9911796707
TMI Blog2002 (4) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... lling expenses has not been pressed for hearing and, therefore, dismissed. 4. The assessee is a private limited company. The Assessee-company derives income from running a cold storage and cinema hall. The Assessing Officer observed that the assessee has credited to General Reserve, Entertainment Tax Subsidy received from the State Government amounting to Rs. 3,42,103.53. The opening balance under this head was Rs. 1,29,965.80 and addition for the year was Rs. 2,18,337. The Assessing Officer required the assessee to explain the nature of the General Reserve and to show cause as to why the entertainment tax collected by the assessee from the public and not paid to the State Government should not be treated as its income. It was explained by the assessee before the Assessing Officer that the assessee was granted subsidy for development of the backward areas where the population was less than 1 lakh. It was claimed before the Assessing Officer that Cinema Halls are the best media of communication and entertainment in these years and with the help of this media the persons residing in those backward areas were made aware of the recent developments of Science and Technology. This is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranslation of the Scheme has also been submitted by the ld. Counsel for the assessee for the sake of convenience at pages 14 to 18 of the Paper Book. It is stated by the ld. Counsel that one of the conditions for grant of subsidy was that Cinema owners will have to run the cinema for four years after the period of subsidy of five years is over. The ld. Counsel also referred to the decision of the Hon'ble Supreme Court in the case of CIT v. P.J. Chemicals Ltd. [1994] 210 ITR 830 and also distinguished the case of the assessee from the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253. According to the ld. Counsel the subsidy given to an assessee to carry on trade is a revenue receipt but the character of the subsidy is to be determined after considering the purpose of scheme. According to the ld. Counsel the quantification of grants-in-aid on the basis of entertainment tax is only a measure to determine the grants-in-aid and it is not a fact that entertainment tax is not payable by the assessee to the Government. The assessee has to deposit Form B (mentioning Entertainment tax) collected by the assessee in the letter box for which keys are in possession of the Entert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of the capital assets by the assessee or for utilizing the subsidy for establishment of capital asset. There is no obligation on the part of the assessee to utilize the subsidy for subsidy for establishment or acquiring a capital asset. The subsidy is given only after the establishment of the cinema and only after the Cinema starts operating. Subsidy is not relatable to investment or construction of the cinema or plant and machinery installed in the cinema. The ld. D.R. referred to page 2 of the Paper Book 11 filed by the assessee and argued that even the new Units which have been earlier set up and entitled to benefit under 1983 Scheme were also entitled to benefit under 1986 Scheme. The Government evolved the Scheme to make the business more profitable in certain areas where the cinema business was not profitable. There is no obligation on the assessee to acquire any capital assets. There is no restriction on the utilization of subsidy by the assessee and the utilization of the subsidy by the assessee is entirely at the discretion of the assessee. The ld. D.R. also referred to the decision of the Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. and mentioned that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, but in the case of the assessee since the Cinema house was established after the Scheme of 1986 came into operation, the subsidy is not taxable because it is a capital receipt. According to the ld. Counsel under the Scheme, the subsidy is not relatable to entertainment tax and entertainment tax is only a measure to determine the amount of subsidy. The counsel stated that it is not correct to say that entertainment tax is not paid under the Scheme because under the Scheme entertainment tax is deemed to have been paid by adjustment. The ld. Counsel stated that in the case of Sahney Steel & Press Works Ltd. sales tax was refunded in subsequent years but in the case of the assessee the entertainment tax is adjusted and deemed to have been paid in the same year against grants-in-aid to the assessee under the Scheme of 1986. The ld. Counsel, therefore, distinguished the case of Sahney Steel & Press Works from the case of the assessee. 9. In the case of M/s. Sharda Chitra Mandit-Ballia [I.T. Appeal Nos. 649 and 1477 (All.) of 1994], Sri Ajit Dhawan, ld. Counsel for the assessee raised the same arguments which have raised in the case of Mudit Refrigeration Industries, Allahabad. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; payable by the concerned Cinema Hall. (d) Fourth year and Onward. No grant (ii) The areas/places according to 1981 census is less than 20,000: (a) First and Second Equal to 10096 of the Entertainment Tax years. payable by the concerned Cinema Hall. (b) Third year Equal to 7596 of the Entertainment Tax payable by the concerned Cinema Hall. (c) Fourth & Fifth Equal to 50% of the Entertainment Tax &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the amount of grant the amount of tax payable. (c) The Cinema owner after deducting the amount of grant from the amount of tax payable will deposit the tax in accordance under section 24 of the Entertainment and Betting Tax within 3 days after the week. (d) It will not be necessary for the Cinema owner to deposit the amount of tax equal to amount of grant but it will be considered that it has been deposited under section 24 of the Entertainment and Betting Tax Rules, 1981. But for reconciliation in Books it will be necessary that with regard to every quarter the cinema owner for every quarter, will submit a consolidated statement after every quarter showing the amount of grant in accordance with rule 209 of Financial Hand Book Sec. 5 part I in the prescribed form 42G and will give the heading "By Consolidated