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2015 DIGILAW 193 (GUJ)

DCIT Circle 1(2) Baroda v. Inox Leisure Ltd.

2015-02-16

JAYANT PATEL, S.H.VORA

body2015
ORDER : Jayant Patel, J. The Revenue has preferred the present appeal on the following substantial question of law and it appears that the second question is dependent upon the first question and, therefore, we find that the real question which may be required to be considered is as under:- “Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the decision of the CIT(A) directing the A.O. to treat the entertainment tax exemption in respect of Multiplexes as capital receipt, not eligible to tax, without appreciating that the subsidy received by the assessee was after the completion of the cinema house and commencement of operation and used entirely for the business operation, and therefore, revenue in nature?” 2. The learned counsel appearing for the Revenue has brought to our notice the decision of this Court in Tax Appeal No. 167 of 2012 and allied matters in respect of the very Assessee for the very question decided on 08.01.2013 whereby, the similar view as was taken in the earlier matter, has been upheld by this Court . However, he submitted that against the aforesaid judgment of this Court, the matter is carried before the Apex Court in the proceedings of Special Leave Petition (Civil ) No. 15773 of 2013 and the leave has been granted and the appeal is ordered to be tagged with further Civil Appeal No. 8119 of 2013 arising from the different High Courts. However, he is unable to show any order passed by the Apex Court whereby, the judgment of this Court in the aforesaid Tax Appeal No.167 of 2012 and allied matters is stayed by the Apex Court. 3. In our view, if the question which arises for consideration is already covered by the decision of this Court, as such, it can be said that no substantial question would arise for consideration, more particularly, when the judgment of this Court is not stayed by the Apex Court in the above referred proceedings but, at the same time, it cannot be disputed that if any view is taken by the Apex Court in the above-referred Special leave Petition, the question may arise for further examination. 4. 4. We may record that in Tax Appeal No. 167 of 2012 and allied matters decided on 08.01.2013, this Court , so far as question No.1 is concerned, observed from paragraph Nos. 3 to 15 as under:- “3. With respect to question No. 1, the facts are that the respondent - assessee, a company engaged in the business of operating multiplexes and theaters in Pune and Baroda had, during the previous year relevant to the assessment year under consideration, received an amount of Rs. 1,14,47,905/- by way of exemption from payment of entertainment tax relatable to its Baroda multiplex unit. Such exemption was granted by the State Government under a scheme formulated under a Resolution dated 20.12.1995 titled as “New Package Scheme of Incentive for Tourism Projects 1995 to 2000”. The assessee claimed that such tax exemption was granted for covering the capital outlay and therefore, such receipt was capital in nature. The Assessing Officer, however, treated such receipt as revenue receipt primarily on the ground that such assistance was granted to the assessee after the commencement of the operation of the business and such assistance therefore, was for its business operations. Assessing Officer was of the opinion that the object of the incentive was not to enable the assessee to acquire new plant or machinery but for the purpose of carrying the business operations. Likewise, the assessee also received similar entertainment tax exemption of Rs. 1.85 crores (rounded off) from the State of Maharashtra under its own incentive scheme for its multiplex unit situated at Pune. With respect to such incentive also the revenue contended that the receipt was revenue in nature. 4. Assessee carried the matter in appeal. CIT (Appeals) reversed the decision by reversing the Assessing Officer's decision and held that the receipt was capital in nature. The Appellate Authority examined the provision of the scheme and noted that the concession in entertainment tax was relatable to the capital investment made. With respect to Pune unit also, the Commissioner held in favour of the assessee. 5. Revenue carried the matter further in appeal before the Tribunal. The Tribunal by the impugned judgment confirmed the view of CIT(Appeals). The Appellate Authority examined the provision of the scheme and noted that the concession in entertainment tax was relatable to the capital investment made. With respect to Pune unit also, the Commissioner held in favour of the assessee. 5. Revenue carried the matter further in appeal before the Tribunal. The Tribunal by the impugned judgment confirmed the view of CIT(Appeals). In the said judgment, the Tribunal principally relied on the decision of Bombay High Court in case of Commissioner of Income Tax, Kolhapur v. M/s. Chaphalkar Brothers, Pune in Tax Appeal No. 1036 of 2010 and connected appeals dated 08.06.2011 in which, the Bombay High Court had in light of the incentive scheme of the Maharashtra Government for multiplexes, upheld the Tribunal’s decision treating such receipts as capital in nature. 