Madhya Pradesh High Court
Sundaram Exhibitions (P) Ltd. vs Commissioner Of Income Tax on 27 January, 2006
Equivalent citations: (2006)202CTR(MP)408
Author: A.M. Sapre
Bench: A.M. Sapre
ORDER A.M. Sapre, J.
1. This is an income-tax reference made at the instance of assessee under Section 256(1) of the IT Act by the Tribunal in RA Nos. 91 and 92/Ind/1998, dt. 19th March, 1999, which arise out of an appellate order, dt. 27th March, 1998, passed in ITA Nos. 126 and 127/Ind/1994 by Tribunal to answer following question of law arising out of the order of the Tribunal :
Whether the Tribunal was justified in holding that the subsidy received by the assessee under M.P. Naye Cinemagharon Ke Nirman Ko Protsahan Yojna Ke Sahayata Anudan Niyam, 1982 from the State Government was a revenue receipt, after following the judgment of the apex Court in the case of Sahney Steel & Press Works Ltd v. CIT ?
2. The respondent (sic-applicant)--an assessee is engaged in business of running a cinema house. In the asst. yrs. 1990-91 and 1991-92, the assessee received from State by way of what is called "subsidy" amounting to Rs. 4,93,163 and Rs. 10,89,283, respectively. The question, therefore, arose before the AO as to what is the true nature of this amount in the hands of assessee which they have received from the State. If the contention of assessee was that this amount be held to be in the nature of "capital receipt" and hence, not exigible to tax in their hands, the case of Revenue was that it is in the nature of "revenue receipt" and hence, exigible to tax. It is this question which was decided by AO. By order, dt. 26th Nov., 1991 (Annex. A), he held that having regard to the true nature of subsidy, granted by the State, the same is in fact a "revenue receipt" and hence, exigible to tax. This view of AO was challenged by assessee in appeal to CIT(A) who by order, dt. 7th Dec., 1993 (Annex. B) allowed the appeal and held by placing reliance on a decision of this Court reported in CIT v. Dusad Industries that it is a capital receipt. The Revenue, therefore, felt aggrieved filed further appeal to Tribunal. By order under reference (Annex. C), the Tribunal allowed the appeal of Revenue. It was held that having regard to the nature of subsidy and in the light of subsequent decision of Supreme Court, reported in Sahney Steel & Press Works Ltd. v. CIT , the view taken by AO is correct when he held it to be revenue receipt. It was accordingly, held that the amount received by the assessee has to be taxed in their hands as revenue receipt. It is against this order, the assessee felt aggrieved and accordingly, sought reference to this Court from the Tribunal. By order under reference, the Tribunal acceded to the prayer made by the assessee and accordingly, made the reference to this Court on the question framed supra.
3. Heard Shri Najir Singh, learned counsel for the applicant and, Shri R.L. Jain, learned senior counsel with Ku. V. Mandlik, learned counsel for the non-applicant.
4. Learned counsel for the assessee placing reliance on several decisions reported in CIT v. P.J. Chemicals Ltd. Etc. Etc. , CIT v. Darshan Talkies (1996) 217 ITR 740 (MP) and Sadichha Chitra v. CIT contended that the subsidy amount received by the assessee be treated as capital receipt and accordingly, the question be answered in favour of assessee. We do not agree as in our opinion, the submission has no merit whatsoever.
5. The question as to how a particular amount received by the assessee by way of subsidy should be held to be either capital receipt or revenue receipt remains no longer res Integra and is settled by an authoritative pronouncement of Supreme. Court reported in Sahney Steels & Press Works Ltd. v. CIT (supra). It is in this case their Lordships laid down guidelines for deciding this question. It is then for the authorities to apply the guidelines to the facts of each case having regard to the nature of amount received from the State by way of subsidy and then decide whether it can be regarded as capital in nature or revenue. In this view of the matter, any decision rendered prior to Sahney Steel (supra), by any High Court or even by Supreme Court is of no avail to the parties because it is the last one which holds the field for all purposes.
