The Income Tax Appellate Tribunal (ITAT), Pune held that Entertainment subsidy falls under capital receipt. The appeal has been filed by the Revenue against the order of the Commissioner of Income Tax (CIT) for the Assessment Year 2013-14.
The Appellant assessee, Karandikar Enterprises, is in the business of film exhibition at Mangala Multiplex Pune, it runs the multiplex. The assessee has treated the Entertainment tax subsidy as a capital receipt. The Assessing Officer (A0) in the assessment order holds it as revenue receipt. The Commissioner of Income Tax (CIT) held it as Capital receipt following the High Court Judgment. The AO made certain disallowance under Section 37 of the Act, in the assessment order. The Departmental Representative, S P Walimbe for the Revenue relied on the order of the Assessing Officer (AO).
Capital receipts are receipts that create liabilities or reduce financial assets. They also refer to incoming cash flows. Capital receipts can be both non-debt and debt receipts. Loans from the general public, foreign governments, and the Reserve Bank of India (RBI) form a crucial part of capital receipts. The capital receipt has a nature of occurring again and again in the balance sheet. The capital receipt is a cash-flow receipt and is situated in the liability portion of the balance sheet. It gradually leads to the formation of all the liabilities that can be useful in the future and can be curated well.
The decrement of such assets eventually takes place in the future. Between capital and revenue receipts, the former is always free from taxation unless there is a provision related to it that leads to tax. The capital receipt is a non-routine receipt that eventually becomes load and causes vivid depletion related to the asset of the organization or business. All types of capital receipts are the cash that is received from the sale of a fixed asset.
The Tribunal bench comprising of S.S. Godara, Judicial Member, and Dr. Dipak P. Ripote, Accountant Member observed that “the CIT has followed the decision of Hon’ble Bombay High Court in the case of Chaphalkar Brothers. It is also observed that the Hon’ble Supreme Court vide order dated December 7 2017 upheld the said order of the Hon’ble High Court. Therefore, we do uphold the order of the CIT on the issue of Entertainment subsidy, that it is a capital receipt and not revenue receipt.”
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