DINESH MAHESHWARI, J. - (1.) THIS appeal by the Revenue against the order dated 21.02.2007 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur ('ITAT') in relation to the assessment year 2000 -01 has been admitted for consideration on the following substantial question of law: "Whether on the facts and in the circumstances of the case as well as in the law the learned Tribunal was justified in confirming the order of the learned Tribunal deleting the addition of Rs.9,13,143/ - made on account of disallowance of entertainment tax capitalised as subsidy ignoring the facts of the cases of Sahney Steel and Press Works Ltd. and Ors Vs. C.I.T. reported in 228 ITR -253 and CIT Vs. Rajaram Maize Products reported in 251 ITR -427 (MP) -
(2.) THE question aforesaid has arisen on and in the following facts and circumstances: While conducting assessment proceedings in relation to the respondent -assessee, the Assessing Officer ('AO') observed that the assessee firm, running a cinema talkies in the name of Samta Chavigrah at Pratapgarh, had shown receipts of Rs.18,26,286/ -, which included entertainment tax of Rs.9,13,143/ -; and after showing total receipts of Rs.18,26,286/ - in the Profit and Loss Account, the assessee had transferred Rs.9,13,143/ - to entertainment subsidy account and thereby, had shown only the receipts of Rs.9,13,143/ - during the relevant period. The Assessing Officer wanted to know the nature of this subsidy and also a justification for the assessee's claim of this amount as deduction. The assessee explained that there was a scheme of the Government of Rajasthan to encourage construction of new cinema halls by providing such a subsidy in the form of entertainment tax for a particular period. A copy of notification issued in this regard was placed before the Assessing Officer. But the Assessing Officer did not agree with the assessee and treated this amount as its income. The Appellate Commissioner ['CIT(A)'], however, accepted the plea of the assessee after relying, inter alia, on the State Government's notification and on the decision of the Hon'ble Supreme Court in the case of CIT Vs. P.J. Chemicals Limited: [1994] 210 ITR 830; and deleted the entire addition by treating the entertainment subsidy as a capital receipt because this amount had been credited in the books of accounts of the assessee as a liability under the head "Capital Subsidy". The ITAT endorsed the views of the CIT (A) while observing that the impugned amount being that of grant -in -aid, was required to be treated as a capital receipt. The ITAT examined the exemption notification issued under the Rajasthan Entertainments and Advertisements Tax Act, 1957 ('the Act of 1957') and held as under: - "13.......As per this notification, the assessee is not required to pay any entertainment tax for first five years. Any amount collected under the head entertainment tax and additional tax collected by him, from the date of exhibition of picture in newly constructed cinema house, would amount to subsidy paid by the State Government. This amount has to be treated as a liability being capital subsidy reserve. This amount is not required to be deposited for a period of five years and actually this is a sort of a subsidy, which is to be treated as a capital reserve. The remission for new cinema for remitting entertainment tax payable to new cinema house under construction was formulated by the State Government to assist the assessee for expenditure actually incurred in the construction of a new cinema house for the growth of new cinema building in the public interest without any object of supplementing the trade receipts. The remission has been granted by way of incentive of capital receipts in the construction of new cinema building. The purpose and object of the scheme is very clear and for which certain conditions are imposed upon the cinema owners. Like that remission is not an income but a liability attached to it on happening of a certain contingency and which is a liability and not income. In the given case, the assessee has been collecting the entertainment tax and keeping the same as per the scheme and has been running the cinema for the last five years continuously. The impugned amount has been credited in the books of accounts of the assessee as a liability under the head 'Capital Subsidy Reserve'. Obviously, a grant -in -aid has to be treated as a capital receipt, even if it is given after the business has been setup. This was precisely held by the Hon'ble Allahabad High Court in the case of Kalpana Palace Vs. CIT reported in [2004] 141 Taxman 392 [Allahabad], a case which has also been relied by the ld. CIT(A). In our considered opinion, the Assessing Officer is not correct in treating the entertainment subsidy in question as a revenue receipt and therefore, the ld.CIT(A) is justified completely in deleting the entire addition. In this way ground No.2 of revenue's appeal also fails."
(3.) IN challenge to the order aforesaid, it has strenuously been contended on behalf of the Revenue that in view of the pronouncement of the Hon'ble Supreme Court in the case of Sahney Steel & Press Works Ltd. Vs. CIT : (1997) 228 ITR 253 and CIT Vs. Rajaram Maize Products: (2001) 251 ITR 427, the findings recorded by the CIT(A) and ITAT are erroneous and the Appellate Authorities have erred in deleting the addition of Rs.9,13,143/ -. It is contended that collection of entertainment tax was optional for the assessee particularly when the exemption had been granted but when the same had indeed been collected, it formed the part of the receipts and could not have been allowed as capital subsidy.;