COMMISSIONER OF INCOME TAX-I, KOLHAPURversusMIS. CHAPHALKAR BROTHERS PUNE

                       [2017] 12 S.C.R. I 083



       COMMISSIONER OF INCOME TAX-I, KOLHAPUR                         A
                                 v.
             MIS. CHAPHALKAR BROTHERS PUNE
                (Civil Appeal Nos. 6513-6514 of2012)
                       DECEMBER 07, 2017                              13

           [R. F. NARIMAN AND NAVIN SINHA, JJ.]
         Bombay Entertainment Duty Act, 192 3 - Bombay
  Entertainment Duty (Amendment) Act, 2001 - s.3(13)(c),(f-l) -
  Subsidy scheme introduced by the State to encourage development C
· of Multiplex Theatre complexes - Nature of - Assessment officer
  and the commissioner held that scheme took the form of a charge
  on the gross value of ticket and contributed towards the day to day
  running expense, therefore it was in the nature of a revenue receipt
  - Howeve1; Tribunal and the High Court held that subsidy was for
  the p111pose of helping the growth of an industry, hence it was in D
  the nature of capital receipt - Held: If the object of the assistance
  under the Subsic~v Scheme is to enable the asses.see to set up a new
  unit or to expand the existing unit then the receipt of the subsidy is
  on capital account - It is the object for which the subsidy/assistance
  is given which determines the nature of the incentive subsidy - The E
 form of the mechanism through which the subsidy is given is
  irrelevant - In instant case, the object of the grant of the subsidy
  was in order that persons come forward to construct Multiplex
  Theatre Complexes, the idea being that exemption from entertainment
  du~v for a period of three years and partial remission for a period
  of two years should go towards helping the ind11st1y to set up such F
  highly capital intensive entertainment centers - Appeals filed by
  Department accordingly dismissed.
       Dismissing the appeals filed by the Department, the Court
       HELD: 1. The object of introducing the necessary
 amendments in the Bombay Entertainments Duty Act to effectuate       G
 the aforesaid subsidy scheme was first done by way of an ordinance
 before 4th December, 2001, which ultimately became part of an
 Amendment Act. The said scheme was thereafter set out in the
 form of an amendment to the Statute contained in Section 3(13)
                                                                      H
                              1083
1084           SUPREME COURT REPORTS                    [2017) 12 S.C.R.


 A     sub-clause (c) after which a new sub-clause f(l) was set out. In
       addition, a new sub-clause (13) was also inserted after Section 3.
       [Paras 2 and 3] (1086-D; 1087-D-E]
          2. Applying the purpose test contained in both Sahney Steel
    as well as Ponni Sugar cases, the object, as stated in the statement
 B of objects and reasons, of the amendment ordinance was that
    since the average occupancy in cinema theatres has fallen
    considerably and hardly any new theatres have been started in
    the recent past, the concept of a Complete Family Entcrtainmcn-t
    Centre, more popularly known as Multiplex Theatre Complex,
    has emerged. These complexes offer various cntcrtainiucnt
 C facilities for the entire family as a whole. It was noticed that
    these complexes arc highly capital intensive and their gestation
    period is quite long and therefore, they need Government support
    in the form of incentives qua entertainment duty. It was also
    added that government with a view to commemorate the birth
 D centenary of late Shri V. Shantaram decided to grant concession
    in entertainment duty to Multiplex Theatre Complexes to
    promutc construction of new cinema houses in the State. The
    aforesaid object is clear and unequivocal. The object of the grant·
  ' of the subsidy was ln order that persons come forward to construct
    Multiplex Theatre Complexes, the idea being that exemption
 E from entertainment duty for a period of three years and partial
    remission for a period of hvo years should go towards h.elping
    the industry to set up such highly capital intensive entertainment
    centers. This being the case, it is difficult to accept the argument
    of the Revenue that it is only the immediate object and not the
 F larger object which must be kept in mind in that the subsidy
    scheme kicks in only post' construction, that is when cinema
    tickets are actually sold. The object of the scheme is only one -
    there is no larger or immediate object. That the ubject is carried
    out in a particular manner is irrelevant, as has been held in both
    Ponni Sugar and Sahncy Steel cases. (Para 23] (1096-C-G]
 G
             Shri Balaji Alloys v. C.J.T. (2011) 333 I.T.R. 335 -
             approved.
             Sahney Steel & Press Works Ltd., Hyderabad v.
             Commissioner of Income-Tax, A.P.-1, Hyderabad (1997)
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     COMMISSIONER OF INCOME TAX-I, KOLHAPUR v.                         1085
         MIS. CHAPHALKAR BROTHERS PUNE

