Law: Income Tax Act, 1961

Section: 256(1)

Section 4 of the Income-tax Act, 1961 - Income - Assessable as - Whether where assessee received Government subsidy in form of sales tax refund after production had commenced in its industry, such subsidy could be treated as capital receipt - Held, no FACTS The assessee claimed that the sales tax subsidy received by it from the Government was exempt from tax as it was a capital receipt. The Assessing Officer negatived the assessee's claim and treated it as a revenue receipt. On appeal, the Commissioner (Appeals) held that subsidy was a capital receipt not liable to tax. The Tribunal upheld the order of the Commissioner (Appeals). On reference: HELD The facts were not in dispute that the subsidy, i.e., in the form of refund of sales tax, was received after production commenced in the industry of the assessee. The Apex Court in the case of Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253 / 94 Taxman 368, observed that if monies are given to the assessee for assisting it in carrying out the business operation and the money is given only after, and conditional upon, commencement of production, such subsidies must be treated as assistance for the purpose of the trade. Following the said observation, in the instant case, the sales tax subsidy received after production could not be treated as capital receipt and was, therefore, liable to tax. CASES REFERRED TO CIT v. Dusad Industries [1986] 162 ITR 784 / 27 Taxman 4 (MP), CIT v. Plastichem [1988] 174 ITR 546 (MP) and Sahney Steel & Press Works Ltd. v. CIT [1997] 228 ITR 253/ 94 Taxman 368 (SC). JUDGMENT 1. On an application under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion along with the statement of case: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding the view that the sales tax subsidy of Rs. 2,06,400 received by the assessee was a capital receipt not liable to income-tax ?" 2. During the course of assessment, the Assessing Officer (North-East) wrote a letter to the assessee dated 20-2-1989 (sic). In that letter, he claimed that the sales tax subsidy received by the firm…

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