The
tax holiday under Section 80 IB (7A) is proposed to be given only to those
multiplex projects that are situated outside the Municipal jurisdiction of the
cities of Delhi, Mumbai, Kolkata and Chennai. It should be appreciated that the
rationale of providing this tax holiday is to induce investments in this sector
and help make the business viable, by offsetting the prohibitively high capital
cost and entertainment tax levels. This rationale is valid even for these
metropolitan cities. In fact, real estate in these cities is much more
expensive than elsewhere and hence, there is stronger case for providing the
tax holiday also to those multiplex projects situated in these metropolitan
cities. It is proposed to give a similar tax holiday to convention centers
under Section 80IB (7B). However, under this proviso, there is no such
corresponding provision, that the tax holiday shall be available to only to
those projects situated outside these metropolitan cities. It is submitted that
why multiplex cinema theatre projects should be treated any differently. In
view of the above, it is suggested that the benefit should also be extended to
multiplex cinema theatre projects situated within these four metro cities viz,
Delhi, Kolkata, Mumbai and Chennai.
Higher
Depreciation Rates
Normal
rate of depreciation for building is 10%. It is submitted that buildings used as cinemas also be allowed
the rate of 20%, in line with what was being allowed for the hotel industry,
since cinema buildings, due to higher traffic, are subject to much more wear
and tear than other commercial buildings. Secondly, normal rate of depreciation
for furniture and fittings is 15%. Furniture
and fixtures used in cinemas be allowed a higher rate of depreciation at 25%
in view of the fact that furniture and fixtures in cinemas are subject to much
more wear and tear than furniture and fixtures in other commercial offices.
Similarly, machinery and plant
(including equipment) used in cinemas be allowed a higher rate of 40%
depreciation as against the normal rate of 25%.
MULTIPLEX
Extending the tax
holiday to New Green-Filed Multiplex Projects that have commenced commercial
use of the cinema halls before the 1st day of April 2002.
Clause (b) of Section 80-IB(7A) states as under:
(b) the deduction under clause (a) shall be allowable only
if-------
(i)
such multiplex
theatre is constructed at any time during the period beginning on the 1st
day of April, 2002 and ending on the 31st day of March 2005;
(ii)
the business
of the multiplex theatre is not formed by the splitting up, or the
reconstruction, of a business already in existence or by the transfer to a new
business of any building or of any machinery or plant previously used for any
purpose.
(iii)
the assessee
furnishes along with the return of income, the report of an audit in such form
and containing such particulars as may be prescribed and duly signed and
verified by an accountant, as defined in the Explanation below sub-section (2)
of section 288, certifying that the deduction has been correctly claimed.
Clause (v) of Sub-section 14further states as under:--
(iv)
in the case of
a multiplex theatre, means the assessment year relevant to the previous year in
which a cinema hall, being a part of the said multiplex theatre, starts
operating on a commercial basis;
Clause (da) of Sub-section 14 further states as under:--
(da) “multiplex theatre” means a building of a
prescribed area, comprising of two or more cinema theatres and commercial shops
of such size and number and having such other facilities and amenities as may
be prescribed;
It is already explained that the rules and prescribed norms
under this section, specifying the conditions a multiplex project needs to
satisfy, be promulgated at the earliest in order to give relief to those who
are put to force their existing plans on hold for a long time now.
Simultaneously, it is equally necessary to prescribe such norms at the earliest
for the projects which, were conceptualized and completed only after a
representation by the FICCI to the Finance Ministry.
The intention obviously appears to be to give some impetus
in the form of an incentive to the entertainment industry in order to promote
the concept of a “multiplex”. The basic intention was obviously to invite
larger inflow of revenue from the entertainment industry in all forms and
employment in general. If this is so, then the reference to sub-clause (v) of
clause (iv) of sub-section 14 not only invites an anomaly, but creates a
nugatory impact on the entire section and ultimately frustrates the whole
intention behind its insertion. This is because when the FICCI initially made a
representation earlier to the Finance Ministry for some incentives to the
entertainment industry by primarily inviting attention to the concept of
“multiplex”, simultaneously a representation was under consideration with
several state governments for accepting the said concept of “multiplex”. This
was obviously with an intention to get the basic sanction from the state
government for the construction of such a multiplex with specific conditions
and rules prescribed therefor in order to accelerate the basic project. The
entertainment industry had accepted the basic concept of promoting multiplexes,
however, the plans for the majority of the projected multiplexes could not
progress further and were put on hold as the conditions and the rules
thereunder were neither prescribed by the state government nor by the central
government. However, some entrepreneurs in the state of Gujarat and Maharashtra
had already commenced construction of such multiplexes with a specific saving
in the total built-up of their project with an obvious intention to utilize the
same for fulfilling the prescribed norms, for construction later on after the
state government prescribed them. Such norms were not prescribed either by the
state government or by the central government in time. However, in view of the
fact that the construction of such a multiplex is highly capital intensive and
needs a longer gestation period, part of the construction which, was completed
in respect of the cinema halls could not be deadlocked any further. Therefore,
such cinema houses started a lucrative use of it by commercial exhibition of
cinematograph films even prior to 31.3.2002. However, the basic project of
multiplex was still under progress and was completed only after 1.4.2002 and
only after the concerned state governments prescribed the norms for the same.
It is a matter of “Fact” that such multiplexes have commenced commercial use of
the entire infrastructure as a “multiplex” only after 1.4.2002. It is also a
fact that even the state governments have approved such projects as Cine
Multiplex projects only after 1.4.2002. In spite of the aforesaid fact the said
multiplexes would certainly lose the incentive as prescribed u/s 80-IB only
because the cinema halls in such multiplexes commenced commercial exhibition
before 1.4.2002. These multiplexes will certainly be hit by sub-clause (v) of
clause (14) of the section 80-IB. Such a situation certainly nuggets the basic
intention of the legislature and frustrates the entire section.
It is quite likely that the ambiguous wording of the
aforesaid sub-clause may be exploited in some other manner. For instance, if a
projected multiplex starts using one of its cinema halls for commercial
operation before the 31st of March 2005 but never comes out as a
multiplex in its entirety, may get the incentive proposed to be given to a
multiplex which, otherwise requires to be given only as per the norms and
conditions prescribed for the same.
It is, therefore, submitted that the wording of sub-clause
(v), which unnecessarily
creates an anomaly with the basic intention, be amended
suitably as under:--
“In the case of
multiplex theatre, means the assessment year relevant to the previous year in
which the entire infrastructure starts operating on a commercial basis as a
“Multiplex”. Even though any of the cinema houses in such a multiplex has commenced
commercial exhibition before 1.4.2002, if the multiplex as a whole commences
commercially after 1.4.2002 but before 31.3.2005, the said multiplex shall be
entitled for the deduction as envisaged u/s 80-IB.
There are only five Green-Field Multiplex Projects in the
country that have come up prior to 31.3.2002 but have commenced its use as a
Multiplex only after 1.4.2002. One such multiplex project is in the state of
Maharashtra and the other four are in the state of Gujarat.
It is also quite necessary to consider that the
entertainment industry in the state of Gujarat is facing a virtually disastrous
period initially due to the tremors and later on due to communal riots. As at
present many of the new multiplexes are on the verge of closing down. For this
very reason and to help them to come out of the present disastrous situation it
is desired that the incentive envisaged u/s 80-IB may please be afforded to the
multiplexes in Gujarat that have commenced commercially a little prior to
31.3.2002. Such a date may be decided with the consensus of the FICCI and the
Multiplex Association of India.