      7 SCC 764 : [1997) 4 Suppl. SCR 1S9; Commissioner                 A
      of Income Tax, Madras v. Ponni Sugars and Cheinicals
      Limited (200S) 9 SCC 337 : [200S] 13 SCR 570 - relied
      on.
      Pon~vpridd and Rhondda Joli1t Water Board v. Ostirne
      (1946) 1 ALL ER 66S; Seaham Harbour Dock Co. v.                   B
      Crook, 16 TC 333 - referred to.
                       Case Law Reference

[1997) 4 Suppl. SCR 1S9         relied on               Paras
                                                                        c
[200S] 13 SCR 570               relied on               Paras

(1946) 1 ALL ER 66S             referred to             Para 12

16 TC 333                       referred to             Para 13-
                                                                        D
(2011) 333 I.T.R. 335           approved                Para 23

      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6513-
6514 of2012.
      From the Judgment and Order dated 08.06.2011 of the High Court
ofJudicature at Bombay in ITANo. 1036 of2010 andITANo. _1147 of E
2010
                                 ·wITH

      Civil Appeal Nos. 6511 of2012, 6512 of2012, 3362 9f 2015,
10803 of2013, 3500of2016,4650 of2016, 9320of2017, 11203 of2017,         F
l 1204of2017, 12442of2017, 15565 of2017 and Civil Appeal No. 21853
of2017.
        P. S. Narsimha,ASG, K. Radhakrishnan, Sr. Adv., Zoheb Hossain,
Arij it Prasad, Mani sh Pushkama, Mrs. Anil Katiyar, B. V. Gopala Gowda,
Balaram Das, Advs. for the Appellants.                                   G
      S. Ganesh, Jahangir Mistry, R. P. Bhatt, K. V. Gopala Gowda,
Vishwanathan, Sr. Advs., Ms. Vanita Bhargava, Ajay Bhargava, Rony
0. John, Abhisaar Bairagi, Mis. Khaitan & Co., Ms. Shweta Kabra, Ml
s. Khaitan & Co., Suhas Des~pande, Rustom B. Hathikhanawala,
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1086            SUPREME COURT REPORTS                        [2017] 12 S.C.R.



 A     Santosh Krishnan, Yadunandan Bansal, Abhijat P. Medh, Ms. Amrita
       Panda, Debesh Panda, Rituraj Gupta, DivyamAgarwal, DhananjayGarg,
       Ramesh Singh, Nikhil Goel, Ashutosh Ghade, Anniiudh Deshmukh, Ad vs.
       for the Respondents.
             The Judgment of the Court was delivered by
 B           R. F. NARIMAN, J. 1. Leave granted.
           2. The present appeals arise from a batch of judgments dealing
     with cases which come from Maharashtra and West Bengal. Insofar as
     the civil appeals relating to Maharashtra are concerned, the subsidy
     scheme of the State Government took the form of an exemption of
 C · entertainment duty in Multiplex Theatre Complexes newly set up, for a
     period of three years, and thereafter payment of entertainment duty@
     25% for the subsequent two years. The object of introducing the
     necessary amendments in the Bombay Entertainments Duty Act to
     effectuate the aforesaid subsidy scheme was first done by way of an
 D ordinance before 4th December, 200 I, which ultimately became part of
     an Amendment Act. The statement of objects and reasons for
     introducing the aforesaid scheme reads as follows:
             "I. As a result of the onslaught of Cable Television and
             advancement in the field oflnformation Technology, the average
 E          ·occupancy in cinema theatres has fallen considerably and hardly
             any new theatres have been started in the recent past. Public at
             large these days prefer to see movies at home. Keeping in view
             this scenario, a concept of Complete Family Entertainment Centre,
             more popularly known as "Multiplex Theatre Complex" has
             emerged. These Multiplex Theatre Complexes offer various
 F ·         entertainment facilities for the entire family under a single roof.
             However, these complexes are highly capital intensive, their
             gestation period is also quite long, and therefore, need Government
             support and incentive in entertainment duty.
             2. Government has, therefore, with a view to commemorate birth
 G           centenary of Chitrapati late Shri V.Shantaram, decided to grant
             concession in entertainment duty to Multiplex Theatre Complexes
             to promote construction of new cinema houses in the State.
             3. In accordance with the above decision, Bombay Entertainments
             Duty Act, l 923 was modified as required and Bombay
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     COMMISSIONER OF INCOME TAX-I, KOLHAPUR v.                                1087
 MIS. CHAPHALKAR BROTHERS PONE [R. F. NARIMAN, J.]

