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Issues involved: The judgment addresses the question of whether a subsidy received under a specific government order is considered a trading receipt for tax purposes.
Facts: In the relevant accounting year, the assessee received an investment subsidy of Rs. 66,475. The Income-tax Officer treated this subsidy as additional net profits, which was confirmed by the Commissioner. However, the Income-tax Appellate Tribunal later ruled that the subsidy was not a trading receipt and thus deleted the addition representing the subsidy. Contentions: The standing counsel for income-tax argued that previous judgments had considered similar subsidies as revenue receipts, making them taxable income. The counsel emphasized that the Tribunal's differing view lacked a rational basis. Government Incentives: The Government of Andhra Pradesh provided incentives for establishing new industries, particularly in backward areas of the state. The subsidy in question was granted under a new scheme superseding earlier incentives, specifically for investment subsidy on fixed capital costs. Nature of Subsidy: The court analyzed the language of the government order and concluded that the subsidy was intended for setting up new industrial units or expanding existing ones, making it a capital receipt rather than a revenue receipt. Legal Precedents: The judgment referenced previous cases where subsidies were treated differently based on their purpose and context. It distinguished between subsidies for setting up or expanding plants, which are considered capital receipts, and subsidies for operational efficiency, which may be treated as revenue receipts. Decision: The court answered the question in favor of the assessee, stating that the subsidy in question was a capital receipt. Therefore, the Tribunal's deletion of the subsidy amount was deemed legal.
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