Mumbai ITAT rules that
sales tax subsidy received by Grasim Industries (‘assessee’) under UP subsidy
scheme of Government for setting up industry in the notified area during AYs
1995-96 to 1998-99, is a non-taxable capital receipt; Notes that for promoting
development of certain areas of the State, the U.P. Government granted
exemption from payment of sales tax to new units as well as existing units
which have undertaken expansion, diversification or modernization by making
investment in fixed capital exceeding Rs. 50 crore; Since the
quantification of incentive was linked to production of goods, turnover of sale
of goods and the maximum exemption was limited to certain percentage of fixed
capital investment, Revenue had treated the subsidy as production incentive and
taxed it as revenue receipt; Rejecting Revenue’s treatment, ITAT notes that the
purpose of subsidy scheme is to attract people to invest and take part in
industrialization of certain areas in the State and not for enhancing the
production; Rules that it is the object for which the subsidy / assistance is
given determines the nature of incentive / subsidy, clarifies that “The form or
the mechanism through which a subsidy is given is irrelevant.”, applies
‘purpose test’ laid down by SC in Ponni Sugars case, :ITAT
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