6. Learned counsel for the revenue referred to the scheme of incentive formulated by the State Government and contended that the benefit granted was in the nature of entertainment tax exemption. Such benefit was to be made available only once the multiplex was in operation. Such incentive must therefore, be treated as revenue receipt. He took us through various provisions of the scheme to further contend that the Tribunal committed an error in holding that the receipt was a capital receipt. Counsel also produced, for our perusal, the notification issued by the Maharashtra Government under which, certain incentives were granted to the multiplex theaters in the State from payment of certain taxes. On the basis of such document, counsel contended that the Tribunal committed a grave error in relying on the decision of the Bombay High Court in case Commissioner of Income Tax, Kolhapur v. M/s. Chaphalkar Brothers, Pune (supra). 7. On the other hand, learned counsel, Mr. Soparkar for the assessee opposed the appeals contending that looking to the various terms of the scheme and the purpose for which the incentive was granted, the Tribunal rightly held that the receipt was capital in nature. Counsel relied on the decision of Apex Court in case of Sahney Steel and Press Works Ltd. and ors. v. Commissioner of Income Tax reported in 228 ITR 253 and in case of Commissioner of Income Tax v. Ponni Sugars and Chemicals Ltd. reported in (2008) 306 ITR 392 (SC) in support of his contentions. 8. Counsel relied on the decision of Apex Court in case of Sahney Steel and Press Works Ltd. and ors. v. Commissioner of Income Tax reported in 228 ITR 253 and in case of Commissioner of Income Tax v. Ponni Sugars and Chemicals Ltd. reported in (2008) 306 ITR 392 (SC) in support of his contentions. 8. Having thus heard learned counsel for the parties with respect to question No.1, we may notice the relevant features of the incentive scheme of the State Government. The preamble to the resolution records that based on the new tourism policy and in order to give boost to tourism sector by attracting higher investment in the areas with tourism potential and to generate employment opportunities, the State Government has introduced the package scheme of incentives for tourism projects for the period 1995 to 2000. Under Clause 3 of the scheme, only a new tourism unit or expansion of an existing unit was made eligible for incentives. It was further provided that the new project should have separately identifiable capital investment and should not be an expansion of the existing project. Expansion of an existing project would also be eligible for incentives provided the existing tourism unit increases its investment in fixed capital or capacity by at least 50% or more. Clause 4.4 of the scheme defines ineligible investment which included the working capital, goodwill, Pre-operative expenses etc. Clause 4.5 defines eligible capital investments to include lands as required for the project, building used for eligible unit including administrative building etc., plant and machinery, the cost of development of the environment of the location of the eligible unit, installation charges etc. 9. Clause 8 of the scheme pertains to investments and provides a tax holiday of 5-10 years to new units and expansion of existing units in respect of the specified taxes up to 100% of the capital investment. One of the taxes specified for exemption is entertainment tax. Clause 8.1 of the scheme pertains to period of eligibility and provides that the quantum of incentives shall not exceed 100% of eligible capital investment and if the limits of incentives expire before the eligible period, the unit would not be allowed to avail of any further benefit. For the purpose of different units, the tax exemption period varied between 5 to 10 years. For the purpose of different units, the tax exemption period varied between 5 to 10 years. Clause 11 pertains to procedure for claiming incentives and provides that the competent authority, after scrutinising the application for exemption, would issue eligibility certificate so as to enable the units to obtain the benefits. 10. From the above noted provisions of the scheme it can be clearly seen that the entire purpose of granting tax exemption was for giving the boost to the terrorism sector. This was to be achieved by attracting higher investment in areas with tourism potential. In order to achieve such purpose, exemption from various taxes as may be applicable was granted. It is true that the exemption was to be computed in terms of tax otherwise payable by the industry. However, the purpose of such exemption was to meet with the capital outlay already undertaken by the assessee. This clearly comes out from various provisions of the scheme. For example, the scheme was applicable only to the new project or to a existing project provided investment in fixed capital or capacity was increased at least by 50%. Thus, the very eligibility for seeking exemption was linked with new investment being made in fixed capital. Further though the scheme envisaged a certain period spanning for 5 to 10 years during which such exemption could be availed depending on the category of the unit, such exemption would cease the moment the total incentives touched 100% of the eligible capital investments. In other words, the upper limit of total incentive which the unit could receive from the State Government in the form of tax waiver would not exist 100% of the eligible capital investment regardless of the residue of the period of its exemption eligibility as per the scheme. From the combined reading of salient features of the scheme, we have no doubt in our mind that the incentive was being offered for recouping or covering a capital investment or outlay already made by the assessee. 