JAGAPATHY ART PICTURES VS COMMISSIONER OF INCOME-TAX, 2001 PTD-MADRAS-HIGH-COURT-INDIA 3604 (1998)

Income‑tax‑‑‑

‑‑‑‑Capital or revenue receipt‑‑‑Subsidy‑‑‑Film production‑‑‑Cash subsidy received from Government‑‑‑Subsidy paid to producer of film after certification by Central Board of Film Censors‑‑‑Not an amount paid to assist assesses to make film‑‑‑Subsidy received by assessee was revenue receipt and taxable as such‑‑‑Indian Income Tax Act, 1961.

For the assessment year 1981‑82, the assessee had received subsidy from the Government of Andhra Pradesh for the production of a Telegu film. Under the subsidy scheme, subsidy was paid to the producer only after the picture has been certified by the Central Board of Film Censors. The Tribunal held that it was a revenue receipt. On a reference:

Held, that the subsidy was not paid during the course of the production and was not meant to assist the producer in financing the movie which was filmed in the State. The payment made to the assessee was in the circumstances merely a supplementary trade receipt the assessee's eligibility for receiving the subsidy being the prior production of the picture in the State of Andhra Pradesh and its certification by the Central Board of Film Censors. The amount paid to the assessee was not an amount paid to assist the assessee to make the movie and it had not been utilised for the purpose of making the movie. The subsidy amount was paid only to encourage people like the assessee to choose Andhra Pradesh as the locale for their movies. Therefore, the Tribunal was right in holding that the amount of subsidy of Rs.1 lakh received by the assessee from the Government of Andhra Pradesh was a revenue receipt and taxable as such.

CIT v. Chitra Kalpa (1989) 177 ITR 540 (AP); CIT v. Udaya Pictures (P.) Ltd. (1997) 225 ITR 394 (Ker.); Sadichha Chitra v. CIT (1991) 189 ITR ,"14 (Bom.) and Sahney. Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253 (SC) ref.

P.P.S Janarthana Raja for Subbaraya Aiyar, Padmanabhan and Ramamani for the Assessee.

C.V. Rajan for the Commissioner.

JUDGMENT

R. JAYASIMHA BABU, J.‑‑‑The question referred to us for out consideration, at the instance of the assessee who had received subsidy from the Government of Andhra Pradesh for the assesee's film entitled "Muddala Kodukku"which was produced in the year ending December 31, 1979, it as to whether, on the facts and in the circumstances of the case, the Income‑tax Appellate Tribunal has rightly held that the subsidy of Rs. l lakh received by the assessee from the Government for the production of his film "Muddala Kodukku" is taxable as revenue receipt? The assessment year with which we are concerned is 1981‑82.

The Supreme Court in the case of Shany Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253 considered a scheme which provided for subsidies to new industries and held that the subsidy paid by the State to such industries to encourage them to set up the industries within the State paying the subsidy was not a capital receipt but a revenue receipt and that the recipient of the subsidy was not required to spend the money for any particular purpose. The Court further held that the subsidies had not been granted for production of or bringing into existence any new asset and in those circumstances the subsidy amount was of a revenue nature and would have to be taxed accordingly. The apex Court in that judgment referred to the decision rendered by the Andhra Pradesh High Court in the case of CIT v. Chitra Kalpa (1989) 177 ITR 540 wherein it was held that the subsidy was for making a film and was to be treated as a capital receipt because the filmwas a capital asset in the hands of the producer; to the judgment of the Kerala High Court in the case of CIT v. Udaya Pictures (P.) Ltd. (1997) 225 ITR 394 wherein the Kerala High Court held that the subsidy granted by the State Government for producing new regional films was not a capital receipt and to the judgment of the Bombay High Court in the case of Sadichha Chitra v. CIT (1991) 189 ITR 774 wherein the Bombay High Court held that the said subsidy released to the producer of the movie was to assist him in acquiring a new capital asset to meet part of cost of the new film in public interest, as the subsidy had been released during the course of the production of the movie and the amount of the subsidy was not to be regarded as a revenue receipt.

The Supreme Court approved the view taken by the Kerala High Court which has held that the subsidy was not a capital receipt and also observed that the decision of the Bombay High Court was based on the vital distinction that the subsidy was released to the producer during the course of production and, therefore, was not a subsidy which could be regarded as a revenue receipt. The Court did not approve the view of the Andhra Pradesh High Court which held that the subsidy amount paid to the film producer is a capital receipt.

The scheme under which the assessee here was paid the subsidy provides for the payment to the producer only after the picture has been certified by the Central Board of Film Censors. It is obvious that the subsidy is not paid during the course of the production and was not meant to assist the producer in financing the movie which was filmed in the State. The payment made to the assessee was in the circumstances merely a supplementary trade receipt, the assessee's eligibility for receiving the subsidy being the prior production of the picture in Andhra Pradesh and its certification by the Central Board of Film Censors.

The amount paid to the assessee, therefore, was not an amount paid to assist the assessee to make the movie and it had not been utilised for the purpose of making the movie. The subsidy amount was paid only to encourage people like the assessee to choose Andhra Pradesh as the locale for their movies and nothing more.

The Tribunal was, therefore, right in holding that the amount of subsidy received by the assessee from the Government of Andhra Pradesh was a revenue receipt and taxable as such. The question referred to us is, therefore, answered in the affirmative, against the assessee and in favour of the Revenue. The Revenue shall be entitled to cost of Rs.750.

M.B.A./356/FC

Reference answered.