D.R Dhanuka, J.:— This reference is made by the Income-tax Appellate Tribunal, Bombay Bench ‘B’, Bombay, under section 256(2) of the Income-tax Act, 1961, in pursuance of an order of this court dated July 18, 1985, in Income-tax Application No. 599 of 1982 at the instance of the assessee. The question for our consideration is as under:

“Whether, on the facts and in the circumstances of the case, the financial assistance of Rs. 2,10,085 (Rupees two lakhs ten thousand eighty-five only) received by the applicants from the Government of Maharashtra constitutes a revenue receipt?”

2. The relevant assessment year is 1976-77.

3. The facts leading to the making of this reference are as under:

(a) The assessee is a producer of motion pictures in Marathi language.

(b) By a Government resolution bearing No. ENT 1075-F dated February 19, 1975, the Government of Maharashtra sanctioned its subsidy scheme for grant of financial assistance to Marathi film producers for their ensuing ventures. By the said resolution, it was decided by the Government of Maharashtra that its total receipts on account of entertainment duty on Marathi films exhibited in the previous year shall be earmarked for implementation of the said scheme. The objectives underlying the scheme are set out in a subsequent Government resolution dated June 7, 1975, as under:

(i) “To promote production of better Marathi films generally.

(ii) To help production of Marathi colour films in preference to black and white films.”

(c) By Government resolution dated June 7, 1975, the Government of Maharashtra prescribed rules governing the said scheme. The said rules prescribed conditions of eligibility for grant of financial assistance to pro ducers of new Marathi films. It is obvious that the said scheme was announced by the Government of Maharashtra to encourage and induce film producers to produce new Marathi films. Rule 4 of the said rules provided that any producer of a Marathi film as defined in the said rules, whose film had been exhibited in the State of Maharashtra may apply to the Collector of Bombay (Entertainment Duty Department) for grant of a certificate of eligibility subject to prescribed conditions being satisfied by the applicant. Rule 4 also provided that the managing director of the Maharashtra Sanskrit Vikas Mahamandal Limited shall hold the necessary inquiry in respect of various matters referred to therein before recom-, mending the release of the grant to the applicant. It was provided that the managing director of the Mandal will recommend the grant on being satis-, fied, inter alia, that the applicant had prepared adequate plans for production of the new film acceptable to the managing director as reasonable and that the applicant had made adequate arrangements for the necessary financial and technical requirements for production of the new film. It was also stipulated that the grant of financial assistance or subsidy shall be released in four equal instalments in the manner set out in the said rules accompanying the said Government resolution dated June 7, 1975. The said rules make it clear that the various instalments of the subsidy or grant, whatever one may call it, were directed to be released only after completion of a part of the new film. The relevant portion of the said rule 4(iv)(iii) of the said rules reads as under:

“(iii) The four instalments referred to in sub-rule (ii) of this rule above shall be released in the following manner, namely, the first instalment shall be released after completion of one-third of the proposed foot-age of the new film in a final shape, the second instalment shall be released on completion of two-thirds of the proposed footage in a final shape, the third instalment shall be released on the completion of the entire film ready for censor, and the final instalment shall be released immediately after the new film is censored and actually released.”

(d) The assessee applied for financial assistance to the Government of Maharashtra for production of a new picture “Pandoo Havaldar”. By a resolution of the Government of Maharashtra dated March 31, 1976, the Government of Maharashtra sanctioned release of financial assistance in favour of the assessee in the sum of Rs. 2,10,085 for assisting the assessee in production of the said new Marathi picture “Pandoo Havaldar”. In the said Government resolution dated March 31, 1976, it was provided that the said financial assistance of Rs. 2,10,085 was being granted to the assessee against the entertainment tax collection of Rs. 2,82,943.90 from the previous production of the assessee known as “Aandhala Narto Dola” during the year 1974-75. The said subsidy was released to the assessee so as to assist the assessee to acquire a new capital asset so as to meet part of the cost of the new film in public interest.

