K. Gnanaprakasam, J. - (1.) AT the instance of the Revenue, the following question has been referred to us : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in deleting the addition of rupees one lakh received by the assessee from the Andhra Pradesh Government as subsidy for production of films and thereby holding that the subsidy received would not be taxable in the hands of the recipient as income ?"
(2.) ADMITTEDLY, the assessee is a private limited company engaged in the production of films. For the assessment year 1983-84, the assessee received a sum of Rs. 1,00,000 from the Government of Andhra Pradesh representing subsidy for the production of a feature film. As the said amount was brought to tax as the assessee's income, this question has been referred to us. Learned counsel for the Revenue has fairly submitted that a similar question had arisen before the Andhra Pradesh High Court in the case of CIT v. Chitra Kalpa , wherein it was held that subsidy was for making a film and was to be treated as a capital receipt because the film was a capital asset in the hands of the producer. The said view was affirmed by the apex court in the case of Sahney Steel and Press Works Ltd. v. CIT [1997] 228 ITR 253, wherein, a reference was also made to the case of CIT v. Udaya Pictures (P.) Ltd. , and held that the subsidy was granted by the State Government for producing new regional films. It was held that the entitlement to the subsidy sprang from the business carried on by the assessee and the amount was received during the course of conduct of the business. What was received by the assessee was not a capital receipt, but a subsidy. Taking into consideration the views of the various High Courts, the Supreme Court has held in the case of Sahney Steel [1997] 228 ITR 253 that obviously subsidy was given by way of incentive for capital investment and not by way of addition to the profits of the assessee. It is further observed that the subsidy was given as help for the setting up of the industry which was already there but not as an assistance after the industry commenced production. By holding so, the issue was answered against the Revenue and the benefit was given to the assessee. Applying the ratio of the said decision, we answer the question in favour of the assessee and against the Revenue.;