Income Tax Appellate Tribunal - Allahabad
Mudit Refrigeration Industries (P) ... vs Assistant Commissioner Of Income Tax ... on 24 April, 2002
Equivalent citations: [2003]84ITD289(ALL), (2003)80TTJ(ALL)259
JUDGMENT
1. Since all the appeals involve some common questions of law and facts, all the above mentioned appeals were heard together and for the sake of convenience all the appeals are consolidated together.
Mudit Refrigeration Industries (P) Ltd., Allahabad, ITA. No. 2446/All/1992 Asst. yr. 1990-91
2. The appeal is directed by the assessee against the order of the CIT(A) dt. 7th Sept., 1992. The following grounds of appeal have been taken :
"1. Because the CIT(A) is not at all justified in including the Entertainment Tax subsidy received by the assessee as revenue income since it was a capital receipt, not liable to tax.
2. Because the subsidy by its very nature could not have been treated as income and the inclusion of Rs. 2,18,337 in the computation of income is erroneous in law and on the facts of the case."
3. The third ground of appeal relating to the addition of Rs. 2,000 out of travelling 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 AO 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 AO 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 AO 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 AO that cinema halls are the best media of communication and entertainment in these areas 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 purpose of national interest and for achieving this purpose, the State Government has granted subsidy or grants-in-aid. The assessee, therefore, claimed before the AO that subsidy granted by the State Government is not a revenue receipt and relied on certain decisions which have been mentioned by the AO in his order. It was also explained before the AO that there are various methods for quantifying the amount of subsidy. In the case of the assessee, entertainment tax paid was considered as the basis for quantification of the amount of subsidy. But the method of quantifying the amount of subsidy will not affect the very nature of the subsidy, which is a capital receipt. The assessee also relied on Circular No. 142, dt. 1st Aug., 1974, before the AO. The AO referred to the decision of the Supreme Court in the case of V.S.S. Meenakshi Achi and Anr. v. CIT (1966) 60 ITR 253 (SC) and came to the conclusion that the collection of entertainment tax by the assessee is a revenue receipt. Therefore, the AO made the addition of Rs. 2,18,837 to the total income.
5. In first appeal, the assessee raised the same arguments before the CIT(A) which were raised before the AO and also referred to certain decisions of the Tribunal mentioned in para 3 of the CIT(A)'s order. The CIT(A) referred to the decision of Calcutta High Court in the case of Jeewanlal (1929) Ltd v. CIT (1983) 142 ITR 448 (Cal) and the decision of the Supreme Court in V.S.S. v. Meenakshi Achi's case (supra) and came to the conclusion that the AO was justified in treating the sum of Rs. .2,18,837 being the entertainment tax collected but not paid by the assessee to the Government, as a revenue receipt. The CIT(A), therefore, confirmed the order of the AO, hence the assessee is in appeal before the Tribunal.
6. It is argued by the learned counsel for the assessee that the subsidy was given by the Government for the purpose of development of cinema. The learned counsel referred to the scheme of the Government relating to the grants-in-aid for the promotion of establishment of new cinema in certain specified areas. The scheme was circulated by the Government vide No, 30 EB-6(15)-ITT (Ma. Ka.) Anubhag, dt. 21st July, 1986. Copy of the scheme in hindi has been submitted in the paper book pp. 1 to 4. English translation of the scheme has also been submitted by the learned counsel for the assessee for the sake of convenience at pp. 14 to 18 of the paper book. It is stated by the learned 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 learned 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 (SC) and also distinguished the case of the assessee from the case of Sahney Steel & Press Works Ltd. Etc. Etc. v. CIT (1991) 228 ITR 253 (SC). According to the learned 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 learned 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 entertainment tax department within half an hour of the start of the show. The cinema deposits collection of entertainment tax weekly within three days after the end of the week. But under the scheme, the cinema is to prepare a statement as per para 5(b) of the scheme. The entertainment tax kept by the assessee-cinema under the scheme will be deemed to have been deposited after getting approval of the District Magistrate as per para 5(d) of the scheme. Therefore, it is not correct to say that the assessee has not paid the entertainment tax. The assessee is to forward the relevant vouchers to the treasury officer. The learned counsel for the assessee has also filed a copy of certificate dt, 30th Jan., 1989, placed at p. 9 of the first paper book filed by the learned counsel, showing that the District Magistrate issues certificates