      Entertainment Duty (Revised) Act, 2001 (Government Order: ENT-          A
      I 099/C.R. 7 65/T-l) was brought into force on 17th August, 2001."
      3. The said scheme was thereafter set out in the form of an
amendment to the Statute contained in Section 3( 13) sub-clause ( c) afler
which a new sub-clause f(I) was set out which reads as follows:
      "(f-1 )"Multiplex Theatre Complex" means an entertainment cum-          B
      i::ultural centre which provides-
      (i) within the limits of Municipal Corporation ofBrihan Mumbai
          not Jess than four theatres in a complex with minimum total
          seating capacity of 1,250; and
                                                                              c
      (ii) any where else in the State, not less than three theatres in a
           complex with minimum total seating capacity of l ,000.
         And such other incidental and connected matters and facilities.
      and multi entertainment activities and other facilities as specified
      by Government in this behalf, by Notification in the official
                                                                              D
      Gazette;"
      4. In addition, a new sub-clause (13) was also inserted after
Section 3 which reads as follows:
      "13) (a) Notwithstanding anything contained in any other provisions
      of this Act, but subject to the terms and conditions specified in       E
      clause (b ), on and with effect from the date of coming into force
      of the Bombay Entertainments Duty (Amendment) Act, 200 I, there
      shall be levied and collected by the State Government from the
      proprietor of a Multiplex Theatre Complex the duty in respect of
      any such complex as follows,namely:-
                                                                              F
      (i) for the first three years from the date of commencement of
      the Multiplex Theatre complex, no duty.
      (ii) for the subsequent two years, at the rate of twenty five percent
      of the rate of duty leviable under clause (b) and clause ( c) of sub-
      section (I) or, as the case may be, sub section (3 );                   G
      (iii) from the sixth year, full amount of duty Jeviablc at the rate
      specified in clause (b) and clause (c) of sub-section ( 1) or, as the
      case may be sub-Section (3).

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1088      SUPREME COURT REPORTS                            [2017] 12 S.C.R.


 A     Provided that, the duty leviable shall also be subject to the provisions
       of sub-section (2), wherever applicable
       Explanation-For the purpose of this sub-section:
       (i) the date on which the Multiplex Theatre complex is opened to
       the public for admission shall be deemed to be the date of
 B     commencement of the Multiplex Theatre Complex;
        (ii) the change in the management of Multiplex Theatre Complex,
       -or the change in the name of the complex shall not be construed
        as a fresh commencement of the Multiplex Theatre Compex.

 c     (b) The concession in duty as provided under clause (a) shall be
       available to the proprietor of the Multiplex Theatre Complex
       subject to following terms and conditions, namely;-
       (i) The proprietor shall not charge less payment for admission
       than the prevailing highest rate for admission at any given time, in
       any of the cinema theatres in the District in which the complex is
 D
       situated, till the period of concession wider clause (a) is over;
       (ii) one theatre in the complex shall be reserved for a total period
       of not Jess than one month, in a year, exclusively for Marathi
       Cinemas;
 E     (iii) the proprietor ofa complex shall not levy the service charge,
       till the period of concession under clause (a) is over. After the
       concession period is over, the proprietor may levy service charges
       as specified in the second proviso to clause (b) of section 2;
       (iv) the Multiplex Theatre Complex shall be continued continuously
 F     for ten years;
       (v) no facilities provided in the complex as specified in the
       notification issued under clause (I-a) of Section 2, shall be
       discontinued or curtailed, without prior permission of the
       Goverrunent.
 G     (c) In case of violation of the condition (iv) or (v) of clause (b),
       the concession shall be liable to be withdrawn and the duty shall
       be levied and collected from the date of commencement at the
       Multiplex Theatre Complex, at the rate specified in clause (b) and

