Ramakrishna Cine Studio vs Commissioner of Income Tax

S.V. Maruthi, J.—The assesses is Ramakrishna Cine Studios. The relevant assessment years are 1980-81 and 1981-82. The Income Tax Officer treated the film subsidy of Rs. 2 lakhs received by the assessee as revenue receipt in these two years. On appeal, the Commissioner of Income Tax (Appeals) upheld the same. The Tribunal relying on its own order in the assessee''s own case for the assessment year 1979-80 held that the film subsidy received is revenue receipt. The assessee also contended that levy of interest u/s 217 of the Income Tax Act is not justified, while the Revenue contended that in the assessment year 1980-81, the Inspecting Assistant Commissioner has waived the interest levied u/s 217 and in the assessment year 1981-82 the interest levied u/s 217 of the Act is reduced to Rs. 15,000. Since, the assessee has moved for waiver of interest it is not a case where the very levy of interest u/s 217 is challenged. He also relied on the judgment of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, where it was held that no appeal lies against levy of interest u/s 217. The Income Tax Appellate Tribunal relying on the judgment of the Supreme Court referred to above held that no appeal lies as the assessee has moved for waiver of interest and, therefore, it is not a case of total denial of levy of interest u/s 217, consequently the appeal is not maintainable against the levy of interest u/s 217.

The Tribunal also took into account the waiver of interest for the assessment year 1980-81 and the reduction of interest in the year 1981-82. On the basis of the above, the following two questions were referred at the instance of the assessee :

"1. Whether, on the facts and in the circumstances of the case, the film subsidy of Rs. 2,00,000 paid by the Andhra Pradesh State Government to encourage the film industry in the State, is not a capital receipt ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the ground raised against levy of interest u/s 217 cannot be entertained as per the decision of the Supreme Court of India in Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, ?"

The first question, namely, whether the film subsidy of Rs. 2 lakhs is revenue receipt or capital receipt was considered by this court on an earlier occasion. The issue whether the film subsidy paid by the Andhra Pradesh State Government to encourage film industry is a revenue receipt or capital receipt came up for consideration in Commissioner of Income Tax Vs. Chitra Kalpa, wherein it was held : "that the subsidy granted by the Government is in the nature of an inducement and it is a cash grant to induce a producer to produce a feature film in this State in the hope and expectation that if producers are tempted to make feature films in this State, film production in the State will be encouraged and the State will reap the benefits of an organised flourishing film industry shifting to this State from elsewhere. It is not granted to assist the producer in film making and to increase his profits and, therefore, it is not taxable in the hands of the assessee as a revenue receipt". Following the above, we hold that the amount of Rs. 2 lakhs paid by the Andhra Pradesh State Government to the assessee is not revenue receipt in the hands of the assessee and is not taxable. We answer the first question referred above in the affirmative (sic) and against the Revenue.

As regards the second question the finding of the Tribunal is that the assessee filed an application seeking a waiver of interest for the assessment year 1980-81 and it was accordingly waived and that for the assessment year 1981-82 the interest was reduced u/s 217 to Rs. 15,000. Therefore, the question is whether the appeal is maintainable. The Supreme Court in Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, held that "interest is levied under Sub-section (8) of Section 139 or Section 215 of the Income Tax Act by reason of the omission or default mentioned in the relevant provision, the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. The very period for which interest is levied under the relevant provision points to the nature of the levy. If that is borne in mind, it will be apparent that the levy of interest is part of the process of assessment. Although Section 143 and Section 144 do not specifically provide for the levy of interest and the levy is, in fact, attributable to Sub-section (8) of Section 139 or Section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee". The Supreme Court approved the view expressed by the Bombay High Court in Commissioner of Income Tax, Bombay City Vs. Jagdish Prasad Ramnath, and held that (page 967) :

"the levy of penal interest under Sections 139 and 215 is part of the assessment. Where penal interest is levied u/s 215 by the order of assessment, the asses-see may altogether deny his liability to pay such interest on the ground that he was not liable to pay advance tax at all or that the amount of advance tax determined by the Income Tax Officer as payable ought to be reduced. In either case, he denies his liability, wholly or partially, to be assessed. Similarly, where interest is levied u/s 139 of the Act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. In such a case also, he denies his ability to be assessed to interest".

It was further held (page 968) :

"In cases where the jurisdictional fact attracting the levy cannot be disputed, for example, that the return has been furnished u/s 139 with delay, it will be a question merely of satisfying the relevant authority that there are circumstances calling for a reduction or waiver of the interest".

This court also took a similar view in Vittal Reddy and Others Vs. Commissioner of Income Tax, . It was held that (page 676) :

"This is quite implicit in Clause (c) of Section 246(1) of the Income Tax Act, which is comprehensive as it reads ''where the assessee denies his liability to be assessed under this Act''. Since the assessee who is assessed in regard to the amount which he denies stating that he is not liable to be assessed, certainly it would be competent for him to have his plea against the charging of interest u/s 217 entertained in the appeal."

From the above it is clear that if the assessee denies his liability to file returns u/s 139 or denies his liability to pay advance tax, in such a case against the order of interest an appeal lies u/s 246(1). However, in cases where the assessee admits his liability to file returns u/s 139 or admits his liability to pay advance tax, then it is not a case of denying liability to be assessed under the Act and, therefore, no appeal lies u/s 246(1) of the Act.

We have already referred the order of the Income Tax Appellate Tribunal. According to the Tribunal, the application for waiver amounted to admission of liability and, therefore, appeal was not maintainable. But the question of maintainability of appeal arises only when the appeal relates to levy of interest alone. In this case, the assessee denied his liability to pay tax on subsidy and when that is allowed, levy of interest becomes a consequential issue. It has been held in Vittal Reddy and Others Vs. Commissioner of Income Tax, that grounds can be taken with reference to interest when appeal raises other grounds and is otherwise maintainable. This case is on all fours with that decision and hence Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, does not apply to this case. Hence, we answer the second question in the negative and against the Revenue.

Both the questions answered accordingly.