Income Tax Appellate Tribunal - Pune
V N Sarpotdar vs Income-Tax Officer. on 6 March, 1987
Equivalent citations: [1987]23ITD22(PUNE)
ORDER
Per Shri V. S. Gaitonde, Accountant Member - ITA No. 770 is filed against the order of CIT, Pune, under section 263 of Income-tax Act for assessment year 79-80, dated 16-8-1984. The only point in dispute is regarding the character of tax-in-aid receipts. ITA No. 1527 is against the order of CIT (A), Pune dated 3-7-85 for assessment year 1981-82 involving the same point. ITA No. 745 is against the order of CIT (A), Pune dated 23-3-85 for assessment year 1982-83. The point in appeal is the same apart from the point regarding amortization. As we have decided the question regarding amortization in assessees own case in ITA No. 1526/PN/85 dated 12-3-86 (assessment year 79-80), for reasons given therein we set aside the order of CIT (A) and ITO on this point for assessment year 1982-83 with a direction to readjudicate on the issue in terms of Rule 9A (9), after hearing the assessee.
2. On the main question, Sri Joglekar explained the basic facts. The assessee is a film producer of Marathi pictures. Such producers facts considerable hardships compared to producers of Hindi, Tamil or Telugu films. To mitigate the hardships the Govt. of Maharashtra sanctioned a scheme for granting of assistance, out of the entertainment tax collected from the picture of the producer from the earlier films. The objective was to promote production of better films in Marathi generally as also to help production of Marathi coloured film in preference to black and white films. Rules provided for grant of certificate of eligibility for assistance under the scheme, to the extent of entertainment tax actually collected and credited to Govt. on the exhibition of a Marathi film produced by the same producer and exhibited in Maharashtra, during the immediately preceding financial year less service and collection charges. Another condition was that the producer would produce a new film against the production cost of which alone the assistance would be released in four instalments. Certain ceilings were also prescribed.
3. In accordance with the above scheme, the assessee received amounts as below :
Assessment Year Rs.
1979-80 3,27,588 (+) 1,50,000 1981-82 3,50,000 1982-83 1,00,000 For the earlier years and for 1979-80 ITO had accepted the contentions but for assessment year 1979-80 CIT revised the order under section 263. A technical objection was raised that the action of CIT was not in terms of his initial notice. We do not however find any merit in this objection as it is accepted that the assessee was fully apprised of all the facts likely to be used in the proceedings and that the assessee was not disabled in any manner in presenting his case.
4. Sri Joglekar contended that these are not supplementary trading receipts as alleged by CIT relying on Agra Chain Mfg. Co. v. CIT [1978] 114 ITR 840 (All.) and Jeewanlal [1929] Ltd. v. CIT [1982] 10 Taxman 180 (Cal.) Sri Joglekar submitted that this assistance is on par with Central subsidy given to industries in backward areas and held to be capital receipts vide CBDT Circular No. 142 dated 1-8-1974. He further pointed out that on an earlier occasion, that Govt. had exempted grants-in-aid of a similar nature (page 50 of compilation). Sri Joglekar was however good enough to admit that a representation made to CIT, Bombay City III having jurisdiction over film circle Bombay was turned down (pages 32-49 of compilation). Sri Joglekar conceded that the issue has been decided against the assessee by the Tribunal in Sadichha Chitra {IT Appeal Nos. 1065 and 1226 (Bom.) of 1981, dated 24-3-1981} (pages 62, 68 of compilation). He however contended that the matter requires review in the light of certain aspects of facts and law not considered by the Tribunal.
5. In the case of a film producer, although the film is for technical purposes treated as stock-in-trade it is in reality a property which always remains with the assess though the prints of the film would be circulated for commercial exploitation. The film becomes stock in trade only after obtaining the Censor Certificate. As the entire tax-in-aid is received during the production of the film and prior to the stage when the film becomes ready for commercial exploitation, the receipts get the stamp of capital receipts. In Sadichha Chitras case (supra), the Tribunal has not fully examined these aspects and has placed undue reliance on V.S.S.V. Meenakshi Achi v. CIT [1966] 60 ITR 253 (SC). This was a case of cess levied on rubber and allowed to be utilised for maintaining rubber plantation. The Tribunal has observed that the counsel has not brought out any specific reason for not applying the ratio of the Meenakshi Achis case (supra). Expenditure on on maintenance of plantation is revenue expenditure. The same cannot be said about the grant-in-aid which is provided during the production of the film before it becomes the stock-in-trade. Sri Joglekar took us through the various stages of production of the film and the forms used for applying for sanction of benefit of the scheme in support of this contention.
6. Sri Joglekar then referred to other case law. In Karam Chand Thapar & Bros. (P.) Ltd. v. CIT [1971] 80 ITR 167 (SC), it is held that "ordinarily" compensation for loss of office or agency is regarded as capital receipt. It is for the Income-tax department to establish that a particular case falls under the exception. This has not been done by revenue. The Tribunal has decided Sadichha Chitras case (supra) by applying only one test viz. connection of the receipt with the business. This is too broad an approach to come to grips with the special facts applicable to assistance of the type received by the assessee. The earlier grants exempted by income-tax authorities were doubtless ad-hoc grants but from that fact alone it cannot be said that the character of receipt has changed. Amount given for applying capital for film production is thus capital receipt.
7. Sri Joglekar next pointed out that ratio of Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473 (Bom.) is not applicable to the facts of the case as it dealt with subsidy for making up the loss on sales made and on production. Similarly ratio of H. R. Sugar Factory (P.) Ltd. v. CIT [1970] 77 ITR 614 (All.) is not applicable as it was a concession on cess leviable on cane crushed up to a particular period. This case law was referred by CIT (A) for deciding against the assessee.
8. In reply the departmental representative supported the decision of the authorities below. In the case of production of film the fact that the film constitute stock-in-trade cannot be disputed. Both CBDT Circular 6 dated 25- 2-87 (page 19 of compilation) and Madras High Court judgment in CIT v. Modern Theatres Ltd. [1963] 50 ITR 548 state in no certain terms the commercially accepted principle that notwithstanding the retention of one original copy by the assessee the film itself is intended for total commercial exploitation, at the end of which, there is little token value left. This is the reason why depreciation allowed on capital assets is not allowed on film. Amortization under rule 9A is allowed only as a special case on stock-in-trade because the life of the film after a particular period is illusory. The old scheme of ad-hoc grants is not be mixed with the present scheme which goes directly to reduce the cost of the film. Unlike the old adhoc scheme, which had an element of uncertainty resulting in disability on the producer to budget for the new film in anticipation of ad-hoc grants, is the new scheme is available only to old producer for the 2nd or later films and is directly linked to the cast of production of the film, though with certain ceiling etc. which provide only a scale of grant and which do not change the character. The subsidy is different from the central subsidy for backward areas which are available to new industries as % of the cost of machinery etc. (capital assets) installed. The ratio of CBDT Circular regarding industrial subsidy is thus clearly inapplicable.