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    COMMISSIONER OF INCOME TAX-I, KOLHAPUR v.                                  1089
 MIS. CHAPHALKAR BROTHERS PUNE [R. F. NARIMAN, J.]

      clause ( c) of sub-section ( l) or, as the case may be, sub-section       A
      (3), along with the interest leviable at the rate specified in section
      9B.
      (d) If any existing cinema theatre is converted into Multiplex
      Theatre Complex, by not reducing its original seating capacity
      and by complying with the provisions of clause (f-a) of section 2,        B
      the converted theatre shall also be entitled to concession in the
      duty as specified in clause (a), subject to the terms and conditions
      specified in clause (b). "
      5. To take the facts of one of the matters before us, namely, Civil
Appeal Nos. 6513-6514of2012, the assessment order in that case (dated           c
21.01.2006) found that the aforesaid scheme was really to support the
on-going activities of the multiplex and not for its construction. Since
the scheme took the form of a charge on the gross value of the ticket
and contributed towards the day to-day running expenses, the Assessment
Officer held that it was in the nature of a revenue receipt.
                                                                                D
       6. The appeal filed before the Commissioner met with the same
fdte and was dismissed substantially on the same reasoning.
       7. However, the Income-Tax Appellate Tribunal by its judgment
dated 30.06.2009, went into the matter in some detail, and after setting
out the object of the aforesaid scheme went on to hold as follows:              E
     - "9.2 One aspect of the scheme in question is undisputed; after
       considering the clauses of the scheme, that the scheme do not
       provide any assistance for reimbursement of day to day revenue
       expenditure but the scheme is meant to build up and to promote
       new multiplex cinema halls which are nothing but for the
                                                                                F
       construction purpose hence reimbursement is lo cover-up the
       capital expenditure.


      10. ln the light of the above discussion, we can therefore surnrnarize
      our conclusion that broadly speaking the subsidy can be of two            G
      types:
      (i) for the purpose of helping the growth ofan industry;
      (ii) For the purpose ofsupplem:enting the profits of an industry.
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1090           SUPREME COURT REPORTS                          [2017] 12 S.C.R.


 A          l 0.1 To ascertain whether in a particular case the subsidy in
            question fall under the category (I) or (ii) one has to carefully
            examine the form as well as substance of the impugned scheme.
            We have done that exercise, and on close examination
            undisputedly it was noticed that the scheme in question had fallen
            in the first category i.e. for the purpose of helping the growth of
 B
            an industry. Though the collection was in the form of an
            entertainment Duty via sale of tickets for a limited period but its
            utilization was predetermined and granted with an assurance to
            cover up the cost of construction. Once it is demonstrated before
            us that too undisputedly that it was not attributed in any manner
 c          towards supplementing of day-to-day expenditure or in the
            furtherance of the profits than it cannot be said to be in the
            character of a revenue receipt. Contrary to this it was in the
            nature of a capital receipt being an incentive to supplement the
            construction expenditure of new set up of Multiplexes hence in
            the nature of capital receipt. To arrive at this conclusion we draw
 D
            support from a plethora of decisions, few of them already cited
            above. With the result we decide the ground in favour of the
            assessce."
             8. The appeal before the High Court was dismissed. The High
       Court's judgment dated 08.06.2011 referred to two Supreme Court
 E     judgments, namely, Sahney Steel & Press Works Ltd., Hyderabad Vs.
       Commissioner of Income-Tax, A.P.-1. Hyderabad 1997 (7) SCC 765
       and Commissioner of Income Tax, Madras Vs. Ponni Sugars and
       Chemicals Limited 2008 (9) SCC 337 and after discussing these
       judgments, held:
 F           "Since the object of subsidy was to promote construction of
             multiplex theatre complexes, in our opinion, receipt of subsidy would
             be on capital account. The fact that the subsidy was not meant
             for repaying the loan taken for construction of multiplexes cannot
             be a ground to hold that subsidy receipt was on revenue account,
 G           because, ifthe object of the scheme was to promote cinema houses
             by constructing multiplex theatres, then irrespective of the fact
             that the multiplexes have been constructed out of own funds or
             borrowed funds, the receipt of subsidy would be on capital account.
             In the light of the aforesaid objects of the Scheme framed by the