to a cinema owner in connection with the grants-in-aid. The learned counsel also referred to the decision of Bombay High Court in the case of CIT v. Menezes Farmaco (1999) 236 ITR 780 (Bom) in support of his arguments that grants-in-aid given by the Government in the form of entertainment tax, which is treated as paid by adjustments is a capital receipt. The learned counsel emphasized that the scheme under which grants-in-aid is given to the assessee is applicable to cinema hall established after 1st Jan., 1983 or granted licence during 1st Jan., 1984 to 31st March, 1990, as per para 4 of the scheme. The learned counsel pointed out that the scheme is applicable to only those cinema houses which have been granted subsidy under the scheme of 1983 and to whom licence has been granted from 1st Jan., 1984 to 31st March, 1990. This scheme is not applicable to all the cinema houses and the old cinema houses are not eligible for the grants-in-aid under this scheme. The scheme is applicable to new cinema houses only for the purpose of development of new cinema houses and according to the learned counsel it is actual receipt in the hands of new cinema houses. The learned counsel also distinguished the case in 142 ITR 558 (Cal) (sic) and stated that the facts of that case were distinguishable from the facts in the case of the assessee. The learned counsel also pointed out that the assessee was granted licence after 1986 and started business in 1988. The learned counsel also referred to certain decisions of the Tribunal.
7. The learned Departmental Representative argued that the subsidy is a capital receipt if the subsidy is given for acquisition 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 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 learned Departmental Representative referred to p. 2 of the paper book II 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 learned Departmental Representative also referred to the decision of the Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. (supra) and mentioned that this case was entirely on a different issue. This case relates to issue whether subsidy received by an assessee should be deducted out of the capital cost of the asset and not relevant to the case of the assessee. The learned Departmental Representative relied on the following Supreme Court decisions :
1. Sahney Steel & Press Works Ltd.'s case (supra); and
2. CIT v. Rajaram Maize Products (2001) 251 ITR 427 (SC) The learned Departmental Representative stated that like sales-tax, entertainment tax is also a trading receipt, and since entertainment tax is a trading receipt, it is to be credited to the P&L a/c and deduction can be claimed only when the same is actually paid to the Government. The assessee has not paid the entertainment tax to the Government and, therefore, the assessee is required to credit the entertainment tax to the P&L a/c. According to the learned Departmental Representative, therefore, entertain (sac-entertainment) tax is a trading receipt. In the case of Sahney Steel & Press Works Ltd. (supra), the refund of sales-tax paid on purchase of machinery was considered as a revenue receipt. The refund of sales-tax was in respect of plant and machinery but even then the Hon'ble Supreme Court held that the subsidy which is in the nature of sales-tax is a revenue receipt. In the case of Sahney Steel & Press Works Ltd. (supra), the assessee has already deposited sales-tax in 1971 and subsidy was received in 1973. In the case of the assessee, no deposit of entertainment tax has been made by the assessee. According to the learned Departmental Representative, the intention of the scheme was to allow the subsidy for running the business and not for construction of the cinema house or acquisition of the capital asset. Subsidy was given after cinema house came into existence. Scheme of 1986 was applicable even to the existing cinema houses which shows that the subsidy was not given for acquiring any capital asset by the cinema owners. According to the learned Departmental Representative, the decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) is fully applicable and retention of entertainment tax by the assessee by way of grants-in-aid by the State Government under 1986 scheme is a revenue receipt.
8. In reply, the learned counsel stated that the cinema house in the case of the assessee came into existence in 1988 after the scheme of 1986 was announced by the Government. The counsel agreed that in the case of pre-existing cinema houses prior to the scheme of 1986 subsidy is taxable, 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 learned 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 learned counsel stated that in the case of Sahney Steel & Press Works Ltd. (supra) 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 learned counsel, therefore, distinguished the case of Sahney Steel & Press Works (supra) from the case of the assessee.
9. In the case of Sharde Chitra Mandir, Ballia (ITA Nos. 649 and 1477/(A11)/1994), Sri Ajit Dhawan, learned counsel for the assessee raised the same arguments which have been raised in the case of Mudit Refrigeration Industries, Allahabad.
