case of Chaphalkar Bros and Mumbai Special Bench in the case Reliance Industries Ltd., (supra) the assessee s claim about Entertainment Tax subsidy being capital in nature deserves to be allowed. 7.10. Ld counsel in support of his contentions relies on following judgments holding that Govt. subsidy provided for opening of new cinema theatres is capital in nature: - CIT v. Pramod Kumar Shukla (2009) 312 ITR 223 (All.); - Sharda Chitra Mandir Vs. ITO (2008) 301 ITR 230 (All.); - Kalpana Palace Vs. CIT (2005) 275 ITR 365 (All.) - Sadichha Chitra v. CIT 189 ITR 774 (Bom.) 7.11. Reliance is also placed on following judgments holding subsidy received in connection with promotion of opening of new units of other industries is held to be capital in nature: - CIT v. M/s Udupi Builde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... showed that the incentive granted by the State was a capital receipt in the hands of the assessee. The fact that the amount of subsidy would be disbursed on proof of relevant expenditure incurred/taxes paid, did not indicate that the amount paid as subsidy, was a revenue receipt. 7.12. Adverting to the objection of Ld CIT(A) about assessee having entered the amount of subsidy in the books and original return as revenue receipt, ld counsel contends that it is trite law that entries in books are not decisive for ascertaining the tax liability of any receipt. The same is to be decided on the basis of real nature of the receipt, thus an entry in a/c books does not work as an estoppels against the assessee. The income is to be offered to tax on the basis of real nature and purport of the receipt. Reliance is placed on: - Kedarnath Jute Mfg. Co. Ltd. Vs. CIT (1971) 82 ITR 363 (SC); Held: Assessee following mercantile system of accounting was entitled to deduct from the profits and gains of its business liability to S.T. which arose on sales made by it during the relevant previous year that liability did not seize to be liability because the Assessee had taken proceedings before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 (All); CIT (Addl.) v. Sahay Properties and Investment Co. P. Ltd. [1983] 144 ITR 357 (Patna); Kala Rani (Smt.) v. CIT [1981] 130 ITR 321 (P H); Saiffuddin v. CIT [1985] 156 ITR 127 (Raj); Madgul Udyog v. CIT [1990] 184 ITR 484 (Cal); Maharani Yogeshwari Kumari v. CIT [1995] 213 ITR 541 (Raj); CIT v. General Marketing and Manufacturing Co. Ltd. [1996] 222 ITR 574 (Cal) and CIT v. Krishna Lal Ajmani [1996] 222 ITR 653 (Patna) approved. Mysore Minerals Ltd vs CIT 239 ITR 775 (SC). Hon ble Supreme Court has held that for Income Tax Law, the word ownership is not limited to only written conveyance. If the conduct of parties shows the intent of an effective transfer, such transfer amounts to constructive ownership which can entitle a person to receive the income from such property. 7.14 Ld counsel contends that assessee satisfies all the tests as laid down by Hon ble Supreme court in Ponny sugars (supra) : i. The assessees case succeeds on purpose test i.e. the purpose of scheme was to promote cinema industry by setting up of modern and permanent multiplexes. ii. The point of time of disbursing subsidy is not relevant, in assesses case the subsidy comes in instalments in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, such much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.] 9.1 Hon ble Supreme court in the case of CIT v P J Chemicals Ltd after considering a catena of judgments on this issue rendered by various courts interpreted the scope of this provision as under : Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of depreciation should not be reduced by such subsidy. It has been specifically held that the word actual cost should be liberally interpreted. 9.2 In present case also the subsidy in question is in continuation of earlier new cinema hall promotion scheme which did not respond properly. Thus the new scheme was promulgated by U P Govt. to promote the industry of cinema by new method i.e. opening modern, log term operational multiplexes when earlier schemes for promotion of cinemas failed to be operational due to cable TV. The incentive are provided for the purpose of cinema industry as a whole and not for any specified asset directly or indirectly. 9.3 Further reliance is placed on the following judgments which have followed Hon ble Supreme Courts judgment in P J Chemicals holding that the amount of such subsidy will not directly or indirectly reduce the cost of any asset: i) CIT v Himachal Eng. Co 301 ITR 116 (HP) ii) CIT v KCA Ltd 283 ITR 65 (BOM) iii) CIT v Swastik Sanitary Works 286 ITR 544(GUJ) 9.4. In all these cases it has been held that respective subsidies were not given to meet the cost of any asset directly or indirectly, consequently it will not reduce th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... setting up of an industry which in instant case means setting up of multiplex, cannot be considered to be attributable to the cost of any asset directly or indirectly acquired for such multiplex. 