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    COMMISSIONER OF INCOME TAX-I, KOLHAPUR v.                                   1091
 MIS. CHAPHALKAR BROTHERS PUNE [R. F. NARIMAN, J.]

      State Government, the decision of the Income Tax Appellate                A
      Tribunal that the amount of subsidy recci vcd by the asscsscc is
      on capital account cannot be faulted. Accordingly, both the appeals
      arc dismissed with no order as to costs"
        9. Shri P.S.Narasimha, learned ASG appearing on behalf of the
Revenue. assails the judgment passed by the High Court. According to            B
him, there may be no doubt that the large object said to be achieved in
the grant of subsidy by way of complete and then partial roll back of
entertainment duty may be in the nature of subsidy relating to complexes
which arc highly capital intensive and require Government support. But
according to him, the fact that the subsidy kicks in only after the
multiplexes started functioning and issued tickets on which entertainment       c
duty is then waived, would show that in reality what has already been
set up is not the immediate object of the subsidy but that it is really in
the nature ofa helping hand for running of the day to-day business of the
multiplexes. He relied heavily upon the judgment in Sahncy Steel (supra)
to buttress his submission and stated that on facts, this was a case            D
similar to Sahncy Steel. On the other hand, he distinguished the judgment
in Pooni Sugars (supra) stating that on the facts of that case, in paragraph
I 0, in particular, it was very clearly held that the benefit of the scheme
had to b~ utilised only for re-payment ofloan. Therefore, it was obviously
capital in nature, and not revenue.
                                                                                E
         l 0. On the other hand, Shri Jahangir Mistry, learned senior counsel
appearing for the respondents, and Shri S.Ganesh, learned senior counsel
appearing for some of the respondents, have argued that ifSahney Steel
is to be read in its entirety, the judgment on facts supports the proposition
that it is only the purpose of the scheme that is the test for finding out
whether the scheme is, in fact, capital or revenue in nature. The source        F
of funds for the scheme and the form of the scheme arc irrelevant and
if it is clear that the purpose is in order that capital expenses be met out
of the subsidy granted in the scheme, then the object of the scheme
points to receipt of funds being capital in nature. They both stressed the
fact that the statement of object and reasons specifically state that           G
multiplexes arc truly capital intensive, their period is long and, therefore,
they need government support. They also relied upon the statement
that the grant of concession to such multiplexes was to promote
construction of new cinema houses in the State.

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1092           SUPREME COURT REPORTS                           (2017] 12 S.C.R.



 A           11. Having heard learned counsel for both sides, it becomes
       necessary to analyze the judgments relied upon.

             12. In Sahney Steel (supra), the notification issued by the Andhra
      Pradesh Government was concerned with certain facilities and inc enti ves
      which were to be given to all new industrial undertakings which
 B commenced production on or after 01.01.1969 with investment capital
    . not exceeding Rs. 5 crores. The incentives were to be allowed for a
      period of five years from the date of commencement of production.
      Concession was also available for subsequent expansion of 50% and
      above. The incentives were in the form of, inter alia, refund of sale tax
 C . on raw materials, machinery and finished goods. This Court held, on the
      facts of that case, that as no financial assistance was granted to the
      asscssee for setting up of the industry, the idea of the subsidy scheme
      was to provide a helping hand for five years in order to enable the industry
      to be viable and competent. In doing this, in paragraph 9 of-the said
     judgment, the test stated by Viscount Simon in Pontypridd and Rhondda
 D Joint Water Board v. Ostime (1946) I ALL ER 668 was referred to. In
      paragraph I 0, the Court went on to apply the aforesaid test and stated
      that, since funds were made available to the assessee to assist it in
      carrying on its trade and business, there can be little doubt that the object
      "of various assistances under the subsidy scheme was to enable the
 E assessec to run the business more profitably".

