The Supreme Court of India recently ruled that a subsidy in the form of exemption from entertainment duty to newly established Multiplex Theatres under State’s scheme is capital receipt, and hence, not taxable under the provisions of the Income Tax Act, 1961.
In the instant case, the Maharashtra State Government introduced a scheme wherein subsidy in the form of fully exempted entertainment duty for a period of three years, and thereafter payment of entertainment duty @ 25% for the subsequent two years.
This is applicable to the newly established multiplex theatres and from the assessment order it was found that the aforesaid scheme was really to support the on-going activities of the multiplex and not for its construction. The AO held that it was in the nature of a revenue receipt and the appeal filed before the Commissioner met with the same fate and was dismissed substantially on the same reasoning.
Later the Income Tax Appellate Tribunal decide the ground in favour of assessee that subsidy in the question fall in the category of purpose of helping the growth of an industry and it was not attributed in any manner towards supplementing of day-to-day expenditure or in the furtherance of the profits than it cannot be said to be in the character of a revenue receipt.
Though the department approached the High Court wherein their appeal was dismissed by the Court by holding that since the object of subsidy was to promote construction of multiplex theatre complexes the receipt of subsidy would be on capital account.
Before the Apex Court, the assessee contended that the subsidy kicks in only after the multiplexes started functioning and issued tickets on which entertainment duty is then waived, would show that in reality what has already been set up is not the immediate object of the subsidy but that it is really in the nature of a helping hand for running of the day to-day business of the multiplexes.
Having heard learned counsel for both sides, the court had opinioned that 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.
Finally, it was found that, applying the test of purpose, the Court was satisfied that the payment received by the assessee under the scheme was not in the nature of a helping hand to the trade but was capital in nature. The court also pointed that the purpose of multiplex theatres are completely for entertainment and the same are highly capital intensive and their gestation period is quite long so this subsidy scheme is applicable.
The bench including Justice Rohinton Fali Nariman and Justice Navin Sinha ordered that West Bengal cases must follow the judgment that has been just delivered in the Maharashtra case wherein held that in order to retain such complex by way of subsidy, the amount of entertainment tax collected against the value of ticket for admission to such multiplex theatre complex for a period not exceeding four years.
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