ACIT 11(1), MUMBAI V. FUN MULTIPLEX P.LTD, MUMBAI

ITA 6069/MUM/2012

• Counselvise Citation: 606919914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 04-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAJESH RANJAN PRASAD
• Keywords: Opportunity of being heard; Earning of tax free income; Capital receipt
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI . . , , , BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 6069 / MUM./ 2012 ( / ASSESSMENT YEAR : 20 09 10 ) ADDL. COMMISSIONER OF INCOME TAX CIRCLE 1 (1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APPELLANT V/S FUN MULTIPLEX PVT. LTD. 84/4, SHAH INDUSTRIAL ESTATE OFF. NEW LINK ROAD OPP. LAXMI INDUSTRIAL ESTATE ANDHERI (W), MUMBAI 400 053 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACPK8431H . / ITA NO. 5581 / MUM./ 2012 ( / ASSESSMENT YEAR : 20 09 10 ) FUN MULTIPLEX PVT. LTD. 84/4, SHAH INDUSTRIAL ESTATE OFF. NEW LINK ROAD OPP. LAXMI INDUSTRIAL ESTATE ANDHERI (W), MUMBAI 400 053 .. / APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX CIRCLE 1 (1), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AACPK8431H / ASSESSEE BY : MR. RAJESH RANJAN PRASAD / REVENUE BY : MR. SANJIV M. SHAH FUN MULTIPLEX PVT. LTD. 2 / DATE OF HEARING 04 . 1 2 .2013 / DATE OF ORDER 11.12.2013 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT CROSS APPEALS HAVE BEEN PREFERRED BY EITHER PARTY CHALLENGING THE IMPUGNED ORDER DATED 31 ST JULY 2012, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 3, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) FOR THE ASSESSMENT YEAR 2009 10. WE FIRST PROCEED TO DISPOSE OFF THE REVENUE S APPEAL IN ITA NO. 6069 / MUM./2012, VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN TREATING THE ENTERTAI NMENT TAX SUBSIDY OF ` 7,06,30,885 GRANTED BY MAHARASHTRA GOVERNMENT AS CAPITAL RECEIPT WITHOUT CONSIDERING THE FACTS THAT SLP HAS FILED BY THE DEPARTMENT AGAINST THE HON'BLE JURISDICTIONAL HIGH COURTS DECISION IN CIT V/S CHAPHALKAR BROS. PUNE . 2 . BRIEF FA CTS, APROPOS THE AFORESAID GROUND ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF RUNNING, CONDUCTING, OPERATING AND MANAGING MULTIPLEX THEATERS AND OTHER ALLIED ACTIVITIES. THE ASSESSEE HAD CLAIMED DEDUCTION OF ENTERTAINMENT TAX OF ` 7,06,30,8 85, BY TREATING THE SAME AS CAPITAL RECEIPT ON THE GROUND THAT IT WAS A SUBSIDY GIVEN BY THE VARIOUS STATE GOVERNMENT S, THE DETAILS OF WHICH HAVE BEEN GIVEN IN PAGE 2 OF THE APPELLATE ORDER. THE ASSESSING OFFICER HELD THAT SUCH A SUBSIDY WAS FOR RUN NING OF THE BUSINESS AND, THEREFORE, IT IS A REVENUE RECEIPT AND, ACCORDINGLY, HE TAXED THE SAME. 3 . THE LEARNED COMMISSIONER (APPEALS), AFTER DISCUSSING THE ISSUE IN DETAIL, FOLLOWED THE DECISION OF THE JURISDICTIONAL HIGH COURT IN CIT V/S FUN MULTIPLEX PVT. LTD. 3 CHAPHALKAR BROS., ORDER DATED 8 TH JUNE 2011 REPORT ED AS [2013] 351 ITR 309 (BOM.) AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS) ARE AS UNDER: I HAVE CONSIDERED THE FACTS. IT IS SEEN THAT THE APPELLANT HAS COLLE CTED ENTERTAINMENT DUTY AS PART OF TICKETS OF CINEMA HALL. THE GOVERNMENT OF MAHARASHTRA VIDE RESOLUTION DATED 28.09.2001 HAS GRANTED CONCESSION IN ENTERTAINMENT DUTY TO THE MULTIPLEX THEATRE COMPLEX TO PROMOTE CONSTRUCTION OF NEW CINEMA HOUSES IN THE STAT E, TO COMMEMORATE BIRTH COMMEMORATE BIRTH CENTENARY OF CHITRAPATI LATE SHRI V. SHANTARAM. IN