10. We have considered the facts of the case, rival submissions and the material on record. The Government of Uttar Pradesh vide letter No. 30EB-6(15)/85-Vitta (Ma. Ka.) Anubhag, dt. 21st July, 1986, addressed to all district magistrates announced the expansion of scheme to sanction additional incentive and grant to promote construction of permanent cinema halls within a specified period. Earlier an incentive scheme was announced by the Government on 17th Sept., 1983 and that scheme was modified and extended by the scheme of 21st July, 1986, mentioned above (hereinafter referred to as July, 1986 scheme). Under the July, 1986 scheme, the cinema house is entitled to grants-in-aid if the cinema halls are constructed at a place having population of more than 20,000 but less, than 1 lakh and site plan was submitted on 1st Jan., 1983, or thereafter and applications for licence have been submitted from 1st Jan., 1984, to 31st Dec., 1985. The scheme was applicable to cinema halls, and cinema halls were entitled to grants-in-aid under the July, 1986 scheme as under :
"(i) The areas/places according to 1981 census the population is more than 20,000 but less than 1 lac :
Amount of giant
(a) First year Equal to 100 per cent entertainment tax payable by the concerned cinema hall.
(b) Second year Equal to 75 per cent of the entertainment tax payable by the concerned cinema hall.
(c) Third Year Equal to 50 per cent of the entertainment tax 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 year Equal to 100 per cent of the entertainment tax payable by the concerned cinema hall.
(b) Third year Equal to 75 per cent of the entertainment tax payable by the concerned cinema hall.
(c) Fourth & Fifth year Equal to 50 per cent of the entertainment tax payable by the concerned cinema hall.
(d) Sixth year and onward.
No grant.
The above grants, under this scheme will be applicable to new permanent cinema halls and will be admissible on the condition when the concerned cinema hall will keep their admission rate including entertainment tax only Rs. 5. The permanent halls availing the facility in accordance with G.O. dt, 17th Dec., 1983 prior to issue of this Government order, can avail this facility on the condition that they fix the rate of admission including entertainment tax Rs. 5 only and avail the facility.
It is restricted that such cinema hall which lies in the area/place whose population according to census of 1981 is upped 20,000 and is availing the facility in accordance with Government order dt. 17th Sept., 1983, will avail the facility of grant upto 4 years only.
4. The benefit of above grant will be admissible to those permanent cinema halls which have been granted licence from 1st Jan., 1984 to 31st March, 1990, on the condition that site plans of cinema hall have been submitted for approval/sanction on 1st Jan., 1983 or thereafter provided that if any cinema hall was running earlier to issue of G.O., dt. 17th Sept., 1983, and later on closed due to any reason, then that cinema hall either in old name/or with any other name desires to seek licence in the same premises, this facility will not be admissible to him.
Under this Government order of July, 1986, the grants-in-aid under the scheme is payable to the owner of the cinema hall after the approval of the same by the District Magistrate concerned and subject to the conditions mentioned in para 5(a) to (e) as under :
"(a) The owner of the cinema hall will maintain the income of each show in accordance with Entertainment and Betting Tax Act in prescribed form 'B' and during the period of grant, the payable amount will be shown separately. The Cinema will have to abide by all the conditions laid down under Rule 8 of the U.P. Entertainment and Betting Tax Rules,
(b) To facilitate the cinema owner the amount of grant will be reconciled with the tax amount, for this purpose the owner will prepare a statement after every week-detailing the amount received by the sale of tickets, tax payable on general rate, the amount of grant payable as given in para 3 above and after deducting 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 with Section 24 of the Entertainment and Betting Tax Rules 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 Rule 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, will submit a consolidated statement after every quarter showing the amount of grant in accordance with Rule 209 of Financial Hand Book, Section 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 along with the bill will also submit the sanctioned amount for the quarter and will get the same attested by the District Magistrate while forwarding the bill will also forward the above detail and treasury Challan. Thus, on the basis of forwarded bill the treasury officer will not make the payment in cash but will adjust the same under head "245 vastuo tatha sewaon per anya kar aur shulk - Ayojanetar anya vyaya naya cinema grihon ke nirman ki protsahan ke liye jane hetu/sahayak anudan/rajya sahayata/anshadan" and will deposit the same as tax. The forwarded enclosures will work as voucher.
