Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Assessable as - With a view to encourage production of films in State of Andhra Pradesh, State Government offered a subsidy of Rs. 50,000 to each film produced in that State - For assessment year 1972-73, assessee received subsidy of Rs. 50,000 for producing a film in State of Andhra Pradesh - Whether ITO was justified in treating said subsidy as revenue receipt and assessing it as income of assessee - Held, no Facts With a view to encourage the production of films in the State of Andhra Pradesh the Government of Andhra Pradesh decided to offer a subsidy of Rs. 50,000 to each film produced in Andhra Pradesh. For the previous year relevant to the assessment year 1972-73, the assessee received a sum of Rs. 50,000 by way of subsidy from the Government of Andhra Pradesh under the said scheme for producing a feature film in that State for public exhibition. The assessee treated the receipt of said subsidy of Rs. 50,000 as capital receipt. However, the ITO held that the said subsidy was in the nature of income and taxed it. On appeal, the Tribunal reversed the ITO's order and held that the subsidy was not in the nature of income and could not, therefore, be assessed to tax. On reference: Held The subsidy granted by the Government, in the present case, was in the nature of an inducement. It was a cash grant to induce a producer to produce a feature film in the State of A.P. in the hope and expectation that if producers were tempted to make feature films in that State, film production in the State would be encouraged and the State would reap the benefits of an organised flourishing film industry shifting to the State from elsewhere. It could not be said that the subsidy granted was income liable to tax, because if a producer had to pay 50 per cent or more by way of tax from out of the subsidy received, there was hardly any inducement and it would frustrate the very purpose for which the subsidy was granted. The subsidy was not granted either to assist the producer in the film making or to increase his profits. The subsidy was too small to achieve any such purpose. Thus, the Tribunal was justified in coming to the…

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