             14. The judgment of the House of Lords in Seaham Harbo.ur
     Dock Co. Vs. Crook, 16 TC 333 was then referred to and distinguished.
     What is important for our purpose is the fact that in para 18 of that
     judgment, the test of whether the receipt of subsidy is capital or revenue
 p . is stated as follows:-

             "If any subsidy is given, the character of the subsidy in the hands
             of the recipient - whether revenue or capital - will have to be
             determined by having regard to the purpose for which the subsidy
             is given. if it is given by way of assistance to the assessee in
 G           carrying on of his trade or business, it has to be treated as a
             trading receipt. The source of the fund is quite immaterial."

             15. The Court went on, thereafter, to give a telling example in
       para 19 of the aforesaid judgment, which is set out herein below:-

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   COMMISSIONER OF INCOME TAX-I, KOLHAPUR v.                                  1093
MIS. CHAPHALKAR BROTHERS PUNE [R. F. NARIMAN, J.]

      "For example, ifthe scheml'!\ was.that the assessee will be given A
      refund of sales tax on purchase of machinery as well as on raw
      materials to enable the assessee to acquire new plants and
      machinery for further expansion of its manufacturing capacity in
      a backward area, the entire subsidy must be held to be a capital
      receipt in the hands of the assessee. It will not be open to the
                                                                            B
      Revenue to contend that the refund of sales tax paid on raw
      materials or finished products must be treated as revenue receipt
      in the hands of the assessee. In both the cases, the Government
      is paying out of public funds to the assessee for a definite purpose.
      If the purpose is to help the assessee to set up its business or
      complete a project as in Seaham Harbour Dock Co. case, the c
      monies must be treated as to have been received for capital
      purpose. But if monies are given to the assessee for assisting him
      in carrying out the business operation and the money is given only
      after and conditional upon commencement of production, such
      subsidies must be treated as assistance for the purpose of the
                                                                            D
      trade."
       16. Thereafter, the Court went on to discuss certain High Court
judgments and, in para 30, specifically referred to the Bombay High
Court judgment in Sadichha Chitra's case (1991) 189 ITR 774 and
approved the view taken by the Bombay and Kerala High Courts as
they accorded with the principle laid down in Seaham Harbour Dock              E
Co. case. The facts in Sahney steel were distinguished from the facts
of the Bombay and Keralajudgments as follows:-
           "In the case before us, subsidies have not been granted for
      production of or bringing into existence any new asset. The
      subsidies were granted year after year only after setting up of the      F
      new industry and commencement of production. Such a subsidy
      could only be treated as assistance given for the purpose of carrying
      on of the business of the assessee. Applying the test of Viscount
      Simon in the case of Ostime it must be held that these subsidies
      are of revenue character and will have to be taxed accordingly.          G
       17. The next important judgment that was referred to is the
judgment in Ponni Sugars & Chemicals Limited (supra). On the facts in
that case, incentives given under a scheme relating to sugar production

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1094            SUPREME COURT REPORTS                           [2017] 12 S.C.R.



 A. were in the nature of a higher free sale sugar quota, and also allowing
    the manufacturer to collect excise duty on the sale price of free sale
    sugar in excess of the normal quota but to pay to the government only
    the excise duty payable on the price of levy sugar. Clause 7 of the
    aforesaid scheme was set out in para 3 of the judgment as follows:-
 B                "The beneficiaries of the incentive scheme shall ensure that
             the surplus funds generated through sale of the incentive sugar
             are utilised for the repayment of term loans, if any, outstanding
             from the Central financial institutions. The sugar factories should
             submit utilisation certificates annually from Chartered/Cost
             Accountant, holding certificate of practice. Utilisation certificate
 c
             in respect ofcach sugar season during the incentive period should
             be furnished on or before 31st December of the succeeding year.
             Failure to submit utilisation certificate within the stipulated time
             may result not only in the termination of release of incentive free
             sale quota, but also in the recovery of the incentive free sale releases
 D           already made, by resorting to adjustment from the free sale releases
             of future years."

