a)The assessee was engaged in the business of running of multiplex cinema halls and shopping malls.With a view to encourage setting-up of multiplex cinema halls and to promote the viewership therein, the State government launched a scheme whereby it offered subsidy to cinema industry. Subsidy was in the nature of exemption from payment of entertainment tax, which is collected from the public.
b)Assessee treated such subsidy as capital receipt.The Assessing Officer (‘AO’) treated such subsidy as revenue receipt on the ground thatsubsidy had been given to the assessee after commencement of its business and operationalization of the multiplex and, further, it was not linked to any of the fixed assets of the company.
c)On appeal, the appellate authorities set aside the order of AO.Aggrieved by the order of appellate authorities, AO filed the instant appeal before the High Court.
The High Court held in favour of assesse as under:
1)The UP Scheme under which the assessee claims exemption to the extent of entertainment tax subsidy, claiming it to be capital receipt, is clearly designed to promote the investors in the cinema industry encouraging establishment of new multiplexes. A subsidy of such nature cannot possibly be granted by the Government directly.
2)Entertainment tax is leviable on the admission tickets to cinema halls only after the facility becomes operational. Since the source of the subsidy was the public at large which was to be attracted as viewers to the cinema halls, the funds to support such an incentive could not be generated until and unless the cinema halls became functional.
3)The purpose of the scheme was to assist the entrepreneur in meeting the expenditure incurred on account of construction of the multiplex as also the actual cost incurred in arranging the requisite equipment installed therein. Therefore, it could not be treated as assistance for the purposes of trade.
4)It was unreasonable on the part of the AO to reject the claim of the assessee about the subsidy being capital receipt as subsidy by its very nature, was bound to come in the hands of the assessee after the cinema hall had become functional and definitely not before the commencement of production.
5)The fact that the subsidy granted was not linked to any particular fixed asset did not make any difference. Thus, the assessee was entitledto treat such subsidy on entertainment tax as capital receipt. - CIT V. BOUGAINVILLEA MULTIPLEX ENTERTAINMENT CENTRE (P.) LTD. 55 taxmann.com 26 (Delhi)