4. The Income-tax Officer held that the said sum of Rs. 2,10,085 received by the assessee from the Government of Maharashtra constituted a revenue receipt and was, therefore, taxable. Being aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals)-II, Bombay. By his well-considered order dated January 25, 1980, the Commissioner held that the said amount was not taxable. During the course of his order, the Commissioner of Income-tax referred, inter alia, to Circular No. 142 dated August 1, 1974, issued by the Central Board of Direct Taxes and published in [1974] 95 ITR (St.) 151. The said circular in terms applied only to 10% Central Outright Grant Subsidy Scheme for industrial units in backward areas and dealt with the question as to whether the receipt of such subsidy would constitute a revenue receipt or capital receipt in the hands of the recipient for the purpose of income-tax. It was observed by the Board in the said circular that the Scheme under consideration was framed by the Government for the growth of industries and not for supplementing the trade profits of the recipient and such subsidy was liable to be considered as a capital receipt in the hands of the assessee and non-taxable. In paragraph 15 of his appellate order, the Commissioner of Income-tax held that the subsidy in question was granted to the assessee for production of a new film and was thus a part of the capital outlay. The matter was carried in second appeal by the Department before the Income-tax Appellate Tribunal. On this aspect, the Income-tax Appellate Tribunal held that the order of the Commissioner of Income-tax (Appeals) was erroneous. The Tribunal set aside the order of the Commissioner and held that the receipt of the said subsidy in the hands of the recipient constituted a revenue receipt and was taxable as income of the assessee. The Tribunal relied upon the decision of the Hon'ble Supreme Court in the case of V.S.S.V Meenakshi Achi v. Commissioner Of Income Tax, Madras [1966] 60 ITR 253. Learned counsel, Shri S.N Inamdar, appearing for the assessee, submitted at the hearing of the reference that the ratio of the judgment of the Hon'ble Supreme Court in [1966] 60 ITR 253 is not applicable to our case and the said case is clearly distinguishable.

5. Shri Inamdar submitted that the nature, content and object of the subsidy considered by the Hon'ble Supreme Court in the above referred case was altogether different as held also by various High Courts in their respective judgments cited before us. This aspect shall be discussed in the later part of the judgment. It may be stated in passing that different schemes of subsidies have been formulated by various Governments and other public bodies with different objectives and the answer to the question posed for our consideration would depend upon our analysis and findings in respect of the nature, content and underlying objective of the scheme under consideration in this case. In a given case, subsidy may be granted with the object of supplementing the trade receipts and profits of the recipient. In another case, the scheme of subsidy may have been formulated by the authority concerned to assist the assessee in acquiring a capital asset or for growth of the industry generally in public interest without any objective of supplementing the trade receipts or recoupment of revenue expenditure already incurred by the assessee. Both learned counsel have cited a large number of cases in support of their rival contentions on the question whether the financial assistance of Rs. 2,10,085 in this case is liable to be treated as a revenue receipt or as a capital receipt. Reference to these cases shall be made in the later part of this judgment while dealing with the submission of counsel on either side.

6. Before a reference is made to the authorities cited by counsel on either side and their submissions, it appears to be appropriate to refer to Circular No. 541 dated July 25, 1989, [1989] 179 ITR (St.) 30, issued by the Government of India, as the said circular is directly relevant for the purpose of this matter. The said circular dealt with the subject-matter of “subsidy granted by the State Government to producers for the production of feature films in regional languages”. Paragraphs 2 and 3 of the said circular read as under (at p. 30 of 179 ITR (St.))

“2. The income-tax authorities have been treating the subsidy as a revenue receipt incidental to the carrying on of the business of film production and have been charging it to tax. Different Benches of the Income-tax Appellate Tribunal are divided on this issue. The Andhra Pradesh High Court in the case of CIT v. Chitra Kalpa [1989] 177 ITR 540, held that the subsidy has the character of a capital receipt.

3. With a view to avoiding controversy and litigation in the matter, the Board has decided that such subsidy received by producers of regional feature films should not be charged to tax as a revenue receipt.”

7. We shall discuss the judgment of the High Court of Andhra Pradesh in the case of CIT v. Chitra Kalpa [1989] 177 ITR 540 at its appropriate place in the later part of the judgment. Paragraphs 4 and 5 of the said circular are not at all relevant for our purpose.