9. It would be a naivete to argue that the Sadichha Chitras case (supra) was decided by the Tribunal in the particular ways on account of the failure of the counsel. The Tribunal has taken note of all the aspects including other case law. The Bombay High Court judgment in Dhrangadhra Chemical Works Ltd.s case (supra) is clearly applicable to the facts of the case. Similarly V.S.S.V. Meenakshi Achis case (supra) is correctly applied. The fact that the aid is being received in installments during the production of the film is no ground for holding that it is capital receipt being contribution of capital for the film. Th ratio of Karam Chand Thapar & Bros. (P.) Ltd.s case (supra) applies in case of managing agencies which are normally not treated as capital assets. The question of proving the exception by the revenue does not arise in the case of production of films as stock in trade. The other distinction made by Sri Joglekar (vide para 7) is a distinction without difference.
10. As an alternative Sri Sathe contended that this receipt falls as business receipt under section 28(iv). In reply to our query that 28(iv) may apply only to items whether convertible into money or not, and that there is no question of conversion of cash Sri Sathe referred to Kerala High Court judgment in CIT v. Forbes, Ewart & Figgis (P.) Ltd. [1982] 138 ITR 1 (FB) where similar words in section 40A (5) have been taken as including cash payments. He also referred to Metal Rolling Works (P.) Ltd. v. CIT [1983] 142 ITR 170 (Bom.) regarding nature of import entitlement, as also the other case law on the point viz.
CIT v. Commonwealth Trust Ltd. [1982] 135 ITR 19 (Ker.) (FB) CIT v. Kanan Devan Hills Produce Co. Ltd. [1979] 119 ITR 431 (Cal.) CIT v. Manjushree Plantations Ltd. [1980] 125 ITR 150 (Mad.) CIT v. Mysore Commercial Union Ltd. [1980] 126 ITR 340 (Kar.) Sri Sathe admitted that CIT v. Alchemic (P.) Ltd. [1981] 130 ITR 168 (Guj.) gives a contrary view.
11. In his rejoinder Sri Joglekar stated that as positive film alone is exhausted, the original negatived which is not parted is capital asset and the subsidy is given primarily for producing the negative i.e. capital asset. Whilst admitting that Modern Theatres Ltd.s case (supra) does hold film as stock in trade, Sri Joglekar referred to an earlier decision in Gemini Pictures Circuit Ltd. v. CIT [1958] 33 ITR 547 (Mad.) where films is treated as capital asset. According to him ratio of Karam Chand Thapar & Bros. (P.) Ltd.s case (supra) still applies to the facts of the case CBDT Circular No. 142 gives a view on the nature of receipt in the form of subsidy and does not rest wholly on the reason that industrial subsidy is capital only because it is given for the first time and that too on the basis of cost of machinery. Regarding 28(iv) Sri Joglekar relied on Alchemic (P.) Ltd.s case (supra).
12. We have examined the facts and arguments. From the subsidy scheme explained to us it is clear that it is provided as an incentive to a film producer to continue to produce quality films. The salient feature of the scheme as per resolution dated 28-1-1975 & other resolution & rules as under. The scheme has come into effect from 1st April 1975. For the purpose of the scheme the word "producer of Marathi film" is defined under clause 1(2) to mean an person who is shown as such on the certificate granted to that film by the Film Censor Board in relation to a Marathi film produced and exhibited in Maharashtra, who is domiciled in the State of Maharashtra for a period not less than 15 years, and who has been actively connected in any capacity with the production of Marathi film in Maharashtra for a period not less than three years prior to the date of his application under these rules. This clearly indicates that the benefits of the subsidy scheme are available only to those persons who are already in this line for at least three years prior to the date of application. The clause regarding certificate of eligibility shows that the producer is eligible to get a certificate of eligibility for a sum of money equivalent to the total amount of entertainment duty actually collected and credited to Govt. on the exhibition of a Marathi film produced by him and exhibited in the State of Maharashtra, during the immediately preceding financial year, less service and collection charges as may be prescribed from time to time. Thus before getting any subsidy or grant the producer must have already producer a film and it is only with reference to entertainment duty actually collected and credited to the Govt. of that film which would be the basis in granting subsidy or grant for the next film produced by the producer. The amount of subsidy or grant varies as per clause 4(iv). The subsidy or the grant is given during the completion of the next film of the producer in four installments and the last installment is releases only after the new film is censored and actually released.
Thus the basis of the grant as well as mode of paying it is to enable the producer to keep on producing films which are in the nature of stock in trade. The scheme therefore is clearly for keeping the producer in the business and in that sense the amount constituted supplementary receipts of the trade. In this behalf the decision of the Bombay High Court in the case of Dhrangadhra Chemical Works Ltd. (supra) is relevant wherein the Bombay High Court has held as under :
"it is well settled that where subsidies or grants are given by the Govt. to assist a reader in his business, they are, generally speaking, payments of a revenue nature. They are supplementary trade receipts and not capital payments although the might be called advances or might be subject to contingency of repayment."
13. Even assuming that the original negative remains with the producer, as the negative is not an end in itself but a starting point for the production of the real thing required for commercial exploitation, the activity of the assessee producer must be taken as production of films as stock in trade. The case law regarding compensation, as to be examined with care as pointed out by the departmental representative as it is applicable to cases where something is lost and one has to see whether what is lost creates a gap in the capita structure. In the case before us nothing is lost by the assessee. The assistance is thus not in the nature of compensation. What is received is an incentive for producing quality film, which being stock in trade give to the subsidy unmistakable stamp of revenue receipt. The various facts have been fully examined in the Sadichha Chitras case by the Tribunal following the ratio of V.S.S.V. Meenakshi Achis case (supra) there is thus no reason to depart from he same. The case law and circulars relied upon by the assessee have been fully distinguished by the department representative as discussed above. We accordingly hold that the impugned receipts bear the imprint of trading business receipts and taxable as such. We also accept the departmental representatives contention regarding taxability in terms of section 28(iv) for reasons canvassed by him. The decision of the authorities is confirmed.
