IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 110 of 2015 DCIT CIRCLE 1(2) BARODA....Appellant(s) Versus INOX LEISURE LTD....Opponent(s) Appearance: MR KM PARIKH, ADVOCATE for Appellant(s) No. 1 CORAM: HONOURABLE MR.JUSTICE JAYANT PATEL and HONOURABLE MR.JUSTICE S.H.VORA Date : 16/02/2015 ORAL ORDER (PER : HONOURABLE MR.JUSTICE JAYANT PATEL) 1. Revenue has preferred present appeal on following substantial question of law and it appears that second question is dependent upon first question and, therefore, we find that real question which may be required to be considered is as under:- Whether on facts and in circumstances of case, Appellate Tribunal was right in law in upholding decision of CIT(A) directing A.O. to treat entertainment tax exemption in respect of Multiplexes as capital receipt, not exigible to tax, without appreciating that subsidy received by assessee was after completion of cinema house and commencement of operation and used entirely for business operation, and therefore, revenue in nature? 2. learned counsel appearing for Revenue has brought to our notice decision of this Court in Tax Appeal No.167 of 2012 and allied matters in respect of very Assessee for very question decided on 08.01.2013 whereby, similar view as was taken in earlier matter, has been upheld by this Court . However, he submitted that against aforesaid judgment of this Court, matter is carried before Apex Court in proceedings of Special Leave Petition (Civil ) No.15773 of 2013 and leave has been granted and appeal is ordered to be tagged with further Civil Appeal No.8119 of 2013 arising from different High Courts. However, he is unable to show any order passed by Apex Court whereby, judgment of this Court in aforesaid Tax Appeal No.167 of 2012 and allied matters is stayed by Apex Court. 3. In our view, if question which arises for consideration is already covered by decision of this Court, as such, it can be said that no substantial question would arise for consideration, more particularly, when judgment of this Court is not stayed by Apex Court in abovereferred proceedings but, at same time, it cannot be disputed that if any view is taken by Apex Court in abovereferred Special leave Petition, question may arise for further examination. 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:- Page 2 of 9 HC-NIC Page 2 of 9 Created On Fri Sep 16 12:28:01 IST 2016 O/TAXAP/110/2015 ORDER 3. With respect to question No.1, facts are that respondent-assessee, company engaged in business of operating multiplexes and theaters in Pune and Baroda had, during previous year relevant to assessment year under consideration, received 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 State Government under scheme formulated under Resolution dated 20.12.1995 titled as New Package Scheme of Incentive for Tourism Projects 1995 to 2000 . assessee claimed that such tax exemption was granted for covering capital outlay and therefore, such receipt was capital in nature. Assessing Officer, however, treated such receipt as revenue receipt primarily on ground that such assistance was granted to assessee after commencement of operation of business and such assistance therefore, was for its business operations. Assessing Officer was of opinion that object of incentive was not to enable assessee to acquire new plant or machinery but for purpose of carrying business operations. Likewise, assessee also received similar entertainment tax exemption of Rs. 1.85 crores (rounded off) from State of Maharashtra under its own incentive scheme for its multiplex unit situated at Pune. With respect to such incentive also revenue contended that receipt was revenue in nature. 4. Assessee carried matter in appeal. CIT(Appeals) reversed decision by reversing Assessing Officer's decision and held that receipt was capital in nature. Appellate Authority examined provision of scheme and noted that concession in entertainment tax was relatable to capital investment made. With respect to Pune unit also, Commissioner held in favour of assessee. 5. Revenue carried matter further in appeal before Tribunal. Tribunal by impugned judgement confirmed view of CIT(Appeals). In said judgement, Tribunal principally relied on decision of Bombay High Court in case of Commissioner of Income Tax, Kolhapur Vs. M/s. Chaphalkar Brothers, Pune in Tax Appeal No. 1036 of Page 3 of 9 HC-NIC Page 3 of 9 Created On Fri Sep 16 12:28:01 IST 2016 O/TAXAP/110/2015 ORDER 2010 and connected appeals dated 08.06.2011 in which, Bombay High Court had in light of incentive scheme of Maharashtra Government for multiplexes, upheld Tribunal s decision treating such receipts as capital in nature. 