Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 1977-78 - Whether sales tax subsidy granted to assessee under Madhya Pradesh scheme for setting up industries in backward areas was a capital receipt, and therefore, was not assessable to tax - Held, yes FACTS The ITO rejected the assessee's claim for exemption of subsidy received by it in pursuance of the Madhya Pradesh Scheme providing concessions and facilities for setting up industries in backward areas. On appeal, the Commissioner (Appeals) held that the said subsidy could not be considered to be a capital receipt. On further appeal, the Tribunal held that the subsidy constituted a capital receipt. On reference: HELD Following the decision in CIT v. Dusad Industries [1986] 162 ITR 784 (MP), it was to be held that the sales tax subsidy granted to assessee under Madhya Pradesh scheme was a capital receipt and hence was not assessable to income-tax. Note: The decision was in favour of assessee. B.K. Rawat for the Applicant. B.L. Nema for the Respondent. JUDGMENT G.G. Sohani, Actg., CJ.-By this reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Jabalpur Bench, Jabalpur, has referred the following question of law to this court for its opinion: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that sales tax subsidy granted to an industry under the Madhya Pradesh scheme for grant of subsidy/interest-free loan for substantial expansion of the existing industrial unit is a capital receipt?" The material facts giving rise to this reference, briefly, are as follows: While framing the assessment of the assessee for the assessment year 1977-78, the Income-tax Officer rejected the claim of assessee for exemption of subsidy received by the assessee in pursuance of the Madhya Pradesh Scheme providing concessions and facilities for setting up industries in backward areas. Aggrieved by the order passed by the Income-tax Officer, the assessee preferred an appeal before the…

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