Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 1995-96 - Whether subsidy received by assessee from Government of West Bengal under scheme of industrial promotion for expansion of its capacities, modernization and improving its marketing capabilities would be capital receipt - Held, yes FACTS The assessee received subsidy from the Government of West Bengal under a scheme of industrial promotion. In its return of income, the assessee claimed said amount to be in nature of capital receipt. The Assessing Officer held that the subsidy had been utilized for meeting revenue disbursements of the assessee and, therefore, the said amount of subsidy received from the Government was nothing but supplementary trade receipts and should be considered as revenue receipts. On appeal, the Commissioner (Appeals) affirmed the order of the Assessing Officer. On second appeal, the Tribunal set aside the order passed by the Commissioner (Appeals) and held that the said subsidy was in the nature of capital receipt and, hence, the same was not taxable. On revenue's appeal : HELD The scheme in question was given effect to from 1-4-1994 and initially, was in force only for one year from that date and, thus, the benefit was then available to the assessee only for that year which was the relevant assessment year. From the objects and reasons of the aforesaid scheme, it was clear that the Government had decided to grant the subsidy by way of financial assistance to tide over the period of crisis for promotion of the industries mentioned in the scheme which had the manufacturing units in West Bengal and which were in need of financial assistance for expansion of their capacities, modernization and improving their marketing capabilities and such subsidy for the financial year in question was only for that year and was equivalent to 90 per cent of the amount of sales tax paid by the industry concerned for any quarter under the Sales Tax Act in respect of sales of such goods. [Paras 14 and 14A] In CIT v. Ponni Sugars & Chemicals Ltd. [2008] 306 ITR 392 / 174 Taxman 87 (SC), it was held that if the object of the Subsidy Scheme was to enable the assessee to…

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