6. Learned counsel for revenue referred to scheme of incentive formulated by State Government and contended that benefit granted was in nature of entertainment tax exemption. Such benefit was to be made available only once multiplex was in operation. Such incentive must therefore, be treated as revenue receipt. He took us through various provisions of scheme to further contend that Tribunal committed error in holding that receipt was capital receipt. Counsel also produced, for our perusal, notification issued by Maharashtra Government under which, certain incentives were granted to multiplex theaters in State from payment of certain taxes. On basis of such document, counsel contended that Tribunal committed grave error in relying on decision of Bombay High Court in case Commissioner of Income Tax, Kolhapur Vs. M/s. Chaphalkar Brothers, Pune (supra). 7. On other hand, learned counsel, Mr. Soparkar for assessee opposed appeals contending that looking to various terms of scheme and purpose for which incentive was granted, Tribunal rightly held that receipt was capital in nature. Counsel relied on decision of Apex Court in case of Sahney Steel and Press Works Ltd. and ors. vs. Commissioner of Income Tax reported in 228 ITR 253 and in case of Commissioner of Income Tax Vs. Ponni Sugars and Chemicals Ltd. reported in [2008] 306 ITR 392 (SC) in support of his contentions. 8. Having thus heard learned counsel for parties with respect to question No.1, we may notice relevant features of incentive scheme of State Government. preamble to resolution records that based on new tourism policy and in order to give boost to tourism sector by attracting higher investment in areas with tourism potential and to generate employment opportunities, State Government has introduced package scheme of incentives for tourism Page 4 of 9 HC-NIC Page 4 of 9 Created On Fri Sep 16 12:28:01 IST 2016 O/TAXAP/110/2015 ORDER projects for period 1995 to 2000. Under Clause 3 of scheme, only new tourism unit or expansion of existing unit was made eligible for incentives. It was further provided that new project should have separately identifiable capital investment and should not be expansion of existing project. Expansion of existing project would also be eligible for incentives provided existing tourism unit increases its investment in fixed capital or capacity by atleast 50% or more. Clause 4.4 of scheme defines ineligible investment which included working capital, goodwill, pre-operative expenses etc. Clause 4.5 defines eligible capital investments to include lands as required for project, building used for eligible unit including administrative building etc., plant and machinery, cost of development of environment of location of eligible unit, installation charges etc. 9. Clause 8 of scheme pertains to investments and provides tax holiday of 5-10 years to new units and expansion of existing units in respect of specified taxes up to 100% of capital investment. One of taxes specified for exemption is entertainment tax. Clause 8.1 of scheme pertains to period of eligibility and provides that quantum of incentives shall not exceed 100% of eligible capital investment and if limits of incentives expire before eligible period, unit would not be allowed to avail of any further benefit. For purpose of different units, tax exemption period varied between 5 to 10 years. Clause 11 pertains to procedure for claiming incentives and provides that competent authority, after scrutinizing application for exemption, would issue eligibility certificate so as to enable units to obtain benefits. 10. From above noted provisions of scheme it can be clearly seen that entire purpose of granting tax exemption was for giving boost to 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 exemption was to be computed in terms of tax otherwise payable by industry. However, purpose of such exemption was to meet with capital outlay already Page 5 of 9 HC-NIC Page 5 of 9 Created On Fri Sep 16 12:28:01 IST 2016 O/TAXAP/110/2015 ORDER undertaken by assessee. This clearly comes out from various provisions of scheme. For example, scheme was applicable only to new project or to existing project provided investment in fixed capital or capacity was increased atleast by 50%. Thus, very eligibility for seeking exemption was linked with new investment being made in fixed capital. Further though scheme envisaged certain period spanning for 5 to 10 years during which such exemption could be availed depending on category of unit, such exemption would cease moment total incentives touched 100% of eligible capital investments. In other words, upper limit of total incentive which unit could receive from State Government in form of tax waiver would not exist 100% of eligible capital investment regardless of residue of period of its exemption eligibility as per scheme. From combined reading of salient features of scheme, we have no doubt in our mind that incentive was being offered for recouping or covering capital investment or outlay already made by assessee. 