14. Appeal for 79-80 is treated as partly allowed and other appeals (for 81- 82 and 82-83) are dismissed.
Per Shri T. A. Bukte, Judicial Member - I have carefully gone through the order of the learned Accountant Member. I have already agree with him on ground No. 1 of the appeal, i.e. on amortization. However, I dissent on the point of adding capital receipt as revenue receipt. In short, the issue is whether the tax-in-aid is a capital receipt or a revenue receipt.
2. The assessee is a Marathi film producer. He received the following amounts from the tax-in-aid scheme of the Maharashtra Government Resolution dt. 28-1-1975 and other resolutions and Rule made thereunder dt. 19-2-1975 and other rules. The Maharashtra Government intended to promote the production of Marathi films especially the colour films which are lagging behind for want of capital to be invested in the production :
Asstt. Year Amount Rs.
1979-80 5,77,588 1981-82 3,50,000 1982-83 1,00,000
3. The test to be applied for determination of the issue is propounded in the case of National Cement Mines Industries Ltd. v. CIT [1961] 42 ITR 69 (SC). The Bombay High Court has also laid down a similar test in the case of CIT v. Mahindra & Mahindra Ltd. [1973] 91 ITR 130 and in the case of Bombay Burmah Trading Corpn. Ltd. v. CIT [1971] 81 ITR 777. The Bombay High Court has considered the capital receipt and the real nature of the revenue receipt. It is held that if the ownership of the asset remains with the assessee, it is a capital asset and if ownership of the asset passes to the user, it is a stock-in-trade.
4. The assessee has received the aid for production of the negative film of the picture which remains his property for ever. Therefore, the ratio in the case of Gemini Pictures Circuit Ltd. (supra) becomes applicable. It is held in the case of Gemini Picture Circuit Ltd. that the negative film is a capital asset. The learned departmental representative, Shri K. A. Sathe has relied on and cited the judgment in the case of Modern Theatres Ltd. (supra). This judgment deals with the positive film and distinguishes itself from Gemini Pictures Circuit Ltd.s case (supra).
5. In the case of Sadichha Chitra, the Bombay Bench has relied on the decision of Supreme Court in V.S.S.V. Meenakshi Achis case (supra). In that case, the assessee could not give any reason for its non-applicability. the learned advocate of the assessee Shri G. N. Joglekar in the present case has explained that the expenditure on maintenance of the rubber estate is clearly revenue expenditure and its reimbursement falls in the revenue income category. Therefore, according to him, the ratio of V.S.S.V. Meenakshi Achis case (supra) is not applicable to the assessees case.
6. The subsidies were given to make up the losses in the cases of Dhrangadhra Chemical Works Ltd. (supra) and H. R. Sugar Factory (P.) Ltd. (supra) and therefore, those receipts were held as revenue receipts. The assessee, case is distinguishable on facts from those cases as the subsidy was not given to him to make up the loss but to promote the Marathi colour films. If subsidy would not have been given on promote the production of films then the assessee would not have been in a position to produce the films. Thus, there is a distinguishable point between the assessees case and those cases.
7. The assessee has treated cost of the film as capital asset and accordingly he has shown in the balance sheet. Thought it would not be necessary because of showing as capital receipt in the balance sheet to hold it as a capital asset and that it is not conclusive but relevant as per ratio of the judgment in Karam Chand Thapar & Bros. (P.) Ltd. v. CIT [1971] 82 ITR 899 (SC). One more point is also necessary to consider that provisions of sec. 28(iv) are not applicable to money received as held by the Gujarat High Court in Alchemic (P.) Ltd.s case (supra).
8. There is no presumption of remaining the original negative with the producer, but in fact it remains with him. Without negative, positive film cannot be brought into existence, thought the negative is a starting point for the production of the real thing required for commercial exploitation. In my opinion, the assistance is in the nature of subsidy for acquisition of capital asset for producing a quality film. The negative cannot become the stock-in-trade. Sometimes, the assessee would be required to pay taxes earlier than the subsidy received in his hands. Under no circumstances such an occasion should arise.
9. In view of distinction between Sadichha Chitra and the assessees case, I am of the opinion that the decision of the authorities below requires to be interfered on this point. The assessee succeeds on the point of capital asset and the appeals are partly allowed.
REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961.
We have tried our best through mutual discussions etc. to arrive at an agreed decision. We have, however, found ourselves in respectful disagreement with each other. Accordingly, we refer to the learned President under sec. 255(4) of the Income-tax Act, 1961, the following question :
"Whether the amount received by the assessee from the Government of Maharashtra in terms of its resolution dt. 28-1-1975 and the rules made thereunder, bears the character of capital receipt or revenue receipt ?"
THIRD MEMBER ORDER.
Per Dr. S. Narayanan, Vice President (WZ) - These three appeals concern the assessment years 1979-80, 1981-82 and 1982-83. The issue involved in these appeals is a common one. And that is, whether the tax-in-aid payment received by the assessee, a film producer, from be Government of Maharashtra is taxable as revenue receipt or is outside the tax net as a capital receipt. A point of difference to be noticed here is : For the assessment year 1979- 80, the ITO had accepted the assessees case that the receipt in question was not a revenue receipt. But the Commissioner of Income-tax, Pune later reopened the matter under sec. 263 of the Income-tax Act, 1961; and for the reason staged by him in his order dt. 16-8-1984, he set aside the assessment directing the ITO to bring to tax the tax-in-aid receipts (hereinafter referred to simply as "subsidy") referable to that assessment year in the de novo assessment to be made.
2. As regards the assessment years 1981-82 and 1982-83, the ITO himself brought to tax the subsidy referable to these assessment years. In further appeal, the Commissioner (Appeals) confirmed the action of the ITO; and hence the assessee is in appeal on the question of taxability of the subsidy for all the three years.
3. The above three appeals were heard by a Bench of the Tribunal on 10-2- 1986. The learned Accountant Member who wrote the leading order was of the view that the subsidy was rightly brought to tax by the Department. The learned Judicial Member disagreed. In his view, the subsidy was of a capita nature and could not be brought to tax as a revenue receipt. The President has thereupon referred the following point of difference for decision by a Third Member :
"Whether the amount received by the assessee from the Government of Maharashtra in terms of its resolution dt. 28-1-1975 and the rules made thereunder, bears the character of capital receipt of revenue receipt ?"
This is how the matter has come up before me.