8. Having regard to the nature of the subsidy announced by the Government of Maharashtra, its underlying objectives and content already discussed above, we are of the view that the subsidy received by the assessee in this case is liable to be considered as a capital receipt and not as a revenue receipt. The above conclusion is arrived at after applying the relevant tests and the applicable principles deduced from decided cases referred to in the later part of this judgment.

(a) The scheme of subsidy was announced by the Government of Maharashtra to grant financial assistance to film producers producing new films in the Marathi language in order to enable such producers to produce ensuing new Marathi films. The Government resolution already referred to in the earlier part of this judgment clearly indicates that the said scheme was formulated by the Government in public interest to encourage the growth of the industry generally and the said scheme was not made to supplement the trade receipts or the profits of the assessee.

(b) The said subsidy was granted by the Government to assist the assessee to acquire a capital asset. Film is a capital asset in the hands of the producers. It has been in terms held in paragraph 11 of the Tribunal's judgment as under:

“The financial assistance was received by the assessees for the production of Marathi pictures.”

(c) The subsidy was not granted to the assessee to enable the asses see to recoup revenue expenditure already incurred or to supplement its profits or trade receipts or business income as such.

9. The High Court of Kerala, in its recent Full Bench judgment in the case of CIT v. Ruby Rubber Works Ltd. [1989] 178 ITR 181, dealt with asimilar problem. In the matter before the High Court of Kerala, replantation subsidy was received by the assessees from the Rubber Board and the question which arose before the court was whether the receipt of such subsidy was income and the same was taxable. The Full Bench of the High Court of Kerala held in this case that it was not possible to characterise the replantation subsidy granted to the rubber growers as a subsidy to “swell” the profits of the assessees. On behalf of the Revenue, reliance was placed on the judgment of the Hon'ble Supreme Court in Meenakshi Achi (V.S.S.V) v. CIT [1966] 60 ITR 253, in the above-referred Kerala case. While distinguishing the above-referred Supreme Court judgment, the Full Bench of the High Court of Kerala held that, in the case before the Hon'ble Supreme Court, the subsidy was granted against the expenditure incurred by the assessees for maintaining the rubber plantation and the said case was, therefore, clearly distinguishable and had no applicability to the case of a subsidy having a different objective. Expenditure incurred by rubber growers for maintaining the rubber plantation would be a revenue expenditure. If the subsidy was granted by the Government to recoup the assessee in respect of the revenue expenditure incurred by the assessees, such a subsidy would amount to a revenue receipt in the hands of the assessee. In the above-referred judgment of the High Court of Kerala, reference was also made to the judgment of the Hon'ble Supreme Court in the case of Bengal Textiles Association v. CIT [1960] 39 ITR 723. The High Court of Kerala also referred to the judgment of the House of Lords in the case of Seaham Harbour Dock Co. v. Crook (H.M Inspector of Taxes) [1931] 16 TC 333 (HL). The ratio of the above-referred judgment of the House of Lords was duly approved by the Hon'ble Supreme Court in [1960] 39 ITR 723. Lord Buckmaster observed in the above-referred judgment of the House of Lords that, if the amount received by the assessee could not be characterised as a trade receipt and was in the nature of a grant made by the Government not amounting to a trade receipt, receipt of such grant by the assessee from the Government could not constitute a revenue receipt. We are in agreement with the view taken by the High Court of Kerala in its above-referred Full Bench judgment.

10. In CIT v. Dusad Industries [1986] 162 ITR 784, the High Court of Madhya Pradesh (Indore Bench) held that the subsidy received by the assessee for establishing a unit in a backward area in the State was granted to assist the assessee in respect of its capital investment and was not granted to supplement the profits of the assessee. It was held by the High Court of Madhya Pradesh, after referring to several judgments of the Hon'ble Supreme Court, that the subsidy in that case was granted by way of an incentive for capital investment and not by way of addition to the profits of the assessee. It was, therefore, held that the amount of subsidy received by the assessee from the Government was not taxable. In our case also, the amount of subsidy was granted by the Government to the assessee by way of an incentive for capital outlay and to assist the assessee to acquire a capital asset and not with an objective of supplementing the profits or the income of the assessee.