              18. The Court then referred to the background of the incentive
       scheme and to the fact that the Sampat Committee was set up to examine
       the question relating to the economic viability of new sugar factories.
 E     The Court then found in para 9 of the judgment that the Sampat Committee
       referred tO the fact that the increase in the cost of new sugar factories
       was because of increase in the cost of plant and machinery. The
       Committee then stated that five possible incentives for making a sugar
       plant economically viable could be provided. It is two of such incentives
 F     referred to that was the subject-matter for decision before this Court.
       In Para lO this Court found:

                  "We have examined in this case the 1980 and 1987 Schemes.
             Essentially all the four Schemes arc similar except in the matter
             of details. Four factors exist in the said Schemes, which arc as
 G.          follows:

                   (i) Benefit of the incentive subsidy was available only to
             new units and to substantially expanded units, not to supplement
             the trade receipts.

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    COMMISSIONER OF INCOME TAX-I, KOLHAPUR v.                                1095
 MIS. CHAPHALKAR BROTHERS PUNE [R. F. NARIMAN, J.]

          (ii) The minimum investment specified was Rs. 4 crores for         A
      new units and Rs. 2 crorcs for expansion units.
           (ii) Increase in the free sale sugar quota depended upon
      increase in the production capacity. In other words, the extent of
      the increase of free sale sugar quota depended upon the increase
      in the production capacity.                                            B
          (iv) The benefit of the Scheme had to be utilised only for
      repayment of term loans."
       19. After discussing the judgment in Sahney Steel case, this Court
then held:
                                                                             c
      "The importance of the judgment of this Court in Sahney Steel
      case lies in the fact that it has discussed and analysed the entire
      case law and it has laid down the basic test to the applied in
      judging the character of a subsidy. The test is that the character
      of the receipt in the hands of the assessce has to be determined
      with respect to the purpose for which the subsidy is given. In         D
      other words, in such cases, one has to apply the purpose test.
      The point of time at which the subsidy is paid is not relevant. The
      source is immaterial. The form of subsidy is immaterial. The
      main eligibility condition in the Scheme with which we are
      concerned in this case is that the incentive must be utilised for      E
      repayment of loans taken by the assessee to set up new units or
      for substantial expansion of existing units. On this aspect there is
      no dispute. If the object of the Subsidy Scheme was to enable the
      assessee to run the business more profitably then the receipt is on
      revenue account. On the other hand, ifthe object of the assistance
      under the Subsidy Scheme was to enable the assesscc to set up a        F
      new unit or to expand the existing unit then the receipt of the
       subsidy was on capital account. Therefore, it is the object for
       which the subsidy/assistance is given which determines the nature
       of the incentive subsidy. The form of the mechanism through which
       the subsidy is given is irrelevant."                                  G
      20. Sahney Steel was distinguished, in para 16 by then stating that
this Court found that the assessee was free to use the money in its
business entirely as it liked.


                                                                             H
1096             SUPREME COURT REPORTS                           (2017] 12 S.C.R.