4. Shri G. N. Joglekar, learned Counsel for the assessee, placed strong reliance on the order of the learned Judicial Member. He pointed out that the assessee has been and continues to be a producer of Marathi films. For the films produced by him he does not act as the distributor or exhibitor. He enters into a separate agreement with distributor for exploitation of the film and except for the first positive film ("print") which he has to take out for getting the certificate of exhibition form the Board of Censors, the assessee does not take out prints for exhibition. Shri Joglekar referred to the details of the Scheme under which the Maharashtra Government came to grant the subsidy. He also distinguished on facts the decisions relied upon by the learned Accountant Member to argue that the conclusion recorded by the learned Accountant Member was not correct. An important point stressed by Shri Joglekar was that the assessee produces only what is called the "negative". This is the ultimate product of the assessees time, effort and money. It was to aid and supplement the cost of production of this article, i.e. the negative of a Marathi film that the above subsidy became payable to the assessee. this negative always remains the property of the assessee. It is never sold. It is the distributor who always incurs the cost of making out the prints from the negative, as stipulated in the agreement between the distributor and the assessee. The cost of taking out such prints has to be borne by the distributor. The assessee did not exploit the prints on his own at any time. It is the distributor who, with his separate arrangements with exhibitors, exploits the market value of the prints. In other words, Shri Joglekars essential submission was that the subsidy given to the assessee was for meeting the cost of acquiring a capital asset and which asset having always remained the property of the assessee, there was no case for taxing the subsidy as a revenue receipt. In this regard, he emphasized that the cost of production of the negative had never been debited to the trading account. Until the picture is completed, the progressive expenditure is shown as work-in-progress on the assets side of the balance sheet. After production is complete, the value of the negative is shown as an asset in the balance sheet. In fact, he invited my attention to page 100 of the paper book wherein the cost of production of the picture "Laxmi" - subsidy received by the assessee towards the cost of production of this picture is the subject of assessment and dispute in these three appeals-has been shown on the assets side of the balance sheet at Rs. 4,34,611 as on 31-3-1978. Shri Joglekar also referred to various decisions which, in his view, supported the order of the learned Judicial Member. He referred in particular to a decision of the Bombay Bench of the Tribunal in Fifth ITO v. Sarvodaya Films [1983] 4 ITD 320. In that case, the Tribunal had noted the decision in H. Mohammed & Co. v. CIT [1977] 107 ITR 637 (Guj.) wherein it was pointed out that a stock-in- trade was something in which a trader dealt whereas a capital asset was something with which he dealt. The Tribunal had held in that case that the assessee therein (a distributor of films) who had acquired rights of distribution of six pictures during the relevant accounting year had acquired a capita asset, but that this asset had a very short life and that hence the method of accounting followed by the assessee-no profit or loss was brought into the accounts until the collections made on the films covered the cost of acquisition-was realistic and consistent with such short life. The Tribunal went on to hold that the asset held by the assessee could be considered to be "plant" and hence eligible in any case for the relief of balancing charges u/s. 32(1) (iii) of the Act. Finally, Shri Joglekar submitted that after all the subsidy had behind it the idea of strengthening the weak financial base of Marathi film producers. If that was the intention of the Government, there was no point in interpreting the taxing statute in such a manner as to wholly defeat that object. By taxing the subsidy, a good portion of the subsidy would be taken away, thus restoring more or less the status quo ante. Surely, (Shri Joglekar contends) interpretation should not proceed on such wholly inequitable and unrealistic lines.
5. Shri A. Roy, Departmental Representative, opposed the above submissions. He placed strong reliance on the order of the learned Accountant Member. He also referred in particular to the decisions referred to in the order of the learned Accountant Member in support of the conclusion recorded by him. According to Shri Roy, the negative produced by the assessee was not the end- product. It was an intermediate product. This negative as such had no value. Nor was the assessee in the business of selling negatives. His business was to exploit the negative through the positive prints which were taken out of the negative. It was the print which came out of the negative that gave the assessee the income. It was towards this ultimate product, viz. the print which was parted with by the assessee for consideration that the Maharashtra Government granted the subsidy in question. In other words, the subsidy was for the purpose of stock-in-trade. Hence such as subsidy could not but be revenue in nature : and had been rightly taxed. The Departmental Representative relied, in particular, on the analysis of this aspect recorded by the learned Accountant Member in paragraph 13 of his order. He also referred to a Special Bench decision of the Tribunal in First ITO v. Smt. Peethambari Devi [1983] 4 ITD 557 (Mad.) In that case, the assessee produced a feature film in respect of which she incurred a loss in the first year, after setting off the entire cost of production. In the next year, she received a subsidy under a scheme (framed by the Government of Tamil Nadu) for having produced the film within the State of Tamil Nadu. She claimed that the subsidy amount was a capital receipt and was hence not taxable. The ITO rejected this claim and the ITOs action was upheld by the Tribunal. The Tribunal held that in order that the subsidy could be treated as a capital receipt, the assessee had to show that the subsidy was meant to meet the cost of a capital asset. On the other hand, the assessee had treated the feature film as her stock-in-trade and its full cost was amortised in the first year itself. So far as the assessee was concerned, there was only an invitation to produce a film within the State using the available facilities and to encourage the development of such facilities so as to increase the production of such films. Such an encouragement did not involve any capital expenditure by the assessee. Nor did the assessee by reason of such invitation by the State Government incur anay capital expenditure or set up any infra structure. The undisputed fact was that the subsidy went only to reduce the cost of production of the feature film and it was so exhibited even in the accounts of the assessee. The subsidy was, therefore, nothing but a revenue receipt. The Departmental Representative submitted that this decision also strongly supported the Revenues stand.
6. Before I deal with the arguments, it would be necessary to set down very briefly the points made by the learned Members who heard the appeals originally and also some other crucial facts relating to the issue in dispute. The learned Accountant Members order shows the following reasoning :
(i) The subsidy scheme makes it clear that it is meant to be an incentive to a film producer to continue to produce quality films. The basis for the grant of the subsidy as well as the mode of paying it make it clear that it is to enable the producer to keep on producing films which are in the nature of stock-in-trade. The scheme is clearly for keeping the producer in business and in that sense, the subsidy constituted a supplementary receipt of the trade. See Dhrangadhra Chemical Works Ltd.s case (supra). The Court held there that where subsidies or grants are given by the Government to assist a trader in his business, they are, generally speaking, payments of a revenue nature. They are supplementary trade receipts and not capital payments, although they might be called advances or might be subject to contingency of repayment.