VIEW OF THIS, GOVERNMENT HAS DECIDED TO GRANT 100 PERCENT FOR THE FIRST 3 YEARS FROM THE DATE OF COMMENCEMENT OF SUCH COMPLEX AND 75 PERCENT FOR SUBSEQUENT 2 YEARS . FURTHER, THE HON'BLE BOMBAY HIGH COURT VIDE IT ORDER IN THE CASE OF CIT VS. CHAPHALKAR BROTHERS (SUPRA), WHEREIN THE HON'BLE HIGH COURT UPHELD THE DECISION OF ITAT AND AT PARA 5 OF THE ORDER HELD AS UNDER: SINCE THE OBJECT OF SUBSIDY WAS TO PROMOTE CON STRUCTION OF MULTIPLEX COMPLEXES, IN OUR OPINION, RECEIPT OF SUBSIDY WOULD BE ON CAPITAL ACCOUNT. THE FACT THE SUBSIDY WAS NOT MEANT FOR REPAYING THE L OAN 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, THE 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. IN THE LIGHT OF THE AFORESAID OBJECTS OF THE SCHEME FRAMED BY THE STATE GOVERNMENT, THE DECISION OF THE INCOME TAX APPELLANT TRIBUNAL THAT THE AMOUNT OF SUBSIDY RECEIVED BY THE ASSESSEE IS ON CAPITAL ACCOUNT CANNOT BE FAULTED. ACCORDINGLY, BOTH THE APPEALS ARE DISMISSED WITH NO ORDER AS TO COSTS . IN VIEW OF THE ABOVE FINDINGS OF THE HON'BLE BOMBAY HIGH COURT THE RECEIPT IS SQUARELY COVERED IN FAVOUR OF THE APPELLANT. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, THE SUBSIDY ON ACCOUNT OF EN TERTAINMENT EXEMPTION IS TREATED AS RECEIPT ON CAPITAL ACCOUNT. AS CAN ALSO BE SEEN FROM THE SUBSIDY GRANTED BY THE GOVERNMENTS OF OTHER STATES THAT SIMILAR SUBSIDIES WERE GRANTED BY THE GOVERNMENT OF UTTAR PRADESH BY ITS LETTER DATED 12.11.2001 ADDRESSED TO ALL THE DISTRICT MAGISTRATES OF UP REGARDING AMENDMENT DATED 13.07.1999 IN CONNECTION WITH THE PROMOTION POLICIES FOR THE OPENING OF MULTIPLEX THEATRES. GOVERNMENT OF GUJARAT'S RESOLUTION DATED 20.12.1995 UNDER THE NEW PACKAGE SCHEME OF INCENTIVES FOR TOURISM PROJECTS 1995 - 2000 ALSO PROVIDES FOR VARIOUS SUBSIDIES FOR A PERIOD OF 5 YEARS FROM THE YEARS UPTO 2000. IN VIEW OF THESE FACTS, THE SUBSIDY ON ACCOUNT OF ENTERTAINMENT TAX IS COVERED BY THE DECISION IN THE CASE OF JURISDICTIONAL HIGH COURT IN THE CASE OF CHAPHALKAR BROTHERS, PUNE IN ITA NO. 1036 OF 2010 AND ITA NO.1147 OF 2010 OF THE HON'BLE FUN MULTIPLEX PVT. LTD. 4 BOMBAY HIGH COURT DATED 8 - 6 - 11 AND ALSO KALP A NA PALACE - 275. ITR 306 (AIL) AND RELIANCE INDUSTRIES - 88 I T R 273 (MUM) (S8). THEREFORE, RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, THE AO IS DIRECTED TO TREAT THE RECEIPTS ON CAPITAL IN NATURE. THIS GROUND OF APPEAL IS THEREFORE, ALLOWED . 4 . T HE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 5 . T HE LEARNED COUNSEL F OR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THIS ISSUE STANDS COVERED BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN CHAPHALKAR BROS. (SUPRA), WHEREIN, ON IDENTICAL NATURE OF ENTERTAINMENT DUTY SUBSIDY SCHEME, THE HIGH COURT HAS HELD THAT IT IS A CAPITAL RECEIPT. 6 . AFTER CAREFULLY GOING THROUGH THE FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS), WE FIND THAT THIS ISSUE OF ENTERTAINMENT SUBSIDY IN CASE OF MULTIPLEXES AND THEATERS HAS BEEN DEALT BY THE JURISDICTIONAL HIGH COURT AFTER ANALYZING THE OBJECT AND THE PURPOSE OF THE SUBSIDY AND CAME TO THE CONCLUSION THAT IT IS A CAPITAL RECEIPT. THE JURISDICTIONAL HIGH COURT HAS REFERRED AND RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN POONI SUGAR AND CHEMICALS LTD., [2008] 306 ITR 392 (SC) AND SAHNEY STEEL AND PRESS WORKS LTD. V/S CIT, [1997] 228 ITR 253 (SC) . THE