Entertainment Tax Receipt is Not Taxable: ITAT [Read Order]

Entertainment Tax - Taxscan

A two-member bench of the Income Tax Appellate Tribunal ( ITAT ) in The DCIT vs. Shipra Hotels Ltd has held that Entertainment Tax Receipt cannot be taxed as revenue receipts when the State Government under its scheme grants entertainment tax subsidy for the “promotion and growth of the multiplex industry”.

Shipra Hotels, the assessee company, engage in the business of hotels, trading of IMFL, real estate and running of mall and multiplexes. The assessee altered the return of income whereby entertainment tax receipt was shown as capital receipt against revenue receipt shown in the original return of income.  Upon a query made by the Assessing Officer (A.O.) regarding the alteration of entertainment tax receipt, the assessee filed a written submission before him.

The assessee explained in the written submission that, as per the Uttar Pradesh State Government’s Incentive Scheme for “promotion for construction of multiplex”, a grant of entertainment tax subsidy was conferred on the Assessee. It was further stated that Entertainment tax subsidy received by JAM Multiplex under UP Government’s scheme for promotion of construction of Multiplexes is a capital receipt as it is given in the manner of grant in aid for setting up the multiplex which is not chargeable to tax.

The A.O, however, noted that multiplexes have been given relaxation in payment of entertainment tax after they have been established. As per the scheme granted, the assessee is entitled to receive entertainment tax for first 5 years which will be exempted100% from entertainment tax, subject to the condition that if the cost of construction of multiples is recovered before 5 years, then, for the remaining period, no such benefit shall be granted. A.O. further noted that entertainment tax subsidy granted by the State of U.P. is given after the multiplex has started the operation. The purpose of the scheme is to help the multiplex run profitably. Based on these findings, the A.O treated the amount as revenue receipt.

The assessee challenged the order of the A.O. treating the subsidy as revenue receipt and thereafter, taking it as being outside the scope of relief under section 80IB of the Income Tax Act. The Ld. CIT (A), after considering the explanation of assessee and purpose of the subsidy held that the receipt is the capital receipt and allowed the appeal of the assessee.

Against this decision of the Ld.CIT (A), the Revenue preferred an appeal to the ITAT. The issue is whether the Ld. CIT(A) was justified in law and on facts in treating the entertainment tax collected as the capital receipt as the assessee was showing entertainment tax receipt as revenue receipt in the assessment years earlier than A.Y. 2008-2009.

While dismissing the appeal, Tribunal bench comprising of Judicial Member Bhavnesh Saini and Accountant Member L.P Sahu held In the case of the assessee, the Uttar Pradesh State Government issued a letter to the assessee for grant of entertainment tax subsidy and based on the relevant Scheme of Uttar Pradesh Government, it reveals that subsidy was granted to multiplexes under Uttar Pradesh Government’s Incentive Scheme for “Promotion for construction of Multiplexes” and overall quantum of subsidy is limited to the cost of construction,(excluding cost on land). Entertainment subsidy received by the assessee under Uttar Pradesh Government Scheme for the promotion of construction of multiplexes was, thus, capital receipt. The object of grant of subsidy was in order that the persons come forward to construct Multiplex Theatre Complexes.”

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