(ii) Even assuming that the original negative remained with the producer, the negative is not an end in itself, but a starting point for the production of the real thing required for commercial exploitation. The activity of the assessee, a film producer, is production of films as stock-in-trade.
(iii) The law relating to compensation has to be examined with care. It is applicable to cases where something is lost and it is to be seen whether what is lost creates a gap in the capital structure. In the instant case, the assessee has lost nothing for which he was compensated. What he received was an incentive for producing quality films which would be stock-in-trade and hence the subsidy would carry the unmistakable stamp of a revenue receipt.
(iv) There was a direct authority in favour of the Department by way of the Tribunal decision in Sadichha Chitras case (supra) for the assessment year 1976-77. There was no reason to depart from thee ratio of that order, that order having followed the decision in V.S.S.V. Meenakshi Achis case (supra).
7. The reasoning of the learned Judicial Member was briefly as under :
(i) The real test is to see whether the ownership of the asset remains with the assessee. If it does, the asset is a capital asset. If the ownership of the asset passes to the user, it would be stock-in-trade. See Bombay Burmah Trading Corpn. Ltd.s case (supra).
(ii) The assessee received the subsidy for production of the negative This negative remained his property for ever. As held in Gemini Pictures Circuit Ltd.s case (supra) the film negative is a capital assets. On the other hand, the decision cited on behalf of the Department viz., Modern Theatres Ltd.s case (supra) dealt with positive prints and was not applicable.
(iii) In the case of Sadichha Chitra (supra) the Tribunal had relied on the decision in V.S.S.V. Meenakshi Achis case (supra) but V.S.S.V. Meenakshi Achis case (supra) proceeded on different facts. In that case the expenditure on the maintenance of a rubber estate for which a subsidy was received was clearly expenditure of a revenue nature and hence the subsidy also would be of a revenue nature.
(iv) In the instant case, the subsidy was given to promote the production of Marathi colour films. In the absence of such subsidy the assessee would not have been in a position to produce the films. The assessees case in not, therefore, one where it could be said that the subsidy received from the Maharashtra Government was of a revenue nature.
(v) The assessee treated the cost of the film produced by him as a capital asset. His balance sheet reflects this position. The negative remains with the producer. If the negative is held to the stock in trade, the assessee could be required to pay taxes even before he received the subsidy from the Maharashtra Government. Under no circumstances, such an occasion should arise. The subsidy in question cannot, therefore, be taxed as a revenue receipt.
8. It only remains to sent down the following factual position before I proceed to consider the submissions of the parties. This position is based on the statement filed before me by Shri Joglekar. There was no dispute raised on this by the Departmental Representative.
"A" PAHUNI. (+) Period Cost Rs.
Collection Rs.
1-4-1975 to 31-3-1976 2,48,410 1-4-1976 to 31-3-1977 1,64,529 4,37,154 1-4-1977 to 31-3-1978 2,19,756 4,12,938 6,56,910 "B" LAXMI. (+) Cost.
Rs.
Tax-in-aid Rs.
Collection Rs.
1-4-1977 to 31-3-1978 4,34,611 3,27,588 1-4-1978 to 31-3-1979 2,98,876 2,95,032 5,84,660 1-4-1979 to 31-3-1980 3,08,149 7,33,487 6,22,620 8,92,809 "C" Hich Khari Daulat (+) 1-4-1979 to 31-3-1980 7,32,938 1-4-1980 to 31-3-1981 3,88,218 3,50,000 2,59,062 1-4-1981 to 31-3-1982 1,00,000 2,82,400 11,31,156 4,50,000 5,41,462 (+) Names of the Marathi pictures produced by the assessee.
9. So for as the details of the scheme under which the subsidy become payable, I cannot do better than to quote from the learned Accountant Members order. Both the parties before me agreed that this stated the position briefly and correctly :
"... From the subsidy scheme explained to us it is clear that it is provided as an incentive to a film producer to container to produce quality firms. The salient features of the scheme, as per resolution dt. 28-1-75 & other resolutions & rules are as under. The scheme has come into effect from 1st April 1975. For the purpose of the scheme the words "producer of Marathi film" are defined under clause 1(2) to mean a person who is show as such on the certificate granted to that film by the Film Censor Board in relation to a Marathi film produced and exhibited in Maharashtra, who is domiciled in the State of Maharashtra for a period not less than 15 years, and who has been actively connected in any capacity with the production of Marathi film in Maharashtra for a period not less than three years prior to the date of his application under these rules. This clearly indicates that the benefits of the subsidy scheme are available only to those persons who are already in this line for at least three year prior to the date of application. The clause regarding certificate of eligibility for a sum money equivalent to the total amount of entertainment duty actually collected and credited to Govt. on the exhibition of a Marathi film produced by him and exhibited in the State of Maharashtra during the immediately preceding financial year less service and collection charge as may be prescribed from time to time. Thus before getting any subsidy or grant the producer must have already produced a film and it is only with reference to entertainment duty actually collected and credited to the Govt. of that film which would be the basis is granting a subsidy or grant for the next film produced by the producer. The amount of subsidy or grant varies as per clause 4(iv). The subsidy or the grant is given during the completion of the next film of the producer in four installments and the last installment is released only after the the new film is censored and actually released."
10. I have considered the position. The essential point seems to be to decide whether the negative which the assessee produced is a capital asset in the hand of the assessee or his stock in trade Stock in trade is something which a trader cannot hold on to. This is something so basic that one does not require any authority for support. Simply put, stock-in-trade is what an assessee may either manufacture himself out of raw materials bought by him or which he may stock in his godown or shop by direct buying. In both cases, stock-in-trade comes to be disposed of for consideration resulting in sales. Stock-in-trade is, therefore, as different from a capital asset as chalk from cheese. The accounting also is quite different. Stock-in-trade goes into the trading account. The stock remaining unsold at the end of the year is valued as closing stock and goes to the balance sheet on the assets side and shown separately as such. The method of valuation would affect the computation of the book profits of the business for each year e.g. cost or market price or whichever is lower and so on. A capital asset, on the other hand, does not obviously go into the trading account. It remains in the balance sheet subject to adjustment on account of depreciation (or amortization if one prefers that word) if any provided for. So far as the accounting part is concerned, it was common ground before me that the assessee had never brought what he produced, i.e. the negative, into his trading account as stock-in-trade. On the contrary, it was shown as work- in -progress (in the course of production) and on completion was shown as an asset in the balance sheet. Of course, as observed by the learned Judicial Member, thought this fact is relevant, it may not be conclusive one way or the other. One has, therefore, to see how the assessee has dealt with this asset.
