CIT vs. Chaphalkar Brothers Pune (Supreme Court)

Taxability of subsidies: A subsidy granted by the Govt to achieve the objects of acceleration of industrial. Development and generation of employment is capital in nature and not revenue. The fact that the incentives are not available unless and until commercial production has started. And that the incentives are not give to the assessee. Expressly for the purpose of purchasing capital assets or for the purpose of purchasing machinery is irrelevant. The object has to be see and not the form in which it is grante. Tax ability

The aforesaid object is clear and unequivocal. 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 duty for a period of three years and partial remission 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 cinema tickets are actually sell.

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