(e) The cinema owner will abide by the orders issued from time to time by the prescribed authority in accordance with Entertainment and Betting Tax Act, 1979, and Rules 1981,"
11. Now the question arises whether the subsidy or grants-in-aid under July, 1986 scheme in the form of exemption from paying the entertainment tax in certain proportion as mentioned above from 1st to 5th year subject to certain conditions is a revenue receipt or capital receipt. It is clear from the scheme notified by the State Government vide Notification No. 30-EB-6(15)/85-Vitta (Ma. Ka.) Anubhag, dt. 21st July, 1986, that the cinema owners were entitled to grants-in aid or subsidy from the State Government where the applications for licence to construct cinema have been submitted from 1st Jan., 1984 to 31st March, 1990, on the condition that the site plans for cinema halls have been submitted for approval/sanction on 1st Jan., 1983 or thereafter subject to certain conditions. One of the conditions was that cinema hall will charge the maximum admission rates including entertainment tax of not more than Rs. 5. Therefore, the cinema halls constructed under the scheme are eligible for grants-in-aid from State Government under the scheme but, if any cinema hall was running earlier to issue of Government order dt. 17th Sept., 1983 and later on closed due to any reason, then that cinema hall, as in old name or with any other name desires to seek licence in the same premises, this facility of grants-in-aid will not be admissible to it. The issue whether grants-in-aid or subsidy received from the Government is revenue receipt or capital receipt has been considered by the Hon'ble High Courts and Hon'ble Supreme Court.
12. In the case of Merinoply & Chemicals Ltd. v. CIT (1994) 209 ITR 508 (Cal), the fact of the case were that the assessee was. engaged in manufacture and sale of plywood and block board. The assessee received transport subsidy at the rate of 50 per cent of the actual 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 Tribunal 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 inseparably 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 recouped and the purpose of recoupment was to make up possible profit deficit for operating in a backward area. Therefore, the subsidies were inseparably connected with the profitable conduct of the business and the Tribunal held that the transport subsidy, represented receipt of revenue nature. The decision of the Tribunal was confirmed by the Hon'ble Calcutta High Court. This decision was also followed by the Calcutta High Court in the case of Sarda Plywood Industries Ltd. v. CIT (1999) 238 ITR 354 (Cal). In this case, the Hon'ble Calcutta High Court also considered the decision of the Andhra Pradesh High Court in the case of CIT v. Sahney Steel & Press Works Ltd. (1985) 152 ITR 39 (AP). In the case of Sahney Steel & Press Works Ltd. (supra), the Hon'ble Andhra Pradesh High Court in respect of sales-tax refund received by the assessee under a Government order issued by the State Government of Andhra Pradesh held that the payment would constitute the income of the assessee. As the assessee had a right and was entitled to recover the incentives through a Court of law, the refund allowed was inseparably connected with the business carried on by the assessee. The benefits were available only from the date the industrial undertaking commenced production and, for a period of five years. There was no room or basis for dissociating the subsidy from the business of the assessee. as the subsidy was given for setting up and development of business and not for any other unrelated purpose. The subsidy granted was also to attract industries to enhance employment potential, economic prosperity and income of the State. The decision of the Andhra Pradesh High Court in the case of Sahney Steel &. Press Works Ltd. (supra) has been affirmed by the Hon'ble Supreme Court. The Hon'ble Calcutta High Court also considered the basic question, that is, whether the subsidy is intended artificially to supplement the trading receipts, so as to enable the recipients to maintain their trading solvency, if so, there is no escape from taxation by pleading that the receipt in any case should be capital since its purpose is promotion or growth of industries in backward areas or creation of employment in less attractive zones of industrial operation. In this case, the Hon'ble Calcutta High Court also considered the observation of Viscount Simon in IRC v. Corporation of London (1953) 34 Tax Cases 293 at p. 328 as under :
"Payments in 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 (supra) at p. 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 that the very capital outfit is subsidised either wholly or partly out of the public fund. There is no question to be asked as to whether such subsidy should be a capital receipt. But where the subsidy is meant to fill the whole or the shortfall in the return from the industry so set up as recompense for undertaking the unknown risks and odds in establishing industries in backward areas, the subsidy would definitely be in the form of replenishment of the profit to remove its deficiency attributable to the backwardness of the areas where the industry operates. In both the cases, the entrepreneur is meant to be assisted by lending financial support so that the industry so set up can stand on its legs and overcome the handicap.
