Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - Assessment year 1994-95 Subsidy grant received by assessee from State to encourage a hotel industry set up by assessee, was a capital receipt [In favour of assessee] Where the subsidy had been announced by the State of Karnataka to encourage the hotel industry and the State was in the habit of releasing subsidy amount depending upon the budgetary allocation in each year, subsidy grant received by the assessee from the State to encourage a hotel industry set up by the assessee was a capital receipt not liable to tax. K.V. Aravind and M.V. Seshachala for the Appellant. S. Parthasarathi for the Respondent. JUDGMENT K.L. Manjunath, J. - The respondent-assessee for the assessment year 1994-95 had received a sum of Rs. 3,73,000 as a subsidy granted by the State to encourage a hotel industry set up by the assessee. The assessee for the assessment year 1994-95 claimed the said amount of subsidy towards the capital investment, which was disallowed by the Assessing Officer. Being aggrieved by the same, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) which appeal came to be allowed holding that the subsidy has been granted to the assessee by the State as per the 1982-87/88 package of incentive and concessions and held that it is towards investment and not a revenue receipt. Accordingly, the appeal came to be allowed. 2. Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Income-tax Appellate Tribunal, Bangalore, in I.T.A. No. 787/Bangalore/03 which appeal came to be dismissed confirming the order passed by the Commissioner of Income-tax (Appeals) 3. Being aggrieved by the concurrent findings, the Revenue has come up in this appeal before this court raising the following, substantial questions of law : "(1) Whether the appellate authorities were correct in holding that the finding of the Assessing Officer that the subsidy of Rs. 3,73,000 received by the assessee from the State Government and utilised for carrying on its business cannot be treated as a revenue receipt despite the law declared by the apex court in Sahney…

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