INCOME TAX ACT, 1961

--IncomeChargeability Amount received by way of exemption from payment for entertainment tax--Assessee-company engaged in the business of operating multiplexes and theatres in Pune and Baroda had, received an amount by way of exemption from payment of entertainment tax relatable to its Baroda and Pune multiplex unit. Such exemption was granted by the State Government under a scheme formulated under a Resolution titled as 'New Package Scheme of Incentive for Tourism Projects 1995 to 2000'. Assessee claimed that such tax exemption was granted for covering the capital outlay and therefore, such receipt was capital in nature. 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. Held: Was not justified as from the provisions of the scheme, it could be clearly seen that the entire purpose of granting tax exemption was for giving the boost to the tourism sector and in order to achieve such purpose, exemption from various taxes as may be applicable was granted. More so from the combined reading of salient features of the scheme, it was found that the incentive was being offered for recouping or covering a capital investment or outlay already made by the assessee and since the object of the scheme was to promote cinema hoses by constructing multiplex theaters, then irrespective of the fact that multiplexes had been constructed out of own funds or borrowed funds, the receipt of subsidy would be on capital account. Held: From the provisions of the incentive scheme of Gujarat Government it can be clearly seen that the entire purpose of granting tax exemption was for giving the boost to the tourism 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, there is no doubt in that the incentive was being offered for recouping or covering a capital investment or outlay already made by the assessee. Insofar as incentive scheme of Maharashtra Government is concerned, task is much easier. To begin with the scheme itself is very specific in its purport and intent. Under notification dated 20-9-2001, by which such scheme was promulgated by the State of Maharashtra, it is provided that lately people prefer to see movies at home. Multiplex theatres 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. The very purpose of the scheme thus was to give incentive to the multiplex units which were found to be highly capital incentive.