Where the subsidy is a one-time support by supply of part of capital, the subsidy cannot come in for taxation as revenue but where it is a recurrent recoupment of profit insufficiency it has but to be treated as a payment for augmentation of the revenue of the undertaking set up."
13. In the case of CIT v. Udaya Pictures (P) Ltd. (1997) 225 ITR 394 (Ker), the facts of the case were that the assessee was a private limited company engaged in the business of production of cinematographic films. During the accounting year relevant to the asst, yr. 1979-80, the assessee had received a sum of Rs. 37,500 as subsidy from the Kerala State Government for producing new regional films. In the return filed by the assessee, this amount was shown as a capital receipt but the CIT invoked the powers available under Section 263 of the IT Act, 1961, for enhancing the assessment. The CIT accordingly directed the ITO to include the subsidy of Rs. 37,500 in the total income of the assessee. Being aggrieved by the order of the CIT, the assessee filed an appeal before the Tribunal, The Tribunal ultimately held that the subsidy received by the assessee is not taxable. The Hon'ble High Court also considered the ratio laid down by the Hon'ble Andhra Pradesh High Court in the case of Sahney Steel & Press Works Ltd. (supra) and reversed the decision of the Tribunal and held as/under, as per head note (supra) :
"Held, reversing the decision of the Tribunal, that the entitlement to the subsidy sprang from the business carried on by the assessee and the amount was received during the 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."
14. The decision of the Andhra Pradesh High Court in the case of Sahney Steel & Press Works Ltd. (supra) 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 1st Jan., 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 from sources not maintained at the cost of Government or any local body.
(d) Refund of water rate in respect of water drawn from a Government source or from a source maintained by any local body but returned purified to it.
The Hon'ble Supreme Court considered the salient features of the scheme formulated by the Andhra Pradesh Government was that the incentives were not available, unless and until production had commenced. The availability of the incentives would be limited to a period of five years from the date of commencement of production. The incentives were to be given by way of refund of sales-tax and also by subsidy on power consumed for production, etc. Refund was also provided for water rate in respect of water drawn from Government sources. The important point noted in this case was that all the incentives were production incentives in the sense that the assessee will be entitled to these only after it goes into production. The scheme was not to make any payment directly or indirectly for the setting up of the industries. It is only after the industries had been set up and production has been commenced that the incentives were to be given. The Hon'ble Supreme Court considered that the manner in which incentives were given is of no consequence for determining the question whether the subsidy was revenue or capital receipt. The refund of sales-tax was in respect of taxes levied after commencement of production and upto a period of five years from the date of commencement of production. The Hon'ble Supreme Court held that it is difficult to hold these subsidies as anything but operational subsidies. These subsidies were given to encourage setting up of industries in the State of Andhra Pradesh by making the business of production and sale of goods in the State more profitable.
15. In the case of Sahney Steel & Press Works Ltd. (supra), the Hon'ble Supreme Court at pp. 262 and 263 held as under:
"It is not the source from which the amount is paid to the assessee, which is determinative of the question whether subsidy payments are of revenue or capital nature. The first proposition stated by Viscount Simon in Ostime's case (1946) 14 ITR (Suppl) 45 (HL) is that if payments in the nature of subsidy from public funds are made to the assessee to assist him in carrying on his trade or business, they are trade receipts. The sales-tax upon collection forms 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 Tax Cases 333 (HL), the monies must be treated as having been received for a capital purpose, But if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade."