6. In our opinion, therefore, all the decisions cited by learned counsel for the assessee being prior in point of time, as against Sahney Steel (supra), they are of no consequence and hence, distinguished on this ground only. In our view, the Tribunal was right in placing reliance on the decision rendered in the case of Sahney Steel (supra) for deciding the nature of subsidy received by the assessee in this case and returning the finding that it is in fact in the nature of "revenue receipt". This is how the Tribunal decided the issue in question keeping in view the guidelines contained in the decision of Sahney Steel's case (supra):
Since the issue regarding ascertainment of nature of subsidy has been re-examined by the apex Court in the case of Sahney Steel & Press Works Ltd. v. CIT (supra), we have to examine this issue afresh in the light of guidelines laid by the Hon'ble Supreme Court. By this judgment the Hon'ble apex Court has overruled the judgment of the Madhya Pradesh High Court in the case of CIT vs. Dusad Industries (supra) in which the receipt of power subsidy was treated as capital receipt. In Sahney Steel Press Works Ltd. (supra), their Lordships have finally held after examining various judgments that if under any notification the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It was true that the assessee could not use this money for distribution as dividend to its shareholder but the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose.
The subsidies had not been granted for production of, or bringing into existence any new asset. The subsidies were granted year after year only after setting up of the new industry and commencement of production. Such a subsidy could only be treated as assistance given for the purpose of carrying on of the business of the assessee. These subsidies were of revenue nature and would have to be taxed accordingly. Their Lordships have held that if the payment 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 character of the subsidy in the hands of the recipient, whether revenue or capital, will have to be determined having regard to the purpose for which the subsidy is given. The source of the fund is quite immaterial. However, if the purpose is to help the assessee to set up its business or complete a project, the monies must be treated as having been received for capital purposes, but if the monies are given to the assessee for assisting him in carrying out the business operations and the money is given only after and conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of trade.
4. From a careful perusal of the aforesaid judgment, we are of the view that before giving a treatment to any subsidy received by the assessee from public fund, any authority adjudicating this issue should examine the nature of receipts and the purpose for which it is being given to the assessee. If it is given to help the assessee in setting up its business or to complete its project by purchasing remaining capital assets, the subsidy must be treated as having been received for capital purpose, but if the subsidy is given after the setting up of the business or its commencement, to help the assessee in carrying out the business operation smoothly, the subsidy should be treated as assistance for the purpose of trade and it should be exigible to tax. In the instant case, the subsidy was given after the commencement of the cinema house. There is no whisper from record that the subsidy was given either for setting up of the cinema house or for completion of the project. It is immaterial to the controversy involved in the case whether it was a refund of entertainment tax or any financial assistance provided by the State. Our attention was invited to the rules provided in M.P. Naye Cinemagharo Ke Nirman Ko Protsahan Yojna Ke Sahayata Anudan Niyam, 1982 and it was urged on behalf of the assessee that the assessee has received the subsidy after fulfilling the requisite requirement prescribed under the rules. From a careful perusal of these rules, we may draw an inference that the financial assistance was provided to encourage the cinema owners in this line of business so that they may construct another cinema house, but in the instant case, no efforts were made on behalf of the assessee to construct any other cinema house and he has used the subsidy received from the State Government in its business entirely.
5. Having regard to the above observations, we are of the view that the subsidy received by the assessee is of revenue nature and is exigible to tax. We, therefore, set aside the order of the CIT(A) and restore that of the AO.
7. We are completely in agreement with the view so taken by the Tribunal quoted supra as in our considered view it is in accord with the guidelines laid down by the Supreme Court in the case of Sahney Steel (supra). The subsidy in question was not given to assessee for establishment of business i.e. it was not meant to be used prior to commencement of commercial business so as to make the same as capital one i.e. in the form of fixed assets but it was given to the assessee after they commenced the business i.e. for running the business. If the assessee is given any subsidy for running their business, then such subsidy is never regarded as capital but it is regarded as revenue receipt. It is this distinction that must be kept in consideration while deciding the true nature of subsidy. In other words, every subsidy cannot be regarded as capital receipt or revenue receipt. In order to decide its real character, one is required to examine the scheme, object and its purpose for which it is given and then one can come to a conclusion as to whether it is a capital receipt or revenue receipt.
8. In view of foregoing discussion and in the light of finding recorded by the Tribunal, we answer the question referred to this Court against the assessee and in favour of Revenue. In other words, we answer the question by holding that subsidy received by the assessee for the assessment year in questions was in the nature of revenue receipt and was accordingly exigible to tax as such.
No costs.