K.K. Usha, J.
1. At the instance of the Revenue, the following questions of law are referred by the Income-tax Appellate Tribunal (in short, 'the Tribunal') for decision of this court :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for receiving subsidy from the Government of Kerala for producing films in Kerala, it is not necessary that the recipient should have been carrying on a business ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the subsidy amount constituted the income of the period during which the films were released and that it did not constitute the income of the accounting year in which the subsidy was received ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the subsidy amount did not constitute the income of the assessee-firm as constituted during the accounting period relevant to the assessment year 1979-80 .
4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the subsidy amount was not taxable in the hands of the assessee ?'
2. The facts relevant for consideration of the above questions are as follows :
The respondent-assessee, Excel Productions, is a registered firm doing the business of production and release of movie films. For the assessment year 1979-80, for which the previous year ended on December 31, 1978, in Part III of the return of income the assessee showed an amount of Rs. 1,00,000 being subsidy received from the Government of Kerala during the relevant accounting period, in respect of four full Malayalam feature films at the rate of Rs. 25,000 per film. The four films, Acharam Ammini Osharam Omana, Cheenavala, Dharmakshetra Kurushetre and Kannappannunni, were released in the years 1977, 1976, 1975 and 1977, respectively. The assessee claimed that the subsidy amount was not a revenue receipt and further put forward an alternate contention that it was a casual income. The claim was rejected by the Income-tax Officer and was confirmed by the Commissioner of Income-tax (Appeals). Aggrieved by the above, the assessee came up in appeal before the Tribunal.
3. The subsidy was paid by the Government of Kerala as per a set of rules, which came into force from April 1, 1975. It was under a scheme for paying an amount of Rs. 25,000 to full length feature films entirely produced, processed, recorded and re-recorded in the State of Kerala and duly certified by the Central Board of Film Censors. The subsidy for three films were sanctioned in the name of the managing partner, Excel Productions, whereas the fourth film, it was sanctioned in the name of Smt. Annamma Kunchacko, partner, Excel Productions. Even though the films were released during the period between 1975-77, the subsidy was actually sanctioned only under the orders of the Government of Kerala dated March 25, 1978. Excel Productions was a firm consisting of eight partners, having been constituted under a partnership deed dated August 4, 1965, at the time when the films were released. The firm was later reconstituted on October 1, 1977, with five partners and it is this firm, which is the assessee-respondent herein.
4. The subsidy amount received by the assessee was treated by the Department as income arising out of business of the assessee. But the Tribunal took the view it was the firm as constituted during the period between 1975-77 that was entitled to receive the subsidy, that it cannot be treated as income of the assessee merely because it received the amount in 1978 and that the subsidy has nothing to do with the business that the assessee carried on in 1978, being the relevant accounting year. It further held that even assuming that there was continuity in the constitution of the firm, the subsidy amount was traceable only to the business conducted by the assessee in the earlier years and that it cannot be treated as the income of the assessee during the accounting period relevant to the assessment year under appeal. The Tribunal further held that the subsidy was payable to the producer of film and that it was not necessary that the recipient should have carried on business at the time when the subsidy was actually received.
5. It was contended on behalf of the Revenue before us that the Tribunal has erred in coming to the conclusion that the subsidy amount has to be treated as income derived from the business conducted by the assessee in the earlier years. According to the Revenue, it became income only in the year in which the right to receive subsidy accrued. Merely because feature films satisfying the conditions contained under the rules are produced, the producer need not be entitled to the subsidy. The producer has to make a request for grant of the subsidy with certain details and on the basis of the recommendation of a committee, the Government of Kerala may grant the subsidy. There is no right as such in the producer to claim the subsidy as a matter of course. Reliance was placed by the Revenue on the decision of the Supreme Court in Keshav Mills Ltd. v. CIT : [1953]23ITR230(SC) , in support of the above contention. Therefore, only when the order was passed by the Government of Kerala on March 25, 1978, the right to receive the subsidy accrued. No serious contentions were raised before us by the respondent-assessee against the above position. We are inclined to accept the contention raised by the Revenue that the income by way of subsidy accrued only in the relevant accounting year.