11. Shri Inamdar, learned counsel for the assessee, strongly relied upon the judgment of the High Court of Andhra Pradesh in CIT v. Chitra Kalpa [1989] 177 ITR 540. In this case, the High Court of Andhra Pradesh held that subsidy granted by the State Government to producers of feature films in the State was in the nature of an inducement for production of a capital asset and was, therefore, not a revenue receipt. The High Court of Andhra Pradesh referred to the earlier judgment of the High Court of Andhra Pradesh in CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39 and also to the judgment of the House of Lords in the case of Ostime (H.M Inspector of Taxes) v. Pontypridd and Rhondda Joint Water Board [1946] 14 ITR (Suppl.) 45 : [1946] 28 TC 261. The view expressed by the High Court of Andhra Pradesh in Chitra Kalpa's case [1989] 177 ITR 540 was accepted by the Central Board of Direct Taxes in its Circular No. 541 dated July 25, 1989 (see [1989] 179 ITR (St.) 30). We are somewhat surprised to find that the controversy is still being pursued by the Department notwithstanding the above-referred circular.

12. We shall now refer to various authorities cited by learned counsel for the Revenue who has endeavoured his best to convince us that the subsidy in question should be treated as a revenue receipt notwithstanding the Circular No. 541 dated July 25, 1989 (see [1989] 179 ITR (St.) 30) issued by the Central Board of Direct Taxes accepting the ratio of the judgment of the High Court of Andhra Pradesh in Chitra Kalpa's case [1989] 177 ITR 540.

13. Mr. Jetley, learned counsel for the Revenue, has strongly relied upon various judgments of the Hon'ble Supreme Court and different High Courts in support of his submission that the receipt of the subsidy of Rs. 2,10,085 by the assessee from the Government of Maharashtra should be treated as supplementing the income of the assessee and, therefore, a revenue receipt. To start with, Mr. Jetley relied upon the judgment of the Hon'ble Supreme Court in Meenakshi Achi's case [1966] 60 ITR 253. As already held in that case, the amounts were received by the assessee as grant mainly against the expenditure incurred by the assessee for maintaining the rubber plantations. In that case, the Hon'ble Supreme Court relied upon the decision of the King's Bench Division in Higgs v. Wrightson (H.M Inspector of Taxes) [1944] 26 TC 73. In the above referred case, the court held that ploughing grant was a revenue receipt. The answer to the question posed for our consideration would depend upon our finding on the principal question as to what was the nature and underlying objective of the scheme announced by the Government of Maharashtra in the instant case. In the instant case the grant was made by the Government of Maharashtra to film producers to assist them in acquiring a capital asset and to meet a part of the capital outlay. We are of the view that the judgment of the Hon'ble Supreme Court in Meenakshi Achi's case [1966] 60 ITR 253 is clearly distinguishable and is not applicable to the facts of this case, having regard to an altogether different kind of scheme in this case and its totally different objective.

14. Mr. Jetley relied upon another judgment of the Hon'ble Supreme Court in Bengal Textiles Association's case [1960] 39 ITR 723. in that case, an agreement was arrived at between the Government of West Bengal and the Bengal Textiles Association under which the Government of West Bengal had agreed to pay every month to the association the administrative expenses incurred in the previous month including establishment charges, office advertisements, salary and wages. It was held by the Hon'ble Supreme Court in this case that the payments were made by the Government to the association to assist it in the carrying on of its trade or business and the same were not of a benevolent nature and were not at all in the nature of a subsidy. The Government of West Bengal agreed to meet part of the administrative expenditure of the assessee in consideration of the assessee rendering certain services as stipulated in the agreement. With respect, the said judgment has no applicability at all to the case under consideration. It was observed in the said case at page 729, after referring to the judgments of the House of Lords in Seaham Harbour Dock Co's case [1931] 16 TC 333 and Glenboig Union Fireclay Co. Ltd. v. CIR [1922] 12 TC 427, that if the grant was given not as a supplementary trading receipt, it could not be treated as a revenue receipt. We have already held that, in this case, the subsidy was granted by the Government of Maharashtra to film producers not as a supplementary trading receipt and that its underlying objective was totally different. We are thus unable to appreciate how this judgment can assist the Revenue.