Account of payment along with related G.O. No. and date will get it forwarded by the District Magistrate within 7 days and three copies of treasury challan of the same amount will submit to the Treasury Officer. The cinema owner alongwith the Bill will also submit the sanctioned amount for the quarter and will get the same attested by the District Magistrate while forwardi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al cost of the transport and the issue before the Hon'ble Calcutta High Court was whether such transport subsidy was capital receipt or revenue receipt. In this case the Scheme was available not only to new units but to existing units which had substantial expansion or diversification after the commencement of the Scheme. The ITAT noted in, particular, the mode of computation of the transport charges as the clue to the intention underlying the scheme. The scheme required strict check to ensure actual consumption of the raw materials and finished goods for transport of which the subsidy had been given. It required a system of scrutinizing the consumption of the raw materials and the output of the finished goods. The Tribunal found, that the Scheme was related not only to the transport charges incurred but indirectly also to consumption of raw materials and the ultimate output of the final product. The Tribunal came to the conclusion that the scheme of transport subsidies was in separably connected with the business of transport carried on by the assessee. The transport expenditure was an incidental expenditure of the assessee's business and it was that expenditure which the subsidy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the nature of a subsidy from public funds made to an undertaker to assist in carrying on the undertaker's trade or business are trading receipts, i.e., are to be brought into account in arriving at the balance of profits or gains." The Hon'ble Calcutta High Court in Merinoply & Chemicals Ltd.'s case at page 514 laid down general principle for considering whether the grants-in-aid or subsidy from the Government is taxable or not. The proposition of law laid down by the Hon'ble High Court is an under: "Thus, for determining whether a particular subsidy is taxable or not, the test to be applied is one fairly laid down, viz., The motive behind the grant of subsidy is not conclusive. Factually the case here is different. It is transparent that there is a difference between subsidising the capital outlay and subsidising the running business. Viewed straightforwardly the Tribunal's approach rests on this distinction. To our mind, it is pre-eminently tortuous to argue that there is hardship or entrepreneurial hazard in setting up a new industry in the backward areas. The purpose of the subsidy is to mitigate such hardship. Now mitigation can take two forms--one of the forms may be tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of conduct of the business. What was received by the assessee from the Government was not a capital receipt but a subsidy and, therefore, it was income liable to tax." (225 ITR 394) 14. The decision of the Andhra Pradesh High Court in the case of Sahney Steel & Press Works Ltd. has been affirmed by the Hon'ble Supreme Court. The facts of the case are that under a notification issued by the Andhra Pradesh Government certain facilities and incentives were to be given to all the new industrial undertakings which commenced production on or after January 1, 1969 with investment capital (excluding working capital) not exceeding Rs. 5 crores. The incentives were to be allowed for a period of five years from the date of commencement of production. The incentives available to the new industrial undertakings were: (a) Refund of sales tax on raw material, machinery and finished goods limited by the State Government subject to 10 per cent of the equity capital paid-up in the case of public limited companies and the actual capital in the case of others. (b) Subsidy on power consumed for production to the extent of 10 per cent. (c) Exemption from payment of water rate on water drawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orms part of the public funds of the State. If any subsidy is given, the character of the subsidy in the hands of the recipient--whether revenue or capital will have to be determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as trading receipt. The source of fund is quite immaterial. For example, if the scheme was that the assessee will be given refund of sales tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plant and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be capital receipt in the hands of the assessee. It will not be open to the revenue to contend that the refund of sales tax paid on raw materials or finished products must be treated as revenue receipt in the hands of the assessee. In both the cases, the Government is paying out of public funds to the assessee for a definite purpose. If the purpose is to help the assessee to set up its business or complete a project as in Seaham Harbour Dock Co.'s case (1931) 16 TC 333 (HL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of horses. He received subsidy from the Madras Race Club under a scheme framed by the club under which the pre-condition for claiming a subsidy was that the horses in respect of which subsidy was claimed should have participated in a minimum of four races during the racing season. The subsidy was of an amount equivalent to the basic training fee to the owner, as also the payment of a specified sum per horse per month for the trainers. It was claimed by the assessee that the subsidy so received was of capital nature and did not fall within the revenue field. The Hon'ble Madras High Court applied the decision of Sahney Steel& Press Works Ltd.'s case and as per Head Note held as under: "Held that the income from winnings of horse races is taxable under the head "Income from other sources", in view of the definition of "income" in section 2(24)(ix) of the Income-tax Act, 1961. The subsidy received by the assessee from the race club was a subsidy, which enabled him to continue his operations as a horse owner whether as business or as hobby, and it was conditional upon the participation of the horses in the races run by the club. In the