11. Shri Joglekar had referred to pages 13 and 14 of the Paper Book. These contain the agreement dt. 16-9-1977 which the assessee entered into with M/s. Ajay Film Distributors for the distribution rights of the colour film Laxmi. (The accounting year is the financial year.) Briefly the terms and conditions of this agreement were :
(a) Ajay Film Distributors acquired the world rights for the distribution of the said film.
(b) Ajay Film Distributors to advance Rs. 1,50,000 recoverable from the assessee from time to time.
(c) Ajay Film Distributors were entitled to take out 12 prints as and when required by them and also to carry out publicity, decoration etc. for exploitation of the above film.
(d) Ajay Film Distributors to be paid commission at a flat rate of 25% up to business of Rs. 4 lakhs and at the rate of 50% thereafter. (Shri Joglekar pointed out that in this line of business and in such types of agreement, the undisputed position was that the balance after the payment of of the aforesaid 50% would be the producers shares; that in fact such share was received by the assessee and was also shown in his books in the set of accounts under the name M/s. Vishwas Chitra. Shri Joglekar further clarified that the assessee is also an exhibitor of Hindi and Engilsh films; but that only the business of production of Marathi films was being dome in the name of M/s. Vishwas Chitra for which separate accounts had been kept all along.)
12. There is substance in the assessees claim that the asset in question viz., the negative, has been all along treated by the assessee as his capital asset. He never parted with it. He entered into an agreement with a distributor for the distribution rights the consideration being a share of the profits on commercial exploitation of the prints taken out from the negative. The value of the negative was never brought into the trading account and had been shown in the balance sheet as an asset. (It is of course not possible to accept the Departmental Representatives claims that the negative as such had no value. That would be an obvious non sequitur to the finding of the learned Accountant Member that it is stock-in-trade.)
13. I have also seen the details of the Maharashtra Governments Scheme for the subsidy or (as it is referred to in the Scheme), tax-in-aid grant. This is available at pages 72 to 78 of Paper Book (Resolution No. FLM 1074-F dt. 28-1-1975 of the Social Welfare, Cultural Affairs, Sports & Toursism department, Government of Maharashtra). The objective of the Scheme are.
(a) To promote production of better Marathi (feature) films generally; and
(b) To help production of Marathi colour (feature) films in preference to blank and white films.
It is clarified that the scheme envisages the grant of assistance to producers of Marathi film in their "future ventures". There are various forms prescribed to be filled in by a producer to become eligible for the subsidy. From No. 2 for example, requires the cost of the production to shown, as also the amount paid to the distributors. Then From No. 3 carries the the following standard form of application for the financial assistance :
"The Managing Director, Maharashtra Sanskritik Vikas Mahamandal Ltd.......
Bombay 400 001 Dear Sir, I/We beg to apply for the Financial Assistance to enable to produce a Marathi feature film. I/We hereby submit the certificate obtained from the Collector certifying the amount of entertainment duty collected and paid into the Government treasury. In view of this, I/We now request the Managing Director of Maharashtra Sanskritik Vikas Mahamandal to release the amount equivalent to the entertainment duty not exceeding Rs. 4 lakhs in case of a black and white picture/and not exceeding Rs. 8 lakhs in case of coloured film to enable I/We to undertake the production of a new Marathi Film. The required particulars are given below :"
From No. 4 requites the applicant to give the total cost of each film and also the following details :
"(a) Was it a success ?
(b) Total receipts including grant-in-aid received, if any, and net profit/loss.
(1) Distributors share.
(2) Producers share."
Column 7 of the same From required the following details to be given :
"7. Budget details of the production, distribution, and release :
Mention in details the estimated cost from the Story to the point of censoring the film, give the expenditure under the Major heads such as :-
(a) Story,
(b) Music,
(c) Studio,
(d) Dance,
(e) Outdoor shooting,
(f) Cameraman,
(g) Artists,
(h) Staff,
(i) Recording,
(j) Laboratory,
(k) Editing,
(l) Insurance,
(m) Legal charges,
(n) Censor charges,
(o) Publicity,
(p) Allowance for,
(q) Unforeseen expenses,
(r) Cost of prints and its number,
(s) Any other details the producer may like to mention."
14. It appears to me from the above that what the Government was trying to do was to prod the Marathi film producers into producing better Marathi film (black and white) and more Marathi colour films. Obviously, the Marathi film industry suffered from lack of financial resources and Government came forward to set this right to the extent possible. It was argued before me for the department that compensation paid to some damage or gap in the capital structure would be of a capital nature but not otherwise; that in this case there was no damage or loss to the capital structure of the assessee and hence the subsidy was a revenue receipt. In reply, Shri Joglekar pointed out that the whole thrust of the scheme was to shore up the producers profit making apparatus; that apparatus was obviously on a shaky firm and confidant footing : and the tax in aid supplied the necessary material for this purpose. On consideration of both points of view. I am inclined to accept the latter as more in consonance with the facts and law : that is the subsidy was towards strengthening the producers profit-making structure and hence could not be straishtaway brought to tax as a revenue receipt.
15. The discussion above would show that there is on material to hold that the negative represented the stock in trade of the assessee. In my view, it may not be valid to argue that the negative was an intermediate (or the penultimate) product of the assessees business activity. If that is so, it should disappear the moment the ultimate product came into view. On the contrary the so called ultimate product (positive prints) disappear or rather never appear. They are never the property of the assessee. It is the so called intermediate product, the negative that always remains with the assessee. It is difficult to avoid the conclusion that the negative represented clearly, in the hands of the assessee a capital asset.
