CIT vs. Bougainvillea Multiplex Entertainment Centre (P.) Ltd.; [2015] 55 taxmann.com 26 (Delhi):
The assessee was engaged in the business of running of multiplex cinema halls and shopping malls. It had been the beneficiary of a scheme promulgated by the State Government wherein it had 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. The Tribunal allowed the deduction claimed by the assessee.
On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:
“i) The UP Scheme under which the assessee claims exemption to the extent of entertainment tax subsidy, claiming it to be capital receipt, is clearly designed to promote the investors in the cinema industry encouraging establishment of new multiplexes. A subsidy of such nature cannot possibly be granted by the Government directly. Entertainment tax is leviable on the admission tickets to cinema halls only after the facility becomes operational. Since the source of the subsidy is the public at large which is to be attracted as viewers to the cinema halls, the funds to support such an incentive cannot be generated until and unless the cinema halls become functional.
ii) The State Government had offered 100 per cent tax exemptions for the first three years reduced to 75 per cent in the remaining two years. Thus, the amount of subsidy earned would depend on the extent of viewership the cinema hall is able to attract. After all, the collections of entertainment tax would correspond to the number of admission tickets sold. Since the maximum amount of subsidy made available is subject to the ceiling equivalent to the amount invested by the assessee in the construction of the multiplex as also the actual cost incurred in arranging the requisite equipment installed therein, it naturally follows that the purpose is to assist the entrepreneur in meeting the expenditure incurred on such accounts. Given the uncertainties of a business of this nature, it is also possible that a multiplex owner may not be able to muster enough viewership to recover all his investments in the five year period.
iii) Seen in the above light, it was unreasonable on the part of the Assessing Officer to decline the claim of the assessee about the subsidy being capital receipt. Such a subsidy by its very nature, was bound to come in the hands of the assessee after the cinema hall had become functional and definitely not before the commencement of production. Since the purpose was to offset the expenditure incurred in setting up of the project, such receipt (subject, of course, to the cap of amount and period under the scheme) could not have been treated as assistance for the purposes of trade.
iv) The facts that the subsidy granted through deemed deposit of entertainment tax collected does not require it to be linked to any particular fixed asset or that is accorded ‘year after year’ do not make any difference. The scheme makes it clear that the grant would stand exhausted the moment entertainment tax has been collected (and retained) by the multiplex owner meeting the entire cost of construction (apparatus, interiors etc. included), even if it were ‘before completion of five years’.
v) For the foregoing reasons, the Tribunal in the impugned orders has taken a correct view of law on the basis of available facts to conclude that the assessee is entitled, in terms of the UP Scheme, to treat the amounts collected towards entertainment tax as capital.
vi) The question of law raised in these appeals is, thus, answered in the negative against the revenue.”
