In a major relief to PVR Ltd., the Income Tax Appellate Tribunal (ITAT), Delhi Bench has confirmed entertainment tax subsidy as capital receipt.
The bench of Anubhav Sharma (Judicial Member) and Krinwant Sahay (Accountant Member) dealt with the dispute primarily involved the tax treatment of entertainment tax subsidies, leasehold improvement expenses, disallowances under Section 14A, bank charges subjected to TDS disallowance, and adjustments made while computing Minimum Alternate Tax (MAT) under Section 115JB.
The Assessing Officer had treated the entertainment tax subsidy of ₹17.79 crore received by PVR from state governments (Uttar Pradesh, Maharashtra, and Madhya Pradesh) as revenue in nature. The CIT(A), however, held the incentive to be a capital receipt, relying on earlier rulings in PVR’s own case.
The Tribunal noted that the issue was already settled in PVR’s favour by both ITAT and the Delhi High Court in earlier assessment years. It reiterated that the purpose of the subsidy was for capital expansion, not operational revenue generation, and hence the subsidy could not be taxed.
The department had challenged the deletion of disallowance of ₹7.01 crore, arguing that expenses involving acoustic and civil work in multiplex premises resulted in enduring benefits and should therefore be capitalized.
However, the Tribunal observed that the improvements were recurring refurbishments necessary for cinema operation. No depreciation was claimed by PVR on such capitalization in books, The issue had already been conclusively decided in earlier years and accepted by the Department.
Accordingly, the Tribunal held the deletion justified.
Section 14A Disallowance Restricted to Investments Yielding Exempt Income
The AO had computed disallowance under Section 14A read with Rule 8D at ₹60.04 lakh, applying it to all investments. The CIT(A) restricted it to investments that actually earned exempt income, bringing it down to ₹1.27 lakh.
The Tribunal agreed, citing the Delhi High Court ruling in PCIT v. Era Infrastructure, confirming that Rule 8D applies only where exempt income is earned and the 2022 amendment is not retrospective.
No TDS Required on Bank Charges; Section 40(a)(ia) Disallowance Deleted
The Tribunal upheld the CIT(A)’s view that PVR was not liable to deduct TDS on various bank-related charges such as Credit card service fees, Bank guarantee commission and Cash management charges.
Relying on CBDT Circular No. 56/2012 and the Delhi High Court’s ruling in PCIT v. MakeMyTrip India Pvt. Ltd., the Tribunal held that payments to banks for such services do not attract TDS.
Case Details
Case Title: DCIT Versus PVR Ltd.
Case No.: ITA No.5403/Del/2015
Date: 29.10.2025
Counsel For Petitioner: Sanjiv Kr. Choudhary
Counsel For Respondent: Monika Singh
