Sec. 43B: Amusement Tax paid before due date of Filing Income Tax Return is eligible for deduction

Ratan Saha Vs. ITO (ITAT Kolkata)

At the outset, we find that the collection of amusement tax by the assessee from the various cine goers along with sale of tickets constitutes a trading receipt liable to be taxed in terms of the ratio laid down by the Hon’ble Supreme Court in the case of Chowringhee Sales Bureau Ltd. vs. CIT reported in [1973] 87 ITR 542 (SC). However, we find that the assessee had shown amusement tax liability as on 31.03.2011 at Rs. 29,77,066/- and as on 31.03.2012 at Rs. 40,83,681/-. Hence, the amusement tax calculated during the year is only Rs. 11,06,615/- (4083681- 2977066) which is to be taxed as a trading receipt for assessment year 2012-13. It is not in dispute that the assessee has already remitted a sum of Rs. 15,25,669/- towards amusement tax on or before the due date of filing the return of income u/s 139(1) of the Act and hence, the assessee is eligible for deduction of the same u/s 43B of the Act.

Full Text of the ITAT Order is as follows:-

This appeal by the Revenue arises out of the order of the Ld. Commissioner of Income Tax(Appeals)-6, Kolkata [in short the Ld. CIT(A)] in appeal No. 389/CIT(A)-6/Kol/2014-15 against the order passed by the ITO, Ward-22(4), Kolkata [in short the Ld. AO] u/s 143(3) of the Income Tax Act, 1961 [hereinafter referred to as the ‘Act’] dated 28.01.2015 for the assessment year 2012-13.

2. The first issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the dis allowance of interest in the sum of Rs. 16,25,347/-, in the facts and circumstances of the case.

3. The brief facts of this issue is that the assessee is an individual engaged in the business of running of cinema halls. The assessee runs Ajanta Cinema in Kolkata and Rupasi Cinema at Agartala. The assessee has debited interest of Rs. 21,75,966/- on its borrowed funds which had been invested in Rupasi Cinema at Agartala. The total amount invested as on 31.03.2012 in Rupasi Cinema by the assessee was Rs. 1,41,86,935/-. Since, the construction of Rupasi Cinema Hall was not completed before 31.03.2012, the assessee had reflected the amounts invested thereon under the head capital work in progress in the balance sheet of M/s Ajanta Cinema. The ld. AO observed that the assessee in the balance sheet of Ajanta Cinema (proprietary concern) had taken loan of Rs. 1,88,12,487/- and that the own funds available in the balance sheet of Ajanta Cinema by way of proprietor’s capital was insufficient to cover up the investment in Rupasi Cinema at Agartala. The Ld. AO applied the proviso to Section 36(1)(iii) of the Act and held that the interest on borrowed funds attributable to Rupasi Cinema should be capitalized by the assessee and accordingly he arrived at the proportionate interest figure of Rs. 16,25,347/- as the figure to be capitalized and hence, disallowed the same in the assessment. The action of the Ld. AO was upheld by the Ld. CIT(A). Aggrieved, the assessee is in appeal before us on the following grounds:

2. For that in the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals) erred in upholding the addition of Rs. 16,25,347/- on account of interest on loan. The addition was not called for and hence, the same be deleted.

4. We have heard the rival submissions. We find that the Ld. AR filed the balance sheet of Ajanta Cinema as on 31.03.2011 and as on 31.03.2012 before us, which is already on record before the lower authorities. From the said balance sheet as on 31.03.2012 he argued that the assessee is having own funds as under:

He argued that the Ld. AO had not proved one on one nexus of borrowed funds being utilized for making investment in Rupasi Cinema. Hence, presumption would rely in favour of the assessee that own funds had been used by the assessee for investment in Rupasi Cinema. Though we are in agreement with this argument of the Ld. AR to be in consonance with the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Britannia Industrials Ltd. reported in 280 ITR 525 (Cal), we find that from the perusal of the balance sheet of the assessee as on 31.03.2012, that the assessee is vested with own funds only to the extent of Rs. 1,14,43,625/-. The assessee has got interest bearing loans to the tune of Rs. 1,94,28,964/-. The total investment made in Rupasi Cinema as on 31.03.2012 is 1,41,86,935/-. Hence, from the review and financial statement of the assessee, it could be seen that part of the borrowed funds i.e. Rs. 27,43,310/- (14186935-11443625) has been diverted for investment in Rupasi Cinema by the assessee and interest paid proportionately to the extent of remaining investment of Rs. 27,43,310/- should be capitalized and not eligible to be claimed as revenue expenditure in accordance with the proviso to Section 36(1)(iii) of the Act. Hence, we direct the Ld. AO to determine the proportionate dis allowance of interest accordingly. Accordingly, ground no. 2 raised by the assessee is allowed for statistical purposes.

5. The last ground to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the addition of Rs. 25,61,012/- on account of amusement tax in the facts and circumstances of the case.

6. The brief facts of this issue is that the assessee has shown an amount of amusement tax payable under the head ‘current liabilities’ to the tune of Rs. 40,83,681/- as on 31.3.2012. This sum represents amusement tax collected by the assessee from the various cine goers along with the sale of tickets and since the matter was sub judice before the Court of law with regard to liability to pay the said amusement tax to the competent authority, the assessee chose to retain the same as liability in its books of accounts. The ld. AO however sought to treat the said liability of Rs. 40,83,681/- as income of the assessee. However, he found that the assessee had duly remitted the sum of Rs. 15,25,669/- towards amusement tax on or before 30.09.20 12 and accordingly granted deduction for the same u/s 43B of the Act. Hence, he added the sum of Rs. 25,61,012/- to the total income of the This action of the Ld. AO was upheld by the Ld. CIT(A). Aggrieved, the assessee is in appeal before us on the following grounds:

3. For that in the facts and circumstances of the case the learned Commissioner of Income Tax (Appeals) erred in upholding the addition of Rs. 25,61,012/- on account of amusement tax. The addition was not called for and hence the same be deleted.

7. We have heard the rival submissions. At the outset, we find that the collection of amusement tax by the assessee from the various cine goers along with sale of tickets constitutes a trading receipt liable to be taxed in terms of the ratio laid down by the Hon’ble Supreme Court in the case of Chowringhee Sales Bureau Ltd. vs. CIT reported in [1973] 87 ITR 542 (SC). However, we find that the assessee had shown amusement tax liability as on 31.03.2011 at Rs. 29,77,066/- and as on 31.03.2012 at Rs. 40,83,681/-. Hence, the amusement tax calculated during the year is only Rs. 11,06,615/- (4083681- 2977066) which is to be taxed as a trading receipt for assessment year 2012-13. It is not in dispute that the assessee has already remitted a sum of Rs. 15,25,669/- towards amusement tax on or before the due date of filing the return of income u/s 139(1) of the Act and hence, the assessee is eligible for deduction of the same u/s 43B of the Act. The decision as to whether to treat the amusement tax liability as on 31.03.2011 amounting to Rs. 29,77,066/- as trading receipt cannot be considered in assessment year 2012-13 as it pertains to assessment year 2011-12. Accordingly, ground no. 3 raised by the assessee is partly allowed.

8. Ground nos. 1 and 4 raised by the assessee are general in nature and does not require any specific adjudication.

9. In the result, the appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the Court on 29.11.2017