16. In the case of Jagapathy Art Pictures v. CIT (1999) 240 ITR 625 (Mad), the facts of the case were that the assessee received subsidy from the Government of Andhra Pradesh for the production of Telegu films. Under the subsidy scheme subsidy was paid to the producer only after the picture has been certified by the Central Board of Film Censors. The Tribunal held that it was a revenue receipt. The Hon'ble Madras High Court as per head note held as under':
"Held, that the subsidy was not paid during the course of the production and was not meant to assist the producer in financing the movie which was filmed in the State. The payment made to the assessee was in the circumstances merely a supplementary trade receipt, the assessee's eligibility for receiving the subsidy being the prior production of the picture in the State of Andhra Pradesh and its certification by the Central Board of Film Censors. The amount paid to the assessee was not an amount paid to assist the assessee to make the movie and it had not been utilised for the purpose of making the movie. The subsidy amount was paid only to encourage people like the assessee to choose Andhra Pradesh as the locale for their movies. Therefore, the Tribunal was right in holding that the amount of subsidy of Rs. 1 lakh received by the assessee from the Government of Andhra Pradesh was a revenue receipt and taxable as such."
17. In the case of CIT v. Chhindwara Fuels (2000) 245 ITR 9 (Cal), the assessee received sales-tax subsidy from the Government. The subsidy was granted to the assessee as sales-tax refund after commencement of production. Hon'ble Calcutta High Court followed the decision of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) and held that since the. sales-tax subsidy was received after production commenced in the industry of the assessee, the same could not be treated as capital receipt and was not exempt from tax.
18. In the case of Dr. M.A.M. Ramaswamy v. CIT (2000) 245 ITR 478 (Mad), the facts of the case were that the assessee was the owner 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 (supra) 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 IT 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 regarded as assistance given by the race club for the purposes of enabling the owner of horses to earn income from other sources. It was revenue receipt."
19. In the case of Tamilnadu Sugar Corporation Ltd. v. CIT (2001) 2511TR 843 (Mad), the assessee received purchase tax subsidy from the State Government, The assessee returned the same as part of its income and claimed that the same be excluded in the computation of the total income, since the subsidy paid was for setting up of sugar factories. Again the Hon'ble Madras High Court followed the decision of Sahney Steel & Press Works Ltd.'s case (supra) and held as under:
"Held, dismissing the petitions, that under the scheme subsidy equivalent to the quantum of purchase tax was given to the sugar factories for a period of five years from the date of the commencement of production. The subsidy was given by way of assistance to the sugar factories on the commencement of production and it was not given for setting up of the factories and the subsidy was given only to tide over the difficulties that, may be experienced by the management in the actual running of the sugar factories. The subject behind the grant of subsidy was not to set up a new sugar factory, but to run the factory efficiently. In other words, the subsidy was given so that the management may not be in trouble in the running of the sugar factories in initial years. The measure of payment of subsidy was also closely interlinked with the purchase of sugarcane by the factory which showed that the subsidy was granted for the continuous running of its business and not for the setting up of the sugar factory. Therefore, the amounts constituted revenue receipts."
20. The decision of the Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) and the following decisions are squarely applicable to the case of the assessee :
1. Udaya Pictures (P) Ltd.'s case (supra);
2. Jagapathy Art Picture's case (supra);
3. Chhindwara Fuels case (supra);
4. Dr. M.A.M. Ramaswamy 's case (supra); and
5. Tamilnadu Sugar Corporation Ltd.'s case (supra).
21. In. the case of the assessee the entertainment subsidy is given for 4-5 years taking into account the population of the area. Where permanent, cinema hall is constructed the cinema owners are required to file/maintain the details of income of each show in the prescribed form in accordance with Entertainment and Betting Tax Act/Rules where the amount of tax and the amounts of grants-in-aid 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 along with 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 entertainment tax is deemed to have been paid to the credit of the State Government after the procedure is followed by the assessee.
22. The entertainment tax is retained by the assessee to the extent of grants-in-aid or subsidy from the State Government, the aggregate of such grants-in-aid or subsidy in the hands of recipient-whether revenue or capital will have to be determined by having regard to the object and purpose for which the grants-in-aid/subsidy is given as per test laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) and other High Courts in the cases cited above. If the grants-in-aid are given by way of assistance to an assessee in the carrying on of his trade or business, it has to be treated as a trading receipt and the source of funds is quite immaterial, Phraseology employed by the State Government under the scheme mentioned in the notification dt. 20th July, 1986, would not make any difference in the nature of receipt. The document of notification must be construed upon reading the same in its entirety. The object or purpose in framing the scheme cannot be deciphered only from the preamble, heading or subject mentioned in the notification.
