ITO 9(2)(3), MUMBAI vs. NIMKO ENTERTAINMENT LTD, MUMBAI

BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER. (Assessment Year:2011-12) ITO-9(2)-3, Mumbai-20 Appellant Vs. M/s. Nikmo Entertainment Ltd. 10th Floor, 215, Atrium, Andheri Kurla Road, Andheri East, Mumbai-400059 Respondent PAN: AABCN9974G अपीलाथ� की ओर से /By Appellant : Shri Shivaji B. Ghode, D.R. ��यथ� क� ओर से/By Respondent : Shri Anuj Kisnadwala, A.R. सुनवाई क� तारीख/Date of Hearing : 03.08.2016 घोषणा क� तारीख/Date of Pronouncement : 08.08.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M: This appeal has been filed by Revenue against the order of Commissioner of Income-Tax (Appeals)-20, Mumbai, dated 22.09.2014 for A.Y. 2011-12 on following ground: “1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding Entertainment Duty collected by the assessee as “Capital Receipt” relying on the decision of the Hon’ble Bombay Court in the case of CIT vs. Chaphalkar A.Y. 11-12 [ITO vs. M/s. Nikmo Entertainment Ltd.] Page 2 Brothers without appreciating the fact that the department has not accepted the said decision and has filed an SLP which is pending before the Hon’ble Hon’ble Supreme Court?”

"3.3 I have perused the assessment order and written submissions of the appellant. The Hon'ble Bombay High Court in CIT vs Chaphalkar Brothers (ITXANo.1036 of 2010 dated 08.06.2011) considered the issue of subsidy of entertainment tax by Government of Maharashtra. It was held that: (i) a subsidy is a capital receipt when it is for the promotion of a new industry, while it is a revenue receipt liable to tax if it is granted to supplement the profits of an industry, (ii) the subsidy granted by the State of Maharashtra, is or the promotion of multiplexes, (iii) the subsidy was granted in the form of a concession on entertainment duty, (iv) that the object behind the subsidy was to promote construction of new cinema houses', (v) the State Government had decided to grant the subsidy in view of the fact that setting up new multiplex complexes is highly capital intensive, with a long gestation period. 3.3.1. The Honble Bombay High Court relied on Ponni Sugars (306 ITR 392) Where The Hon'ble Supreme Court had explained its previous Judgement in Sahney Steel and Press Works Ltd vs CIT (228 ITR 253) as under:-

A.Y. 11-12 [ITO vs. M/s. Nikmo Entertainment Ltd.] Page 3 "The importance of the judgement of this court in Sahney Steel case lies in the fact that it has discussed and analyzed the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. That test is that the character of the receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On this aspect there is no dispute. If the object of the subsidy scheme was 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 subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account." 3.3.2. The Hon'ble Bombay High Court held that the ratio of Ponni Sugars was that only the object of the subsidy scheme must be considered and on the facts of the case, the subsidy was introduced with the object of promoting the construction of multiplexes; and the point of time in which it could be availed - the form in which it was granted - was not relevant. The Hon'ble Bombay High Court held:- “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 theatres, 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. 3.3.3. Following the decision of Hon'ble Bombay High Court as discussed above, this ground of appeal is allowed.”

ITA No.7042/Mum/14 A.Y. 11-12 [ITO vs. M/s. Nikmo Entertainment Ltd.] Page 4 2.1 This CIT(A) decision is fortified by the decision of ITAT “B” Bench in in assessee’s own case for A.Y. 2009-10, wherein Tribunal has held as under:

“6. After considering the impugned order and on perusal of record, we are of the opinion that the ld.CIT(A) is justified in holding entertainment duty collected by the assessee is a capital receipt as it is in conformity with the decision of the jurisdictional High Court. Accordingly, we affirm the order of ld. CIT(A) and dismiss the ground taken by the revenue.”

Nothing contrary was brought to our knowledge on behalf of Revenue. Facts being similar, so following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has held that entertainment duty of Rs.1,98,77,770/- taxed as revenue receipt was rightly deleted by CIT(A). We uphold the same.

Pronounced in the open Court on this the 08th day of August, 2016.