Case Law Details
Subsidy to set up a new unit or to expand an existing unit is capital receipts, purpose test will prevail
Brief of the Case
ITAT Delhi held in the case of M/s. Shivalik Prints Limited vs. ACIT that in the judgment of CIT vs. Ponni Sugars and Chemicals Ltd. 306 ITR 392 (SC), the Hon’ble Supreme court have held that the character of the receipt of a subsidy in the hands of the assessee under a scheme has to be determined with respect to the purpose for which the subsidy is granted i.e. one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. If the object of the subsidy is to enable the assessee to run the business more profitably then the receipt is on the revenue account. On the other hand, if the object of the assistance under the subsidy scheme is to enable the assessee to set up a new unit or to expand an existing unit then the receipt of the subsidy would be on capital account. In the case in hand, subsidy was given in the form of capital cost to encourage upgrading the textile industry and the purpose and object was for capital investment, as such, is clearly a capital receipt.
Facts of the Case
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