Law:

Section:

Section 4, read with section 41(1), of the Income-tax Act, 1961 - Capital or revenue receipt - Whether sales tax subsidy received by assessee under a scheme framed by Government for grant of sales tax subsidy to industries in backward areas was a capital receipt and was not taxable under section 41(1) - Held, yes FACTS The assessee under a scheme framed by the Government of Madhya Pradesh for grant of sales tax subsidy to industries in backward areas in Madhya Pradesh received certain amount as sales tax subsidy and claimed the same as a capital receipt. The ITO disallowed the assessee's claim and held that the payment of the aforesaid amount to the assessee was refund of sales tax earlier paid by the assessee and it was, therefore, taxable under section 41(1), both the AAC and the Tribunal upheld the order of the ITO. On reference : HELD Following the decision of the Madhya Pradesh High Court in the case of CIT v. Dusad Industries[1986] 162 ITR 784, the said amount received by the assessee as sales tax subsidy was a capital receipt and, hence, was not exigible to tax. CASE REVIEW CIT v. Dusad Industries [1986] 162 ITR 784 (MP)followed and relied upon. CASES REFERRED TO CIT v. Dusad Industries [1986] 162 ITR 784 (MP). S.S. Samvatsar for the Applicant. R.C. Mukati for the Respondent. ORDER Sohani, Actg. CJ. - By this reference under section 256(1) of the Income-tax Act, 1961 ('the Act'), the Tribunal, Indore Bench 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 right in holding that the sum of Rs. 54,454 received by the assessee as sales tax subsidy was a taxable receipt ?" 2. The material facts giving rise to this reference, briefly, are as follows: The assessee had set up an industry in M.P. at Ratlam and under the scheme framed by the Government of Madhya Pradesh for grant…

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