circumstances, the subsidy given must be regarde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admissible be shown separately. For the convenience of the cinema owners, the amounts of grants-in-aid will be adjusted against the amount of entertainment tax payable. For this purpose, the cinema owners are required to submit a statement showing the number of tickets sold during the week, receipt from sale of tickets, entertainment tax payable and the amount of grants-in-aid admissible. The cinema owners are required to deposit only amount of entertainment tax collected after deducting therefrom the amount of grants-in-aid admissible to the credit of the State Government. It is not necessary to deposit entertainment tax equivalent to the amounts of grants-in-aid. To the extent of grants-in-aid, the entertainment tax shall be deemed to have been deposited to the credit of the State Government. The assessee is required to get the bill countersigned by the District Magistrate and submit the same alongwith challan to Treasury Officer for adjustment in Government account. Thus, the assessee is not required to pay entertainment tax to the extent of grants-in-aid admissible under the Scheme but the assessee is entitled to retain the entertainment tax collected from the public and such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of cinema. The grants-in-aid have not been given by the State Government to acquire any asset or against the capital outlay and the grants-in-aid has no connection with assets of the cinema. The assessee is free to utilise grants-in-aid for any purpose as the assessee likes. There is no obligation to utilise the grants-in-aid for the purpose of acquiring any capital asset. The grants-in-aid granted by the State Government sprang from the business carried on by the assessee and the amount of grants-in-aid was received by the assessee by way of adjustment during the course of the conduct of the business. It was a benefit incidental to the business and the grants-in-aid was not intended to be a contribution towards capital outlay of the cinema hall. Therefore, in view of the decisions of the Hon'ble High Courts and Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. the grants-in-aid received by the assessee from the State Government by way of adjustment of entertainment tax which was treated as paid by way of adjustment and retained by the assessee, cannot be regarded anything but a revenue receipt. 24. There is hardship in setting up a new cinema in backward a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case is not applicable. 26. The ld. Counsel Shri Ajit Dhawan also referred to the decision of Bombay High Court in the case of CIT v. Govind Poy Oxygen Ltd. [1999] 239 ITR 543. In this case also the issue involved was whether the central subsidy can be deducted from the cost of the assets for computing the investment allowance. Therefore the issue whether the subsidy received by an assessee is revenue receipt or capital receipt was not considered in this case is also not applicable. 27. Shri G.N. Srivastava, ld. Counsel has relied on the decision of Hon'ble Madhya Pradesh High Court in the case of CIT v. Rajaram Maize Products [1998] 234 ITR 667. But in this case though the issue involved was whether the subsidy was revenue receipt or capital receipt but the decision of the Hon'ble Supreme Court in Sahney Steel & Press Works Ltd's case was not considered. In fact, in editorial note it is mentioned that this decision on the point of subsidy appears to be not in conformity with the Supreme Court decision in Sahney Steel & Press Works Ltd's case. Therefore, the decision of Hon'ble Madhya Pradesh High Court has not considered the decision of Hon'ble Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears under consideration. 35. The assessee has raised ground No. 2 is as under: "2.1 Because the learned Commissioner of Income-tax (Appeals) has erred in law and on facts in upholding an addition of Rs. 18,000 on account of credit appearing in the account of Sri Mohanlal Singh. 2.2 Because the depositor in question had been enjoying income from agriculture and his creditworthiness, for the purposes of making advance of Rs. 18,000 could not have been disputed." 36. During the course of assessment proceedings, the Assessing Officer observed from the list of unsecured creditors that one of the creditor, namely, Sri Mohanlal Singh is agriculturists. In other cases identity and genuineness of cash credit as well as evidence in the form of land records, Khasra and Khatauni were furnished. But in the case of Sri Mohanlal Singh, the cash credit of Rs. 18,000 was shown but the identity, creditworthiness and the genuineness were not established before the Assessing Officer because no evidence regarding his source of income was furnished. Therefore, the Assessing Officer made the addition of Rs. 18,000 to the total income of the assessee firm. 37. In first appeal, the CIT(A) in paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtage. The Assessing Officer disallowed the amount of Rs. 3,000 out of freight and cartage as the expenditure was not verifiable. In first appeal, the CIT(A) confirmed the disallowance. It is argued by the learned counsel for the assessee that the disallowance out of freight land cartage is excessive and should be reduced. The ld. D.R., supported the order of the Assessing Officer.
41. We have considered the facts of the case, rival submissions and the material on record. Neither the Assessing Officer nor the CIT(A) has mentioned the amount of freight charges out of which amount of Rs. 3,000 has been disallowed. Similarly, though the assessee has filed the Paper Book, but details of freight charges have not been given. In the absence of details before us, no ground has been made out for interfering with the orders of the authorities below. The ground of appeal is dismissed.
42. No other arguments have been raised by the assessee's counsel in the case of Ritu Priya, Allahabad in ITA Nos. 2493 (All.)/1992, 1503 (All)/ 1993 and 1889 (All.)/1993, therefore, the appeals of the assessee for all the years are dismissed.
43. In the result, all the three appeals are dismissed. X X X X Extracts X X X X X X X X Extracts X X X X
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