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TMI Blog2014 (5) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... s purpose could not be considered to be other than that of promoting construction of new cinema hall - the source of funds for construction of cinema hall is irrelevant - it would also not matter if the grant would be available after the business has been set up – the observations of the ITAT was correct that the remission had been granted by way of incentive of capital receipts in the construction of cinema building – Following Kalpana Palace Versus Commissioner of Income-Tax [2004 (8) TMI 65 - ALLAHABAD High Court] - the Tribunal was justified in affirming the deletion of addition being the amount of entertainment tax capitalized as subsidy – Decided against Revenue. - D.B. Income Tax Appeal No.144/2007 - - - Dated:- 4-3-2014 - MR. DINESH MAHESHWARI AND MR. BANWARI LAL SHARMA, JJ. Mr. K.K. Bissa, for the appellant Mr. Anjay Kothari, for the respondent ORDER Dinesh Maheshwari, J. This appeal by the Revenue against the order dated 21.02.2007 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur ('ITAT') in relation to the assessment year 2000-01 has been admitted for consideration on the following substantial question of law: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1957 ('the Act of 1957') and held as under: 13 .As per this notification, the assessee is not required to pay any entertainment tax for first five years. Any amount collected under the head entertainment tax and additional tax collected by him, from the date of exhibition of picture in newly constructed cinema house, would amount to subsidy paid by the State Government. This amount has to be treated as a liability being capital subsidy reserve. This amount is not required to be deposited for a period of five years and actually this is a sort of a subsidy, which is to be treated as a capital reserve. The remission for new cinema for remitting entertainment tax payable to new cinema house under construction was formulated by the State Government to assist the assessee for expenditure actually incurred in the construction of a new cinema house for the growth of new cinema building in the public interest without any object of supplementing the trade receipts. The remission has been granted by way of incentive of capital receipts in the construction of new cinema building. The purpose and object of the scheme is very clear and for which certain conditions are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Supreme Court in CIT v. c Chemicals Ltd. [2008] 306 ITR 392; and has also referred to the decisions in CIT v. Chaphalkar Bros. [2013] 351 ITR 309 (Bom.); Dy. CIT v. Inox Leisure Ltd. [2013] 351 ITR 314; and Kalpana Palace v. CIT [2005] 275 ITR 365 in support of his contentions. Having given thoughtful consideration to the rival submissions and having examined the record, we find nothing of error or illegality on the part of the appellate authorities in allowing the questioned amount as capital subsidy; and we are clearly of the view that formulated question deserves to be answered in favour of assessee. It is noticed that in the scheme of the Act of 1957, the levy of entertainment tax is prescribed in sub-section (1) of Section 4 thereof, which is on payment for admission to an entertainment. The said provision reads as under: 4. Levy of tax on payment for admission.- (1) There shall be levied, charged and paid to the State Government on all payments for admission to an entertainment, a tax at such rate not exceeding [100 percent] of the payment for admission, as may be notified by the State Government from time to time, [subject to a minimum of five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples for finding out as to whether a particular income in the form of subsidy is to be treated as capital or revenue receipt have been enunciated by the Hon'ble Supreme Court in the case of Ponni Sugars Chemicals Ltd. (supra) in the following: 14.... The importance of the judgment of this Court in Sahney Steel case (supra) lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o promote cinema houses by constructing multiplex theatres, then irrespective of the fact that the multiplexes have been constructed out of own funds or borrowed funds, the receipt of subsidy would be on capital account. In the light of the aforesaid objects of the Scheme framed by the State Government, the decision of the Income Tax Appellate Tribunal that the amount of subsidy received by the assessee is on capital account cannot be faulted. Accordingly, both the appeals are dismissed with no order as to costs. In Sahney Steel Press Works Ltd. (supra), subsidies were found to have been granted only for the purpose of carrying on business of the assessee and not for the purpose of bringing into existence any new assets and hence, the Hon'ble Supreme Court observed,- 13. In the case before us, subsidies have not been granted for production of or bringing into existence any new asset. The subsides were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee . It is noticed that the case of Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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