23. The grants-in-aid or subsidy to cinema owners is admissible only after the commencement of the business and during course of running of the business. The grants-in-aid is admissible for a period of 4 or 5 years calculated from the date of commencement of cinema business and the subsidy is not given to meet cost of any asset or against capital outlay of the cinema hall. It is only when the assessee had set up a cinema hall and commenced business that grants-in-aid were given for the limited period of 4 or 5 years. Entertainment tax is the basis for determining the grants-in-aid being only a measure adopted under the scheme to quantify the financial aid given to cinema owners for overcoming financial difficulties. In view of these features of the scheme, it is clear that the object of assistance under the scheme was to enable the assessee to carry on cinema business more profitably. It is difficult to hold that grants-in-aid given by the State Government are anything but purely subsidies. The grants-in-aid are given by the State Government for the purpose of making the business of cinema more profitable in the backward areas to assist the assessee in carrying on the business 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. .(supra) 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 areas. The purpose of grants-in-aid under the scheme is to mitigate such hardship. The grants-in-aid is intended to fill the shortfall in the return from the business of cinema so set up as a recompense for undertaking the unknown risk and odds in establishing cinema in backward areas. The assistance by the State Government is to support the cinema hall so set up so that they can stand on their own legs and overcome the handicaps. Therefore, grants-in-aid are given for augmenting the revenue of the cinema hall and is to be considered as revenue receipt.
25. The learned counsel for Mudit Refrigeration Industries, Allahabad, Shri Ajit Dhawan relied on the decision of Hon'ble Bombay High Court in the case of Menezes Farmaco (supra). In this case the issue before the Hon'ble Bombay High Court was whether the central subsidy received by the assessee can be deducted from the actual cost of the asset for the purpose of calculating depreciation. In this case the Hon'ble Bombay High Court followed the decision of Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. (supra) and held that the amount of central subsidy cannot be deducted from the actual cost for calculating depreciation. The question whether the subsidy was revenue receipt or capital receipt was not before the Hon'ble Supreme Court in the case of P.J. Chemicals Ltd. (supra). The issue before the Supreme Court in Sahney Steel & Press Works Ltd.'s case (supra), on the other hand, was whether the subsidy received by the assessee from the Andhra Pradesh Government was taxable as revenue receipt or not. Therefore, the issue before us in the case of assessees before us is whether the grants-in-aid received by the cinema owners is capital receipt or revenue receipt and the tests laid down by the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra) for determining whether grants-in-aid received by the cinema owners is 'taxable as revenue receipt are applicable. Therefore, the ratio laid down by the Bombay High Court in Menezes Farmaco's case (supra) is not applicable. The learned counsel also referred; to the decision of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. (supra). In this case the issue whether the cash assistance received by the exporters from the Government is revenue receipt or not was involved. The facts in this case are totally different from the facts in the case of the assessee and, therefore, the ratio laid down in this case is not applicable.
26. The learned 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, (Bom). 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, learned counsel has relied on the decision of Hon'ble Madhya Pradesh High Court in the case of CIT vs.. Rajaram Maize Products (1998) 234 ITR 667 (MP). 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 (supra) 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 (supra). Therefore, the decision of Hon'ble Madhya Pradesh High Court has not considered the decision of Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. (supra), which is applicable to the case of the assessee.
28. We may also mention that the Tribunal, A-Bench, Allahabad, in the case of ITO v. Arvind Kumar, ITA No. 1042/(All)/1992 for the asst. yr. 1989-90 after consideration of two cases of this Tribunal and the decisions of the Hon'ble Courts came to the conclusion that the subsidy given by the State Government with reference to entertainment tax is a revenue receipt.
29. Therefore, on the issue of subsidy, the appeal of the assessee fails. No other ground was pressed for hearing.
30. In the result, ITA No. 24467All is dismissed.
(i) ITA Nos. 649 and 1477/All/1994 (Sharda Chitra Mandir, Ballia).
(ii) ITA Nos. 841 and 1479/All/1994 (Narayanai Bhrigu Ashram, Ballia).