16. I have already in para 11 to the terms of the agreement with Ajay Film Distributors. Pages 146 and 147 of the assessees Paper Book show the statement of rentals for the month of November 1978 for the picture Laxmi for he territory of Maharashtra Out of the collection of Rs. 80,190 Rs. 29,048 is marked out as the commission due to the distributors and the balance of Rs. 60,143 is shown as the net collocation. On page 147 similarly there is a copy of the rentals for the same picture for the month of February 1979.Out of the collection of Rs. 18,511 Rs. 9,255 is shown as the commission payable the balance of Rs. 9,255 being shown as the net collection for the producer. At page 128 of the Paper Book is the Profit & Loss Account for the year ending 31-3-1979. Based on the above rental monthly statements of Ajay Film Distributors the collections for Laxmi for the year ended 31-3-1979 are shown at Rs. 5,84,660. These facts have been sold as stock in trade and what was exploited what was asset. The evidence on record as I said before points to the conclusions that the negative in question which the assessee produced became and remained a a capital asset in the hands of the assessee. The assessees business was not in dealing with such negatives. On the other hand, its business was in dealing with such negatives With the negative as the income producing asset, the assessee entered into a contract with the distributors who took out the positive pritns necessary for him as dictated by his (the distributors) business needs. For this facility which the assessee provided to the distributor through his asset the negative the distributor parted with a share in the collection from exhibition of the film as stipulated in the agreement between the assessee and the distributor. In this setting of facts, it would not possible to hold against the assessee on the ground that the negative represented the stock in trade and the subsidy received went towards the cost of acquistion or production of such stock in trade.
17. What was it that the Government of Maharashtra intended to do ? Plainly, Government intent was to encourage better Marathi films black and white and more Marathi films in colour. It was a fact of life facing the Government that the Marathi film industry was not in a position to operate on the same scale as the Hindi, Tamil and Telugu producers. It, therefore, decided that it would step in and look after at least the financial side of the film production if only the Marathi film producer would respond in the matter. It, therefore, announced a scheme a of financial aid directly related to the duty paid on the exhibition of the films made by the producers. It was a kind of a drawback scheme under which the duty that had been paid earlier to Government flowed back to the Marathi film producer who met the necessary conditions The basic condition was, of course, the production of the film itself. It was to meet the cost of production of this film (which had to be passed by the Board of Censor) that the subsidy scheme was inaugurated. Clearly, the subsidy warrant to fill the gap in the capital available to the film producer starting out on the venture of producing a better quality Marathi with all the attendant risks. The subsidy was meant to take case of an obvious weakness in the profit making apparatus. of the Marathi film producer, namely, financen. Withdrawal of the subsidy would have affected the function of this apparatus. It would therefore, be more in keeping with the material on record to hold that the subsidy in question was not of a revenue nature.
18. Several authorities were relied upon for both sides. It is however common ground before me that there is no direct authority in the matter. The facts were either wholly different or different in material particulars even in cases relating to film producers. Take the case of Gemini Pictures Circuit Ltd. (supra). That was a case of a company carrying on the business of producers, distributors and exhibitors of motion pictures. The accounting year was the calendar year 1949, assessment year being 1950-51, The Company produced a picture called Apoorva Sahodaragal (Tamil) the Hindi version being known as Nishan at a cost of Rs. 10,13,726. It was released for exhibition throughout India on 21-10-1949. The full cost of the picture was charged to the trading account, but it was valued at Rs. 4,04,925 being 40% of the cost of production the exhibition having been only for 72 days. [As the full cost of a film was treated as an expense of the produce in the year in which it was released its market value at the close of the year in which it was released its market value at the close of the year had to be valued as any other stock in trade The method of determining such market value was through amortization of the cost of production at arbitrate rates for each year of the films normal expectation of life. The film industry as well as the Department had agreed that a normal life of exhibition would be three years from the date of release beyond which the film had no value. The rate of amortisation was assumed to be 60% in the first year 25% in the second year and 15% in the last year of exhibition subject to exceptions being proved]. The ITO however did not accept the valuation of the film at Rs. 4,04,925 as on 31-12-1949. He noted that the film had been exhibited only for 72 days. He was of the view that a pro rata amortisation had to be applied. Accordingly, he increased the closing stock value to Rs. 4,87,154. The question before the High Court was as under :
"Whether in view of the uniform and consistent method adopted by the assessee and accepted by the income tax authorities in previous year of valuing the films at 40% of the cost in the first year in which the same was released for public exhibition the income tax authorities are entitled to change the said method and value the film at cost reduced by a sum calculated on time basis at the rate of 60% for the first 12 months of public exhibition ?"
The Court was of the view that the question really turned on whether the ITO was or could reasonable be satisfied that the method of accounting adopted by the assays would not disclose the correct profits. There was no dispute before the Court there as to whether the film produced (negative) was or was not stock-in-trade. In fact, the assessee there had itself shown it as stock-in-trade following a Circular of the Central Board of Revenue (as it then was). Hence there is not much assistance to be derived fro this decision so far as the issue in appeal before me is concerned.
19. As already noted, the instant assessee has not be pointed the cost of production of the film Laxmis to his Profit & Loss Account. In fact it has always been the practice of the assessee as is evident from the papers placed in the Paper Book (pp. 92 to 114) to show the cost of production separately in the Balance Sheet as an asset and in the Profit & Loss Account to claim a deduction towards amortisation of the analogy that it is equivalent to the depreciation of a capital asset. In the Balance Sheet, suitable adjustment for the amortisation claimed in Profit & Loss Account is made and only the cost less the amount claimed as amortisation is shown as the asset value in in the Balance Sheet. This has been the consistent practice of the assessee. it must be noted here that the Department also accepted this practice.
20. In Modern Theatres Ltd.s case (supra), the assessee-company was a producer and distributor of films. For the assessment year 1957-58 it produced that released two films from the negatives of which certain number of positives also were prepared and kept ready on hand before such release. The question before the Court was whether a sum of Rs. 3,53,863 claimed by the assessee as as cost of the positive prints was deductible in the assessment in whole or in part independent of amortisation. The Court noted that the Boards Circular on amortisation of films did not apply to positive prints. The positive prints would normally become useless after six months from the commencement of their screening. Where the accounts of the assessee showed that the positive pritns were screened for exhibition during the accounting year and the Tribunal was of the opinion that after 150 shows the positive had no value, it had to be held that the full cost of the prints could be deduction in computing the income of the accounting year as revenue expenditure independent of the rules relating to amortisation. In the course of its judgement the Court observed that in the hands of a producer and distributor a cinema film is not a capital asset; that it is neither a fixed capital asset nor a circulating capital asset; that it partakes mare of the character of stock in trade, and the amortisation allowed by the Circular of the Board is not in the nature of depreciation allowance of capital. Strong reliance was placed upon these observations by the Departmental Representative to contend that a cinema film was not a capital asset. But such observations could not be taken out of their context. What the court was concerned with in Modern Theatres Ltd.s case (supra) were positive prints. The Courts observations re; related to an assessee who was a producer and distributor. That is not the case here. Hence this decision is not directly applicable to the facts of the case before me.