15. Mr. Jetley then relied upon the judgment of this court in Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473. In that case, the asses-see-company and Tata Chemicals Ltd., two of the companies which were manufacturing soda ash, found it difficult to carry on the business profitably and the production of soda ash had been stopped in April, 1949. It was decided by the Government on recommendation of the Tariff Board that the manufacturers of soda ash would be allowed a subsidy at a particular rate per cwt. provided the Government was satisfied that the companies concerned sold the soda ash at a fair selling price recommended by the Tariff Board. It was, therefore, held by this court in this case that the subsidy in that case towards supplementing the trade receipt of the asses-see was not in the nature of a capital payment. We are of the view that the subsidy or grant in our case is of a different category and it does not supplement a trade receipt at all. Accordingly, we have no hesitation whatsoever in holding that this judgment is not applicable to our case.

16. Mr. Jetley then relied upon the judgment of the High Court of Allahabad in CIT v. Swadeshi Cotton Mills Co. Ltd. [1980] 121 ITR 747. It was held in that case that the amount received by the assessee as subsidy in lieu of surrender of a part of the import entitlement was in the nature of a revenue receipt. The said case is clearly distinguishable having regard to the nature of subsidy under consideration in that case.

17. Mr. Jetley then relied upon the judgment of the High Court of Calcutta in Kesoram Industries and Cotton Mills Ltd. v. CIT [1978] 115 ITR 143. In that case, the assessee received a sum of Rs. 5,85,701 in the course of carrying on its business. It was held that the said amount was taxable as it was liable to be treated as a revenue receipt in the hands of the assessee. It was also observed in this case that the fact that the amount may in fact be used as capital in the hands of the assessee was irrelevant. That would be so. If the dominant purpose of the subsidy or the sole purpose of the subsidy was to assist the assessee in acquiring a capital asset and receipt of such amount was for the said purpose, receipt of such subsidy cannot constitute a revenue receipt. With respect, this judgment has also no application whatsoever to the facts of this case.

18. Mr. Jetley then relied upon the judgment of the High Court of Andhra Pradesh in Sahney Steel and Press Works Ltd.'s case [1985] 152 ITR 39. The ratio of the said judgment has been correctly discussed in the latest judgment of the High Court of Andhra Pradesh in Chitra Kalpa's case [1989] 177 ITR 540. We are of the view that the ratio of the judgment in [1989] 177 ITR 540, is applicable to this case. We agree with the view taken by the High Court of Andhra Pradesh in the above case.

19. Mr. Jetley has submitted that we should not follow the ratio of the judgment of the Andhra Pradesh High Court in Chitra Kalpa's case [1989] 177 ITR 540 on the ground that the said ratio runs counter to the law declared by the Hon'ble Supreme Court in Meenakshi Achi's case [1966] 60 ITR 253. In our considered judgment, the ratio of the above-referred Andhra case does not run counter to the judgment of the Hon'ble Supreme Court. It is not of any significance that no reference is to be found to the judgment of the Hon'ble Supreme Court in Meenakshi Achi's case [1966] 60 ITR 253 in the above-referred Andhra Pradesh High Court judgment. We are unable to accept the said submission. We are of the view that the answer to the question whether the receipt of a particular subsidy amounts to a capital receipt or a revenue receipt would depend upon the nature and content of the subsidy, the scheme, its objective and the purpose for which the subsidy is granted. Having regard to the nature, scope and object of the subsidy in the instant case, we are of the view that the financial assistance of Rs. 2,10,085 received by the assessee from the Government of Maharashtra did not constitute a revenue receipt in the instant case.

20. We, accordingly, answer the question under consideration in the negative and in favour of the assessee.

21. Having regard to the facts and circumstances of the case, there shall be no order as to the costs of the reference.