Summary
Entertainment-duty concessions encouraging capital-intensive multiplex construction in Maharashtra and West Bengal were held to be capital receipts. Applying the subsidy-purpose test, the Court rejected reliance on the post-construction timing of relief or its mechanism through retained entertainment tax as reasons to treat it as revenue.
Issues
- Whether the multiplex incentive receipts were capital or revenue in character.
- Whether timing, source or tax-remission form displaced the schemes’ construction purpose.
Held
- The purpose for which assistance is granted determines its character. Assistance to set up a new unit or expand one is capital; assistance to carry on business more profitably is revenue. Source, payment timing and form of the subsidy are immaterial to that purpose test. (¶ 12–22)
- The Maharashtra scheme clearly promoted construction of highly capital-intensive multiplex complexes. Its three-year exemption and later partial concession implemented that single purpose; commencement only after ticket sales did not transform the incentive into operating assistance. There was no separate immediate purpose overriding a larger purpose. (¶¶ 2–4, 23)
- An express restriction requiring repayment of construction loans was not indispensable to capital characterization where the scheme’s purpose was established. The Court also approved the purpose-based reasoning in the Jammu and Kashmir industrial-incentive decision discussed before it. (¶¶ 8, 22–26)
- The West Bengal scheme similarly encouraged capital-intensive multiplex development through retention of entertainment tax for up to four years and therefore followed the same result. (¶ 27–30)
Result
Revenue’s appeals dismissed; capital-receipt treatment of the multiplex incentive subsidies upheld for the Maharashtra and West Bengal cases.