(jii) ITA Nos. 932 and 1967/All/1994 (Rajshri Palace, Ballia).
(iv) ITA No. 1465/All/1994 (Shyam Palace, Ballia) and
(v) ITA Nos. 34 and 1131/All/1995 (Raj. Palace, Mau).
31. In the aforesaid appeals, the only common issue pressed was whether the entertainment tax retained by the assessee to the extent of grants-in-aid or subsidy from the State Government is a revenue receipt or capital receipt. We have decided above this issue in the case of Mudit Refrigeration Industries (supra), against the assessee and in favour of the Revenue and for the detailed reasons given above in paras 10 to 28, this issue is decided against all these assessees and in favour of the Revenue.
32. No other ground was pressed or argued in the aforesaid appeals.
33. In the result, ITA Nos. 649 and 1477/All/1994; 841 and 1479/All/1994; 932 and 1967/All/1994; ITA No. 1465/All/1994; 34 and 1131/All/1995 are dismissed.
ITA Nos. 2493/All/1992 and 1503 and 1889/All)/1993--Asst. yrs. 1990-91, 1991-92 and 1992-9334. The common ground in all these three appeals is whether the entertainment tax retained by the assessee to the extent of grants-in-aid or subsidy from the State Government is a revenue receipt or capital receipt. We have decided above this issue in the case of Mudit Refrigeration Industries, (supra) against the assessee and in favour of the Revenue and for the detailed reasons given above in paras 10 to 28, this issue is decided against the assessee and in favour of the Revenue for all the three years under consideration.
35. The assessee has raised ground No. 2 which is as under:
"2.1 Because the learned CIT(A) 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 AO observed from the list of unsecured creditors that one of the creditor namely, Sri Mohanlal Singh is agriculturist. 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 AO because no evidence regarding his source of income was furnished. Therefore, the AO made the addition of Rs. 18,000 to the total income of the assessee-firm.
37. In first appeal, the CIT(A) in para 8.2 held as under:
"8.2 I do not agree. The AO has clearly mentioned that necessary evidence in the form of land records, Khasra and Khatauni in this regard have not been produced. The identity, creditworthiness and the genuineness of transaction has not been satisfactorily explained. In the circumstances, the addition is in order towards unexplained cash credit."
38. We have heard the learned counsel for the assessee as well as the learned Departmental Representative. The learned counsel for the assessee has stated that other creditor has filed confirmatory, letter regarding the loan given by him which is placed at p. 13 of the paper book. The learned counsel, therefore, argued that cash credit of Rs. 18,000 should be treated as genuine. On the other hand, the learned Departmental Representative supported the order of the AO and, contended that there is no evidence to show the source of income of Sri Mohanlal Singh.
39. We have considered the facts of the case, rival submissions and the material on record. The assessee has filed photo copy of confirmatory letter dt. nil signed by one Sri Mohanlal Singh. It is stated in the confirmatory letter that he has given loan of Rs. 18,000 to Ritu Priya. It is stated that this amount was received by him from the sale of potato at Nagpur. The letter of Sri Mohanlal Singh does not at all prove genuineness of the cash credit of Rs. 18,000. There is no evidence to show the source of income of Shri Mohanlal Singh and how he received the sale proceeds of potatoes belonging to three persons whose addresses have not even been given by him. It is necessary for the assessee to prove prima facie the transaction which results in cash credits in its books of account. Such proof includes proof of identity of the creditor, capacity of the creditor to advance money and the genuineness of the transaction. These things must be proved prima facie by the assessee. Merely establishing the identity of the creditor is not enough. It is not possible to say without verification that even the letter of Sri Mohanlal Singh is genuine. Therefore, the assessee-firm has failed to prove the genuineness of cash credit, creditworthiness of Shri Mohanlal Singh and genuineness of the transaction. There is no case for interfering in orders of the authorities below. This ground of appeal is also dismissed.
40. The third ground of appeal is against the disallowance of Rs. 3,000 out of freight and cartage. The AO 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 and cartage is excessive and should be reduced. The learned Departmental Representative supported the order of the AO.
41. We have considered the facts of the case, rival submissions and the material on record. Neither the AO 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.