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2015 Supreme(Del) 133
High Court of Delhi
S. RAVINDRA BHAT & R.K. GAUBA, JJ.
Commissioner of Income Tax-I - Appellant
Versus
Bougainvillea Multiplex Entertainment Centre Pvt. Ltd. - Respondent
ITA . Nos. 86 & 587 of 2013 & 161 & 204 of 2014
Decided on : 30-01-2015
For the Appellant:Rohit Madan, Ruchir Bhatia, Advocates.
For the Respondent:Ajay Vohra, Sr. Advocate with Kavita Jha, Vaibhav Kulkarni, Advocates.
The main legal point established in the judgment is that the nature of a subsidy is determined by the purpose for which it is granted, and in this case, the entertainment tax subsidy was considered a capital receipt as it was meant to assist the assessee in setting up the new unit.
Headnote:
Entertainment Tax Subsidy - Income Tax - Uttar Pradesh Entertainment and Betting Tax Act, 1979, Section 3, Section 11 - The court discussed the Uttar Pradesh Entertainment and Betting Tax Act, 1979, Section 3 and Section 11, and the purpose of the State Government's scheme to promote the cinema industry through entertainment tax exemptions. The court concluded that the entertainment tax subsidy received by the assessee was a capital receipt, as it was meant to offset the expenditure incurred in setting up the project and making it operational.
Fact of the Case:
The assessee, engaged in running multiplex cinema halls, claimed deduction for entertainment tax collected as capital receipts. The Assessing Officer disallowed the claim, but the CIT(A) and ITAT upheld the deduction, leading to the Revenue's appeals.
Finding of the Court:
The court found that the entertainment tax subsidy received by the assessee was a capital receipt, as it was meant to offset the expenditure incurred in setting up the project and making it operational.
Issues: The main issue was whether the entertainment tax subsidy granted to the assessee was a capital receipt.
Ratio Decidendi: The court applied the 'purpose test' to determine the nature of the subsidy, concluding that it was meant to assist the assessee in setting up the new unit, rendering it a receipt on capital account.
Final Decision: The court dismissed the appeals of the Revenue and directed the Assessing Officer to assess the extent of capital subsidy the assessee can claim over the assessment years in question on account of entertainment tax exemptions.
R.K. Gauba, J.
1. These four income tax appeals under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as “the Act”) give rise to common question of law and, therefore, have been heard together and are being decided through this common judgment.
2. The respondent assessee is engaged in the business of running of multiplex cinema halls and shopping malls in the name and style of “Spice World” situated at 1-2, Sector 25A, Noida, Gautam Budh Nagar, (Uttar Pradesh), and has been the beneficiary of a scheme promulgated by the State Government with the objective of encouraging setting up of such multiplex cinema halls where under it has been granted exemption from entertainment tax payment. It claimed deduction to the extent of entertainment tax collected in the corresponding financial years terming the amounts as capital receipts. The Assessing Officer disallowed the said claims but, on appeal, the Commissioner Income Tax (Appeals) [CIT(A)] rejected the contention of the Revenue and allowed the deduction claimed by the assessee. The appeal of the Revenue against the said order of CIT(A) was turned down by Income Tax Appellate Tribunal (hereinafter referred to as “the ITAT”).
3. The Revenue urges the following question of law; which is hereby framed:
“Whether the ITAT has not erred in law and on facts in holding that the entertainment tax subsidy granted to the respondent during the relevant year(s) is a capital receipt?”
4. Before coming to the question of law, certain basic facts need to be noted.
5. In ITA No. 587/2013, the dispute relates to assessment year 2006-2007. The assessment order under Section 143(3) of the Act was passed on 15.12.2009, inter alia, declining the deduction on account of entertainment tax in the sum of Rs.1,33,74,831/- from the total income. The income was assessed at Rs.3,47,24,940/- (inclusive of the element of advertisement expenditure which is not the subject matter here) whereupon a tax demand (including penalty and interest) was raised in the sum of Rs.1,13,42,475 /-. The CIT(A) in appeal No. 167/2009-2010 rejected the view of the Assessing Officer restoring the deduction vide order dated 26.10.2010.
6. In ITA No. 586/2013, the dispute relates to assessment year 2007-2008. The assessment order under Section 143(3) of the Act was passed on 22.12.2009, inter alia, declining the deduction on account of entertainment tax in the sum of Rs.6,12,57,194/- from the total income. The income was assessed at Rs.7,39,19,581/- (including advertisement expenses) whereupon a tax demand (including penalty) was raised in the sum of Rs.2,77,96,504/-. The CIT(A) in appeal No. 300/2009-2010 rejected the view of the Assessing Officer restoring the deduction vide order dated 03.12.2010.
7. The orders of CIT(A) concerning the assessment years 2006-2007 and 2007-2008 were challenged by the Revenue by way of income tax appeal Nos. 5517/Del/2010 and 491/Del/2011 which were heard with cross objection Nos. 415/Del/2010 and 41/Del/2011 filed by the assessee. Both the said appeals and the cross objections were disposed of through common order of ITAT passed on 22.03.2013 against the Revenue, upholding the view taken by CIT(A).
8. In ITA No. 204/2014, the dispute relates to assessment year 2008-2009. The assessment order under Section 143(3) of the Act was passed on 19.11.2010, inter alia, declining the deduction on account of entertainment tax in the sum of Rs.6,75,56,204/- from the total income. The income was assessed at Rs.7,74,86,970/- (inclusive of advertisement expense) whereupon a tax demand (including penalty) was raised in the sum of Rs.3,00,28,647/-. The CIT(A) in appeal No. 149/2010-2011 rejected the view of the Assessing Officer restoring the deduction vide order dated 18.10.2011.
9. In ITA No. 161/2014, the dispute relates to assessment year 2009-2010. The assessment order under Section 143(3) of the Act was passed on 28.11.2010, inter alia, declining the deduction on account of entertainment tax in th