10. Apropos ground no. 7 in respect of ESOPS/ESPS ld counsel for the assessee contends that the ESOP payable being in the form of incentives to employees is an allowable business expenditure even though not paid. Hon ble Supreme Court in the case of Woodward Governor 312 ITR 254 has held that the term expenditure in sec. 37 means an amount which is a loss even though the said amount has not gone out from the pocket of the assessee. Similar view has been adopted in SSI LTD V CIT 85 TTJ 1049(Chennai). 10.1 However it is conceded that Delhi ITAT in the case of Ranbaxy Lab. Ltd V Addl. CIT 124 TTJ 771 and Mumbai ITAT in the case of VIP Ind. Vs DCIT 2010-TIOL-654 has taken a view that such unpaid expenditure is not allowable. 10.2. Apropos the last issue i.e. ground nos. 9 10 pertaining to disallowance of expenses u/s 14A, ld. counsel contends that the disallowance has been made by applying Rule 8D which was applicable from A.Y. 2008-09 onwards and not in this year. Therefore, the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment of CCPL and PVR, therefore, the subsidy has been claimed by the assessee in unauthorized manner. B. Actual relationship between CCPL PVR: (i) CCPL constructed the multiplex and thereafter entered into a MOU with PVR for operating this multiplex. The MOU itself indicates that CCPL claimed itself to be the recipient of eligible subsidy. Therefore, the subsidy in fact admissible to CCPL and not the assessee. . (ii) The assessee has derived the subsidy not by way of own entitlement but by way of revenue sharing agreement from the CCPL, which has diverted its benefit to assessee. This is further apparent from the fact that supplementary agreement dated 1-9-2005 refers to revenue sharing agreement wherein minimum guarantee was fixed between parties at Rs. 7.5 lacs per month for first 30 months; Rs. 5.5 lacs per month from next 31st to 60 months; and then Rs. 3 lacs per month from 61st month onwards plus 4% of revenue net of entertainment tax. Reference is made to paras 4 and 5 of the supplementary agreement, which indicate that the subsidy benefits were commercially shared between CCPL and PVR and corporate guarantee was issued in favour of CCPL to bear all consequences. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of incentive sugar were required to be utilized for repayment of term loan. This was the reason which persuaded the Hon ble Supreme Court to decide the subsidy as capital, being linked to the repayment of loan which is capital in nature. (ii) The Hon ble Supreme Court was, therefore, absolutely clear that the amounts were held as capital only because the subsidy was to be utilized for repayment of loans. This is not the situation in the present case as there is no obligation on either PVR or CCPL to utilize the money/ subsidy in any specified manner. (iii) The perusal of the aforesaid judgment in true context reveals that the Hon ble Supreme Court was mentioning the purpose test with respect to the purpose for which the subsidy was utilized. In the case of the appellant, the purpose of subsidy is to help setting up and running of multiplexes. The appellant has not made investment of Rs. 9,53,38,000/- in the multiplex and it has been involved in only running of the multiplex. The running of multiplex is quite obviously a revenue related purpose. Further unlike in Ponni Sugar case there is no restriction on the usage of money retained by the appellant on account of relief fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to allow entertainment tax subsidy u/s 43B, ld. DR contends that assessee has claimed that even if a subsidy is held to be revenue even then also it is not taxable on account of sec. 43B as deemed payments should have been considered to have been made. It has relied on the judgment in the case of J.B. Boda Co. Ltd. 223 11.2. The appellant s argument is totally misconceived as section 43B is not an enabling section to claim an expenditure. This section provides an additional filter before allowing certain expenses mentioned in that section. It may be noted here that the assessee did not debit entertainment expenditure in its books of account nor the AO made any disallowance by invoking section 43B. The cases cited by the appellant are also in totally different context and for different sections and situations and, therefore, they are not applicable to the appellant s case. 11.3. Since the assessee has not debited the expenditure, the deduction u/s 43B can be availed on assumption. It can be claimed only when the assessee has debited the expenditure to its P L A/c, which is not a statutory deferment of the expenditure. In this case there is no statutory deferment, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave no legs to stand. 