Subsidy For Mulitplexes

Source: The Hitavada      Date: 19 Feb 2018 11:32:09


IN THE judgement of the case - Commissioner of Income Tax-I, Kolhapur v. M/s Chaphalkar Brothers, Pune, delivered on December 7, 2017, Justice Rohinton Fali Nariman and Justice Navin Sinha, at the Supreme Court, have affirmed the Bombay High Court’s judgement of June 8, 2011, as sustainable in law, as according to that, since the object of the subsidy was to promote construction of multiplex theatre complexes, receipt of subsidy would be on capital account.

The appeals in this case, arose from a batch of judgements dealing with cases from Maharashtra and West Bengal. Insofar as the civil appeals relating to Maharashtra are concerned, the subsidy scheme of the State Government took the form of an exemption of entertainment duty in Multiple Theatre Complexes newly set up, for a period of three years, and thereafter payment of entertainment duty at 25 pc for the subsequent two years.

The object of introducing the necessary amendments in the year 2001 in the Bombay Entertainment Duty Act, 1923 to effectuate the subsidy scheme was first done by way of an Ordinance before December 4, 2001, which ultimately became part of an Amendment Act. The said scheme was thereafter set out in the form of an amendment to the Statute contained in section 3(13) sub-clause (c) after which a new sub-clause f(1) was set out. In addition, a new sub-clause (13) was also inserted after section 3. In two civil appeals of this bunch, the assessment order in that case (of January 21, 2006), it was clarified that the said scheme was really to support the on-going activities of the multiplex and not for its construction. Since the scheme took the form of a charge on the gross value of the ticket and contributed towards the day-to-day running expenses, the Assessment Officer held that it was in the nature of a revenue receipt.

The appeal filed before the Commissioner met with the same fate and was dismissed substantially on the same reasoning. However, the Income-Tax appellate Tribunal by its judgement on June 30, 2009, went into the matter in some detail and after setting out the object of the scheme, went on to hold that the reimbursement is to cover-up the capital expenditure. After close examination, the Tribunal concluded that the purpose of the subsidy under the scheme is to help the growth of the industry. Its utilisation was pre-determined and is granted with an assurance to cover up the cost of construction. Once it is demonstrated to be so, then it cannot be said to be in the character of a revenue receipt. Contrary to this, it was in the nature of a capital receipt being an incentive to supplement the construction expenditure of the new set up of Multiplexes. Hence the Tribunal’s decision was in favour of the assessee.

The High Court dismissed the appeal on June 8, 2011 and held that receipt of the subsidy would be on capital account and the Tribunal’s decision cannot be faulted.
In the judgement of the case -Balaji Alloys v. CIT-(2011) 333 ITR 335, it was held by the J&K High Court that the scheme was capital in nature, despite the fact that the incentives were not available unless and until commercial production has started, and that the incentives in the form of excise duty or interest subsidy were not given to the assessee expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery.

In the words of the Supreme Court, applying the test contained in the two decisions - Sahney Steel & Press Works Ltd., Hyderabad V. Commissioner of Income Tax, A. P.-I, Hyderabad-(1997) 7 SCC 765 and Commissioner of Income Tax, Madras v. Ponni Sugars & Chemicals Ltd.(2008) 9 SCC 337, it was of the view that the object, as stated in the statement of objects and reasons, of the amendment Ordinance was that since the average occupancy in cinema theatres has fallen considerably and hardly any new theatres have been started in the recent past, the concept of a Complete Family Entertainment Centre, more popularly known as Multiplex Theatre Complex has emerged.

These complexes offer various entertainment facilities for the entire family as a whole. It is noticed that these complexes are highly capital intensive and their gestation period is quite long and therefore, they need Government support in the form of incentives qua entertainment duty. It was also added that the Government with a view to commemorate the birth centenary of late Shri V. Shantaram, decided to grant concession in entertainment duty to Multiplex Theatre Complexes to promote construction of new cinema houses in the State. This object is clear and unequivocal.

The object of the grant of the subsidy was in order that persons come forward to construct Multiplex Theatre Complexes, the idea being that exemption from entertainment duty for a period of three years and partial remission for a period of two years should go towards helping the industry to set up such highly capital intensive entertainment centres.

This being the case, it is difficult to accept Mr. Narsimha’s argument that it is only the immediate object and not the larger object which must be kept in mind in that the subsidy scheme kicks in only post construction, that is when cinema tickets are actually sold. The Court hastened to add that the object of the Scheme is only one - there is no larger or immediate object. That the object is carried out in a particular manner is irrelevant, as has been held in both the Apex-Court decisions.

The Court had no hesitation in holding that the finding of the J&K HC on the facts of the incentive subsidy contained in that case is absolutely correct. In that, once the object of the subsidy was to industrialise the State and to generate employment in the State, the fact that the subsidy took a particular form and the fact that it was granted only after commencement of production would make no difference.

Since the subsidy in the West Bengal case is similar to the Scheme in Maharashtra cases, in that the amount of entertainment tax collected was to be retained by the new Multiplex Theatre Complexes for a period not exceeding four years, the Court is of the view that West Bengal Cases must follow the judgement that has been delivered in the cases from Maharashtra. Accordingly, the Supreme Court dismissed the appeals filed by the Income-Tax Department.