6. It was further contended by the Revenue that if it has to be taken that there was no continuity in the constitution of the firm, the subsidy received in the year 1978 cannot be treated as subsidy received by the former firm as admittedly during the year 1978, it was not carrying on the business of production and release of movie films. As a further extension of the above argument, the Revenue contended that when the amount was received by the subsequent firm, it loses the character of subsidy and it has to be taken as a casual receipt in the hands of the second firm. Learned counsel appearing on behalf of the Revenue submitted that even though such an argument was not put forward by the Revenue before the Tribunal, it is open to the Revenue to take a contention for the first time before this court in this reference. According to learned counsel, the Tribunal has not examined the question in the correct perspective. In support of the stand that the Revenue can take such a contention for the first time before this court learned counsel relied on a decision of the Supreme Court in Salem Co-operative Central Bank Ltd. v. CIT : [1993]201ITR697(SC) . In support of his contention that even if the receipt of the subsidy by the second firm is in the nature of a casual receipt it has to be treated as its income learned counsel relied on a decision of the Supreme Court in CIT v. G. R. Karthikeyan : [1993]201ITR866(SC) .
7. It is further contended by the Revenue that the amount granted as subsidy was received by the latter firm and the receipt is not on behalf of the former firm. Reliance was also placed on the provisions contained under Sub-section (3A) of Section 176 of the Income-tax Act and a contention was raised that even if it is to be taken that the subsidy is received by the former firm it is liable to be taxed under Sub-section (3A).
8. Learned counsel appearing on behalf of the assessee pointed out that in view of the specific finding of the Tribunal that subsidy was earned by the firm as constituted during the years 1975 to 1977, the Revenue cannot be heard to contend that the subsidy amount was, as a matter of fact, received by the assessee-firm. It is true that the amount was received in the hands of the assessee-firm, but this amount was due to the former firm. He also contended that since the amount was receivable only by the former firm, it does not lose the character of subsidy as contended by the Revenue. Referring to the relevant rules, the assessee's counsel pointed out that it was not necessary to continue the business for a producer to claim the subsidy in respect of cinemas produced during earlier years.
9. The relevant portions of the rules relating to the grant of subsidy are quoted in the order of the Tribunal. It is seen that the rules are applicable to all full length feature films entirely produced, processed, recorded and re-recorded in the State of Kerala and duly certified for public exhibition by the Central Board of Film Censors (Government of India). Producer is defined as any individual, body of individual, association of company corporate or otherwise, as the case may be, whose name is mentioned as producer in the credit titles of the film duly certified by the Central Board of Film Censors. It is mandatory that the registered office of the producer should be within the Kerala State. It is further provided that on the basis of the recommendations of the committee, constituted as per the provisions of the rules, the Government of Kerala may grant subsidy of Rs. 25,000 to the producer in respect of a full length feature film duly produced, processed, recorded and re-recorded in its entirety in the State of Kerala. There is no provision in the rules which makes it mandatory for the claimants to be continuing in the business for receiving the subsidy in respect of full length feature films produced during the earlier years. Therefore, even though the receipt of the subsidy in this case was in the year 1978, it would enure to the former firm. It may be that the subsidy was received through the newly formed firm in 1978, but the receipt of the newly formed firm can be only for and on behalf of the former firm. We find no merit in the contention raised by the Revenue on the basis of Sub-section (3A) of Section 176 of the Income-tax Act. Sub-section (3A) provides that 'Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance'. Since we are not concerned with the assessment of the former firm in this case, Sub-section (3A) of Section 176 has no application here.
10. In view of the above, we answer questions Nos. 1, 3 and 4 in the affirmative in favour of the assessee and against the Revenue, question No. 2 is answered in the negative in favour of the Revenue and against the assessee.
11. A copy of this judgment under seal of this court and the signature of the Registrar to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.