ITAT : Sales-tax subsidy for promoting industrialisation, a capital receipt; Applies 'purpose test'

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