RELEVANT CONCLUSION OF THE HIGH COURT IS AS UNDER: IN THE PRESENT CASE, AS NOTED BY THE INCOME - TAX APPELLATE TRIBUNAL, THE OBJECT OF GRANTING ENTERTAINME NT DUTY SUBSIDY BY THE STATE GOVERNMENT WAS AS FOLLOWS: 'I. AS A RESULT OF THE ONSLAUGHT OF CABLE TELEVISION AND ADVERT ISE MENT IN THE FIELD OF INFORMATION TECHNOLOGY, THE AVERAGE OCCUPANCY IN CINEMA THEATRE HAS FALLEN CONSIDERABLY AND HARDLY ANY NEW THEA TRES HAVE BEEN STARTED IN THE RECENT PAST. PUBLIC AT LARGE THESE DAYS PREFER TO SEE MOVIES AT HOME. KEEPING IN VIEW THIS SCENARIO, A CONCEPT OF COMPLETE FAMILY ENTERTAINMENT CENTRE, MORE POPULARLY KNOWN AS 'MULTIPLEX THEATRE COMPLEX' HAS EMERGED. THESE MUL TIPLEX THEATRE COMPLEXES OFFER VARIOUS ENTERTAINMENT FACILITIES FOR THE ENTIRE FAMILY UNDER SINGLE ROOF. HOWEVER, THESE COMPLEXES ARE HIGHLY CAPITAL INTENSIVE, THEIR GESTATION PERIOD IS ALSO QUITE LONGER, AND, THEREFORE, NEED GOVERNMENT SUPPORT AND INCENTI VE IN ENTERTAINMENT DUTY. FUN MULTIPLEX PVT. LTD. 5 2. THE GOVERNMENT HAS, THEREFORE, WITH A VIEW TO COMMEMORATE BIRTH CENTENARY OF CHITRAPATI LATE SHRI V. SHANTARAM, DECIDED TO GRANT CONCESSION IN ENTERTAINMENT DUTY TO MULTIPLEX THEATRE COMPLEXES TO PROMOTE CONSTRUCTION OF NEW C INEMA HOUSES IN THE STATE.' SINCE THE OBJECT OF SUBSIDY WAS TO PROMOTE CONSTRUCTION OF MULTIPLEX THEATRE COMPLEXES, IN OUR OPINION, RECEIPT OF SUBSIDY WOULD BE ON CAPITAL ACCOUNT. THE FACT THAT THE SUBSIDY WAS NOT MEANT FOR REPAYING THE LOAN TAKEN FOR C ONSTRUCTION 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. IN THE LIGHT OF THE AFORESAID OBJECTS OF THE SCHEME FRAMED BY THE STATE GOVERNMENT, THE DECISION OF THE INCOME - TAX APPELLATE TRIBUNAL THAT THE AMOUNT OF SUBSIDY RECEIVED BY THE ASSESSEE IS ON CAPITAL ACCOUNT CANNOT BE FAULTED. ACCORDINGLY, BOTH THE APPEALS ARE DISMISSED WITH NO ORDER AS TO COSTS. 7 . IN VIEW OF THE AFORESAID DECISION OF THE JURISDICTIONAL HIGH COURT WHICH APPLIES MUTATIS MUTANDIS TO THE FACTS OF THE PRESENT CASE ALSO , WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY THE REVENUE AND, THEREFORE, THE FINDINGS GIVEN BY THE LEARNED COMMISSIONER (APPEALS) IS HEREBY AFFIRMED. THUS, GROUND NO.1 IS TREATED AS DISMISSED. 8 . IN GROUND NO.2, THE LEARN ED COUNSEL SUBMITTED THAT IN THE EARLIER YEAR I.E., IN THE ASSESSMENT YEAR 2008 09, THE ISSUE OF SECTION 14A HAS BEEN SET ASIDE TO THE FILE OF THE LEARNED COMMISSIONER (APPEALS). IN THIS YEAR ALSO, THE MATTER CAN BE SET ASIDE TO THE FILE OF THE ASSESSING O FFICER ENABLING HIM TO ADJUDICATE THE SAME IN THE LIGHT OF THE OBSERVATIONS AND THE DIRECTIONS GIVEN BY THE TRIBUNAL. THE RELEVANT FINDINGS OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2008 09 WERE AS UNDER: 7. WE HAVE PERUSED THE RECORDS AND CONSIDERED RIVAL CONTENTIONS CAREFULLY. THE DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME ARE REQUIRED TO BE MADE UNDER SECTION 14A AS PER RULE 8D, WHICH IS APPLICABLE FROM ASSESSMENT YEAR 2008 - 09 IN VIEW OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GO DREJ & BOYCE MFG CO LTD VS DCIT (328 ITR 81). THE APPLICABILITY OF RULE 8D IN THE YEAR UNDER REFERENCE THEREFORE IS NOT IN DISPUTE. HOWEVER, THE DISALLOWANCE OF EXPENSES U/S.14A CAN BE MADE ONLY AFTER AO RECORDS SATISFACTION THAT FUN MULTIPLEX PVT. LTD. 6 THE CLAIM OF THE ASSESSEE THAT NO EXPENSES HAVE BEEN INCURRED IS NOT CORRECT. SUCH SATISFACTION IS