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Issues involved: The judgment deals with the issue of whether the sales-tax exemption granted by the Government of Gujarat to the assessee for three assessment years is a capital receipt or a revenue receipt.
Summary: Issue 1: Sales-tax exemption classification The revenue filed appeals challenging the CIT(A)'s order granting sales-tax exemptions totaling Rs. 3,09,40,235 for AY 1991-92, Rs. 5,66,12,692 for AY 1992-93, and Rs. 2,83,05,017 for AY 1993-94. The assessing officer considered the exemptions as revenue receipts, not meant for setting up units. The CIT(A) decided in favor of the assessee, holding the receipts as capital in nature. The Tribunal upheld the CIT(A)'s decision based on the purpose test, emphasizing the incentives were for industrial development in a backward area, not for business operations. Key Points: - The purpose of the incentives was to promote capital investment and industrial development in the earthquake-affected district. - The Tribunal referred to the Supreme Court's principle that subsidies are classified based on the purpose for which they are granted. - The Tribunal distinguished a similar case involving a different scheme, emphasizing the specific objectives and benefits tied to the capital investment in the present case. - The Tribunal upheld the CIT(A)'s decision, considering the incentives as capital receipts aimed at setting up new units and generating employment in a backward area. Decision: The Tribunal dismissed the revenue's appeals and upheld the CIT(A)'s order, affirming that the sales-tax exemptions were capital receipts.
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