JAGAPATHY ART PICTURES Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to us for our consideration, at the instance of the assessee who had received subsidy from the Government of Andhra Pradesh for the assessee's film entitled "Muddala Kodukku" which was produced in the year ending December 31, 1979, is 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. 1 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.

(2.) THE Supreme Court in the case of Sahney 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 1TR 540 wherein it was held that the 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 ; 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.