REQUIRED TO BE ARRIVED IN AN OBJECTIVE MANNER AFTER GIVING REASONS FOR THE SAME. IN THIS CASE, THE BULK OF DISALLOWANCE IS ON ACCOUNT OF INTEREST EXPENDITURE ON ACQUISITION OF SHARES OF THE SUBSIDIARY. ASSESSEE HAS CLAIMED THAT INVESTMENT IN SHARES OF SUBSIDIARY HAD BEEN MADE OUT OF INTEREST FREE FUNDS OBTAINED FROM THE HOLDING COMPANY. NO CLEAR FINDINGS HAVE BEEN RECORDED BY EITHER OF THE AUTHORITIES BELOW THAT INVESTMENT IN SHARES HA D NOT BEEN MADE OUT OF OWN FUNDS. ONCE IT IS ESTABLISHED THAT INVESTMENT IN SHARES HAVE BEEN MADE FROM OWN FUNDS, NO DISALLOWANCE OF INTEREST EXPENDITURE CAN BE MADE EITHER DIRECT OR INDIRECT UNDER THE PROVISIONS OF RULE 8D. THIS ASPECT THEREFORE REQUIRES FRESH EXAMINATION AT THE LEVEL OF LD . CIT(A). ACCORDINGLY, THE ISSUE OF ADDITION U/S.14A IS RESTORED BACK TO THE FILE OF LD CIT(A) FOR FRESH DECISION. SINCE ADJUSTMENT U/S.115JB IS ALSO LINKED TO THE DISALLOWANCES UNDER SECTION 14A, THIS ISSUE IS ALSO REST ORED. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) BELOW AND RESTORE THE SAME BACK TO THE FILE OF LD CIT(A) FOR FRESH ADJUDICATION AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. 9 . THE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO ADMITTED THAT THIS ISSUE HAS BEEN SET ASIDE IN THE EARLIER YEAR BY THE TRIBUNAL. 10 . IN VIEW OF THE AFORESAID SUBMISSIONS, WE ARE OF THE OPINION THAT IN THIS YEAR ALSO, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE OBSERVATIONS AND THE DIRECTIONS GIVEN BY THE TRIBUNAL. ACCORDINGLY, GROUND NO.2 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 11 . 11. IN THE RESULT, REVENUES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. WE NOW TAKE UP ASSESSEES APPEAL IN ITA NO.5581/MUM./2012, VIDE WHICH, FOLLOWING GROUNDS HAVE BEEN RAISED: 1. THE LD. C IT(A) ERRED IN LAW AND FACTS IN UPHOLDING DISALLOWANCE OF ` 32,09,071 OUT OF INTEREST UNDER SECTION 14A OF THE ACT IN SPITE OF INTEREST FREE FUNDS ARE DIRECTLY INVESTED IN THE INVESTMENT MADE. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO TH E FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. FUN MULTIPLEX PVT. LTD. 7 2. THE LD. CIT(A) ERRED IN LAW AND FACTS IN UPHOLDING DISALLOWANCE OF ` 3,60,995 OUT OF EXPENSES UNDER SECTION 14A OF THE ACT MECHANICALLY CALCULATED AS PER RULE 8D @ 0.5% OF THE AVERAGE INVESTMENTS, EVEN THOUGH ASSESSEE HAS NOT INCURRED ANY EXPENSES HAVING NEXUS WITH OR FOR INVESTMENTS. THE REASONS GIVEN BY HIM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF THE CASE AND AGAINST THE PROVISIONS OF LAW. 12 . SINCE THE ISSUE OF DISALLOWANCE OF 14A, HAS BEE N SET ASIDE TO THE FILE OF THE ASSESSING OFFICER, THEREFORE, THE AFORESAID ISSUE, AS RAISED BY THE ASSESSEE, IS ALSO SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATING THE SAME IN THE LIGHT OF THE OBSERVATIONS MADE BY THE TRIBUNAL. 13 . 13. IN THE RESULT, ASSESSEE S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 14 . 14. TO SUM UP, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AND REVENUE S APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11 TH DECEMBER 2013 ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DECEMBER 2013 SD / - . . P.M. JAGTAP ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 11 TH DECEMBER 2013 FUN MULTIPLEX PVT. LTD. 8 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY. /ASSTT. REGISTRAR) , / ITAT, MUMBAI