 A           21. Finally, it was found that, applying the test of purpose, the
       Court was satisfied that the payment received by the asscsscc under
     · the scheme was not in the natur~ of a helping hand to the trade but was
       capital in nature.
              22. What is important from the ratio of this juggment is the fact
 B     that Sahney Steel was followed and the test laid down was the "purpose
       test". It was specifically held that the point of time at which the subsidy
       is paid is not relevant; the source of the subsidy is immaterial; the form
       of subsidy is equally immaterial.
               23. Applying the aforesaid test contained in both Sahney Steel as
 c      well as Ponni Sugar, we are of the view that the object, as stated in the
        statement of objects and reasons, of the amendment ordinance was that
        since the average occupancy in cinema theatres has fallen considerably
        and hardly any new theatres have been started in the recent past, the
        concept of a Complete Family Entertainment Centre; more popularly
        known as Multiplex Theatre Complex, has emerged. These complexes
 D      offer various entertainment facilities for the entire family as a whole. It
        was noticed that these complexes arc highly capital intensive and their
        gestation period is quite long and therefore, they need Government support
        in the form of incentives qua entertainment duty. It was also added that
        government with a view to commemorate the birth centenary of late
 E      Shri V. Shantaram decided to grant concession in entertainment duty to
        Multiplex Theatre Complexes to promote construction of new cinema
        houses in the State. The aforesaid object is clear and unequivocal. The
        object of the grant of the subsidy was in order that persons come fo1ward
        to construct Multiplex Theatre Complexes, the idea being that exemption
        from entertainment duty for a period of three years and partial remission
 F      for a period of two years should go towards helping the industry to set
        up such highly capital intensive entertainment centers. This being the
        case, it is difficult to accept Mr. Narasimha 's argument that it is only the
        immediate object and not the larger object which must be kept in mind
        in that the subsidy scheme kicks in only post construction, that is when
 G      cinema tickets are actually sold. We hasten to add that the object of the
       .scheme is only one -there is no larger or immediate object. That the
        object is carried out in a particular manner is irrelevant, as has been held
        in both Ponni Sugar and Sahney Steel.
             24. Mr. Ganesh, learned Senior Counsel, also sought to rely upon
 H     a judgment of the Jammu and. Kashmir High Comt in Shri Balaji Alloys
    COMMISSIONER OF INCOME TAX-I, KOLHAPUR v.                                1097
 MIS. CHAPHALKAR BROTHERS PUNE [R. F. NARIMAN, J.]

vs. C.I.T. (2011) 333 I.T.R. 335. While considering the scheme ofrefund      A
of excise duty and interest subsidy in that case, it was held that the
scheme was capital in nature, despite the fact that the incentives were
not available unless and until commercial production has started, and
that the incentives in the form of excise duty or interest subsidy were
not given to the assessee expressly for the purpose of purchasing capital
                                                                             B
assets or for the purpose of purchasing machinery.
       25. After setting out both the Supreme Comtjudgments referred
to hereinabove, the High Court found that the concessions were issued
in order to achieve the twin objects of acceleration of industrial
development in the State of Jammu and Kashmir and generation of              C
employment in the said State. Thus considered, it was obvious that the
incentives would have to be held capital and not revenue. Mr. Ganesh,
learned Senior Counsel, pointed out that by an order dated 19.04.2016,
this Court stated that the issue raised in those appeals was covered,
inter alia, by the judgment in Ponni Sugars, and the appeals were,
therefore, dismissed.                                                        D
       26. We have no hesitation in holding that the finding of the Jammu
and Kashmir High Court on the facts of the incentive subsidy contained
in that case is absolutely correct. In that once the object of the subsidy
was to industrialize the State and to generate employment in the State,
the fact that the subsidy took a pa1ticular form and the fact that it was    E
granted only after commencement of production would make no
difference.
      27. In coming to the West Bengal cases, we find that the West
Bengal Finance Act, 2003 which amended the Ben gal Amusements Tax
Act of 1922 also provided:                                                   F
      28. The Bengal Amusements Tax Act, 1922.
       29. The provision seeks to provide, in order to encourage
devdopment of multiplex theatre complex, a very modern and highly
capital-intensive entertainment centre, financial assistance to the
proprietors of such complex by allowing them to retain, by way of subsidy,   G
the amount of entertainment tax collected against the value of ticket for
admission to such multiplex theatre complex for a period not exceeding
four years;
       30. Since the subsidy scheme in the West Bengal case is similar
to the scheme in the Maharashtra case being to encourage development         H
1098             SUPREME COURT REPORTS                         [2017] 12 S.C.R.


 A     of Multiplex Theatre Complexes which are capital intensive in nature,
       and since the subsidy scheme in that case is also similar to the Maharashtra
       cases, in that the amount of entertainment tax collected was to be retained
       by the new Multiplex Theatre Complexes for a period not exceeding
       four years, we are of the view that West Bengal cases must follow the
 B     judgment that has been just delivered in the Maharashtra case.
              31. Accordingly, the appeals filed by the Department are dismissed.


       Ankit Gyan                                                  Appeals dismissod.




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