21. V.S.S.V. Meenakshi Achis case (supra) is to be seen next. There the assessee owned rubber plantations in the Federated Malay States outside Penang. Out of a fund into which cases collected under the Rubber Industry (Replanting) Fund Ordinance 1952, on rubber produced in Penang and rubber exported from the Federation other than Penang, were paid proportionate parts of the cases so collected after defraying expenses, were credited to the accounts of the assessee, corresponding to the amount of rubber produced by them, and payments were made to the assessees from the amounts so credited against expenditure incurred on the maintenance of the plantations. On these facts. the Supreme Court held that as the amounts from the fund earmarked for the assessees on the basis of the rubber produced by them were paid against the expenditure incurred by them for maintaining the rubber plantations and producing the rubber, the amounts received by the assessee were revenue receipts and therefore liable to be included in their assessable income. It was argued for the Revenue before the Court that undo the terms which governed the payments the payments were made to the assessees to enable them to recoup the revenue expenditure for assessees to enable them to recoup the revenue expenditure for running and maintaining plantation and hence the payments were revenue receipts. The Supreme Court found the dubmission to be correct on the facts of the case and held the amounts to be revenue in nature. The fact and the ratio of this case are easily distinguishable. In the instant case the scheme got muluted by the Maharashtra Government nowhere says that it is for meeting the revenue expenditure that is being incurred by a film producer. In fact, it was pointed out by shri Joglekar that the question of revenue expenditure did not arise at all until after the film was produced. This is of course, a wide proposition and need not be debated here. But the fact remains that the subsidy directly related to the cost of production of Marathi film producers. A second point of difference was that in V.S.S. V. Meenakshi Achiscase (supra) the payment also related to production of rubber which was stock-in-trade Hence, whether may be the other reasons advanced for holding the receipt in question to be revenue in the instant case it cannot be so held on the authority of Meenakshi Achi. That much is clear.
22. Sadichha Chitras case (supra) : I have gone through this order of the Tribunal dated 24-3-1981. There also a similar subsidy was received by the assessee a Marathi film producer from the Govt. of Maharashtra. The question before the Tribunal was, whether it was taxable as a revenue receipt. It was contended before the Tribunal for the assessee that the financial assistance in question was received towards the cost of the production. and therefore, it was not a revenue receipt. A Circular of the Central Board of direct Taxes dated 1-8-1974 was also relied upon. The Tribunal did not find the Circular applicable to the case before it It dismissed the assessees claim after recording the following :
(i) The assessees business was that of producing motion pictures and selling their distribution rights. (ii) V.S.S.V. Meenakshi Achi case (supra) was applicable here. The learned counsel for the assessee was not able to show why that decision should not be applied here.
23. I have already tried to analyse the decision in V.S.S.V. Meenakashi Achis case (supra) and have also recorded my view that the said decision having been rendered in quite a different factual context, was not applicable here. Secondly, a difference of opinion having been formulated and referred to the Third Member, it would not be permissible in law at this stage to simply say that an earlier order of the Division Bench has to be followed or if not the issue should be referred to a larger Bench. The time for all that is long past.
24. Of the decisions referred to by the learned Judicial Member, one may notice the decision in Mahindra & Mahindra Ltds case (supra). It was held there that the profit realised by the assessee, which was an Indian company on the sale of its investments in an American project for manufacture of diesel engines was in the nature of a surplus arising out of a liquidation of investments and hence was a capital receipt. The facts of this case are quite different. This decision is of no direct assistance in the dispute before me.
25. Bombay Burmah Trading Corpn. Ltd.s case (supra) : In this case, the assessee company took contracts of forest leases (teak) from the Govt. of Burmah from 1862. In the year of account ending on 31-5-1950, the assessee had about 15 forest leases having been granted in 1955 for 15 years each. Under these leases, the assessee could fell the teak trees, convert them into logs, remove them after payment of royalty to Govt. for its own purp ose. Because of the Srcond World War, the Govt of Burma extended the lease period until such time as it became possible to resume forest operations. In 1948-49, the then Govt. of Burma nationalised the forests and the leases were terminated. In pursuance of an agreement dated 10-6- 1949, the assessee made over to the Govt. of Burma various assets pertaining to the leases, viz., headquarters, elephants, cattle, stores, buildings, etc. and the Govt. of Burma delivered in all 43,860 tons of logs to the assessee-company towards (a) non-duty paid logs, handed over to Government, (b) against depreciable assets; and (c) against livestock like elephants, etc. These logs were sold off by the assessee in the accounting years between 1949 and 1952. The question before the Court was whether the sale proceeds against non-duty paid logs and of logs delivered against handing over of depreciable assets, stores and livestock were taxable or were exempt as being in the nature of capital receipts.
26. The Court observed that fixed capital is what the owner turns to profit by keeping it is his own possession; circulating capital is what he makes profit of by parting with it and letting it change masters; circulating capital is capital which is turned over and in the process of being turned over, yields profit or loss. The determining factor was the nature of the trade in which the asset was employed. Compensation received for immobilisation, sterilisation, destruction or loss, total or partial, of capital asset would be capital receipt. Where compensation is recovered for an injury inflicted on a mans trading, so to speak, a hole in his profits, the compensation would go to fill the hole and would be a trading receipt. On the other hand, where the injury is inflicted on the capital assets of the trade, making, so to speak, a hole in them, the compensation recovered is meant to be used to fill that hole and is a capital receipt. If a sum represents profits in a new form, then that is income. But, where the agreement (under which the sum became receivable), relates to the structure of an assessees profit-making apparatus and affects the conduct of the business, the money received for the cancellation or variation of such an agreement would be capital receipt.
27. As would be evident, the facts of the above case do not offer a close parallel. All the same the exposition above does help in bringing the real nature of the issue involved here into sharper focus. It can be said that the assessee, not having parted with the negative and the negative remaining the property of the assessee, the cost of production of that article represented capital asset. The subsidy that went towards that cost-which cost the assessee otherwise might not have been able to meet, i.e. a hole in the capital structure-would, therefore, be capital in nature and hence not assessable as income.
28. In the result, I would agree with the conclusion recorded by the learned Judicial Member to the effect that the amounts received by the assessee from the Government of Maharashtra (in terms of the Resolution dt. 28-1-1975 and the rules made thereunder) were in the nature of capital receipts and hence not assessable to income for the assessment years 1979-80, 1981-82 and 1982- 83.
29. The matter will now go back to the Bench which originally heard the appeals, for disposal in accordance with law.