11. In case of Sahney Steel and Press Works Ltd. and ors. v. Commissioner of Income Tax (supra) the Apex Court held and observed that 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 was given. 11. In case of Sahney Steel and Press Works Ltd. and ors. v. Commissioner of Income Tax (supra) the Apex Court held and observed that 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 was given. It is of course true that the said decision, certain sales tax exemption was treated as revenue in nature. However, the said decision came up for consideration subsequently before the Apex Court in case of Commissioner of Income Tax v. Ponni Sugars and Chemicals Ltd. (supra) wherein it was observed that the character of receipt of a subsidy in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is granted. In other words, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the scheme is to enable the assessee to set up a new unit or expand the existing unit then the receipt of subsidy would be of capital account. 12. Considering the above decision of the Supreme Court and applying the ratio laid down therein to the scheme under consideration, we are of the opinion that the Tribunal committed no error. 13. Insofar as Maharashtra scheme is concerned, our task is much easier. To begin with the scheme itself is very specific in its purport and intent. Under notification dated 20.09.2001, by which such scheme was promulgated by the State of Maharashtra, it is provided that lately people prefer to see movies at home. Multiplex theaters are therefore required to be given incentive. These complexes are highly capital incentive and their gestation period is also quite longer. The Government, therefore, finds a need to support such complexes by offering incentives in the form of entertainment duty. The eligible units were, therefore, offered incentive in terms of entertainment tax exemption at different ratio for different purpose of its operation. These complexes are highly capital incentive and their gestation period is also quite longer. The Government, therefore, finds a need to support such complexes by offering incentives in the form of entertainment duty. The eligible units were, therefore, offered incentive in terms of entertainment tax exemption at different ratio for different purpose of its operation. Full exemption from payment of such tax was offered for first three years; 75% of the duty was waived for subsequent two years whereas from the sixth year, full duty would have to be paid. 14. The very purpose of the scheme thus was to give incentive to the multiplex units which were found to be highly capital incentive. The very scheme was considered in case of Commissioner of Income Tax, Kolhapur v. M/s. Chaphalkar Brothers, Pune (supra) in which, relying on the decision in case of Sahney Steel and Press Works Ltd. and ors. v. Commissioner of Income Tax (supra) and Commissioner of Income Tax v. Ponni Sugars and Chemicals Ltd., the Bombay High Court upheld the Tribunal’s decision making following observations: “5. Since the object of subsidy was to promote construction of multiplex theater complexes, in our opinion, receipt of subsidy would be on capital account. The fact that the subsidy was not meant for repaying the loan taken for construction of multiplexes cannot be a ground to hold that subsidy receipt was on revenue account, because, if the object of the scheme was to promote cinema houses by constructing multiplex theaters, then irrespective of the fact that the multiplexes have been constructed out of own funds or borrowed funds, the receipt of subsidy would be on capital account. In the light of the aforesaid objects of the Scheme framed by the State Government, the decision of the Income Tax Appellate Tribunal that the amount of subsidy received by the assessee is on capital account cannot be faulted. Accordingly, both the appeals are dismissed with no order as to costs.” 15. In this respect also looking to the salient features of the scheme noted above as also the decision of the Bombay High Court interpreting this very scheme in context of the same situation, we uphold the decision of the Tribunal in this respect.” 4. If the subject matter of the present appeal is examined in light of the above, no interference would be called for with the decision of the Tribunal. 5. If the subject matter of the present appeal is examined in light of the above, no interference would be called for with the decision of the Tribunal. 5. Under the circumstances, the appeal is merit less and deserves to be dismissed. Hence, dismissed but with the observation that if any view is taken by the Apex Court in the above referred Civil Appeal, it would hold the field, but it would be for the Revenue to take appropriate steps and proceedings in this regard. 6. The appeal is disposed of accordingly.