12.1. Apropos the decision of Hon ble Bombay High Court M/s Chapalkar Brothers (supra), it is contended that it completely covers and clinches the issue in favour of the assessee. Bombay Entertainment Duty Act is in parimateria with the U.P. Entertainment Tax Act and the definition clauses are by and large same. Ld. DR except endeavoring to create some doubts has not been able to demonstrate as to why Hon ble Bombay High Court judgment should not be followed. 12.2. Ld. counsel apropos rejoinder on ground 6 contends that the assessee filed first appeal before ld. CIT(Appeals) pleading that the subsidy was not given directly or indirectly to reduce the cost of any asset, therefore, depreciation should not have been reduced. Ld. CIT(Appeals) on hearing the appeal of the assessee held that the subsidy was revenue in nature and therefore the explanation becomes inapplicable. However, in order to hold the subsidy as revenue in nature, ld. CIT(Appeals) himself has held that subsidy is not granted to meet the cost of any asset. 13. We have heard rival contentions and gone through the relevant material available on record. We propose to decide the various issues, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he consequent subsidy will be revenue in nature only. (iii) The assessee in the original return had offered the amount as revenue receipt. In our considered view as the facts emerge, the multiplex scheme of the U.P. Govt. came by way of amending rules of the earlier Cinematographic Act. Earlier the incentives were given for construction of new cinema halls and by new scheme it was given for construction of multiplexes. (iv) In the cases of Pramod Kumar Shukla; Sharda Chitra Mandir; Kalpana Palace; and Sadichha Chitra (supra), such type of subsidy for construction of new cinema halls, has been held by Hon ble Allahabad and Bombay High Court to be capital in nature. (v) In our view the Hon ble Supreme Court in the case of Ponni Sugars Chemicals Ltd. (supra) has laid down the tests which are mentioned herein above. Looking at them, the basis of the scheme is very important to determine the nature of subsidy. The new scheme of multiplex under Cinematographic Act and the fact that earlier the new cinema halls construction subsidy was held to be capital in nature fortifies our view. (vi) Due to onslaught of cable television, there being steep decline of cinema viewers, Govt. de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s case (ix) The issue is further clinched by Hon ble Bombay High Court in the case M/s Chapalkar Brothers (supra), which has clearly held the subsidy given for construction of multiplexes to be capital in nature and merely because it was linked to entertainment subsidy and not with repayment of loans, cannot be held to be revenue in nature. (x) Facts in the case of Sahney Steel Press Works Ltd. Vs. CIT (1997) 228 ITR 253 (SC), relied on by ld. DR, are on different footing. In that case incentives were production incentives in the sense that assessee was entitled to such incentives only after it went into production. The scheme was not to make any payment directly or indirectly for the setting up of the industries. It was only after the industries had been set up and production had been commenced that the incentives were to be given. On these facts, the Hon ble Court held that amounts received were production incentive and operational subsidies and not capital subsidies. Subsidy payment were held to be revenue in nature. The facts being distinguishable to assessee case, ratio of Ponni Sugar Chemicals is applicable to assessee s case. (xi) In view of direct judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13.6. In view of these facts and circumstances, we hold that E. Tax subsidy was not given to meet the cost of any specific asset. Our view is further fortified by the coordinate Bench judgment in the case of Sasisri Extractions Ltd. (supra) in which case incentive subsidy received for setting up of new unit for manufacture of edible oils was held to be not meant to directly or indirectly reduce the cost of any asset, only because the amount of subsidy was linked with the capital cost of assets. 13.7. In view of Hon ble Supreme Court judgment in the case of P.J. Chemicals Ltd. (supra); ITAT Vishakhapatnam Bench judgment in the case of Sasisri Extractions Ltd. (supra) and the department itself proposed that there was no obligation on assessee to utilize it for any specific purpose will not be hit by Explanation 10 to Sec. 43(1). We are, therefore, of the view that entertainment subsidy being for the promotion of cinema/ multiplex industry; only because the methodology adopted is to cap it to capital cost of assets will not mean to reduce the cost of asset directly or indirectly in terms of Explanation 10 to Sec. 43(1). This ground of the assessee is allowed. 13.8. Coming to the ..... 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