11. In case of Sahney Steel and Press Works Ltd. and ors. Vs. Commissioner of Income Tax (supra) Apex Court held and observed that character of subsidy in hands of recipient whether revenue or capital will have to be determined having regard to purpose for which subsidy was given. It is ofcourse true that said decision, certain sales tax exemption was treated as revenue in nature. However, said decision came up for consideration subsequently before Apex Court in case of Commissioner of Income Tax Vs. Ponni Sugars and Chemicals Ltd. (supra) wherein it was observed that character of receipt of subsidy in hands of assessee has to be determined with respect to purpose for which subsidy is granted. In other words, one has to apply purpose test. point of time at which subsidy is paid is not relevant. source is immaterial. If object of subsidy is to enable assessee to run business more profitably then receipt is on revenue account. On other hand, if object of assistance under scheme is to enable assessee to set up new unit or expand existing unit then receipt of subsidy would be of capital account. Page 6 of 9 HC-NIC Page 6 of 9 Created On Fri Sep 16 12:28:01 IST 2016 O/TAXAP/110/2015 ORDER 12. Considering above decision of Supreme Court and applying ratio laid down therein to scheme under consideration, we are of opinion that Tribunal committed no error. 13. Insofar as Maharashtra scheme is concerned, our task is much easier. To begin with scheme itself is very specific in its purport and intent. Under notification dated 20.09.2001, by which such scheme was promulgated by 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. Government, therefore, finds need to support such complexes by offering incentives in form of entertainment duty. 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 duty was waived for subsequent two years whereas from sixth year, full duty would have to be paid. 14. very purpose of scheme thus was to give incentive to multiplex units which were found to be highly capital incentive. very scheme was considered in case of Commissioner of Income Tax, Kolhapur Vs. M/s. Chaphalkar Brothers, Pune (supra) in which, relying on decision in case of Sahney Steel and Press Works Ltd. and ors. vs. Commissioner of Income Tax (supra) and Commissioner of Income Tax Vs. Ponni Sugars and Chemicals Ltd., Bombay High Court upheld Tribunal s decision making following observations: 5. Since object of subsidy was to promote construction of multiplex theater complexes, in our opinion, receipt of subsidy would be on capital account. fact that subsidy was not meant for repaying loan taken for construction of multiplexes cannot be ground to hold that subsidy receipt was on revenue account, because, if object of scheme was to promote cinema houses by constructing multiplex theaters, then irrespective of fact Page 7 of 9 HC-NIC Page 7 of 9 Created On Fri Sep 16 12:28:01 IST 2016 O/TAXAP/110/2015 ORDER that multiplexes have been constructed out of own funds or borrowed funds, receipt of subsidy would be on capital account. In light of aforesaid objects of Scheme framed by State Government, decision of Income Tax Appellate Tribunal that amount of subsidy received by assessee is on capital account cannot be faulted. Accordingly, both appeals are dismissed with no order as to costs. 15. In this respect also looking to salient features of scheme noted above as also decision of Bombay High Court interpreting this very scheme in context of same situation, we uphold decision of Tribunal in this respect. 4. If subject matter of present appeal is examined in light of above, no interference would be called for with decision of Tribunal. 5. Under circumstances, appeal is meritless and deserves to be dismissed. Hence, dismissed but with observation that if any view is taken by Apex Court in abovereferred Civil Appeal, it would hold field, but it would be for Revenue to take appropriate steps and proceedings in this regard. 6. appeal is disposed of accordingly. (JAYANT PATEL, J.) (S.H.VORA, J.) DCIT, Circle-1(2), Baroda v. Inox Leisure Ltd