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Issues Involved:
The issue involves the deletion of additions made by the Income-tax Officer for the assessment years 1979-80 and 1980-81, regarding sales tax subsidy received by the assessee. Summary: Issue 1: Deletion of Additions by Income-tax Officer The Income-tax Officer added the sales tax subsidies received by the assessee as taxable income. The Appellate Assistant Commissioner upheld this decision. However, the Tribunal deleted the additions after considering the terms of the agreement and the purpose of the subsidy. The Tribunal noted specific clauses in the agreement that restricted the use of the subsidy and observed that the subsidy was given as an incentive for capital investment in backward areas, not to supplement profits. The Tribunal concluded that the subsidy was a capital receipt, not a revenue receipt, and therefore not taxable as income. Issue 2: Arguments Presented The Revenue argued that the subsidy should be treated as a revenue receipt based on previous court decisions. In contrast, the assessee's counsel relied on cases emphasizing that the subsidy was intended to promote industrial growth in backward areas and was not meant to increase profits. The counsel highlighted that the subsidy was subject to specific terms and conditions, indicating its capital nature. The counsel argued that the subsidy was not a refund of sales tax but an additional assistance for setting up new industries. Conclusion: After considering the arguments and case law presented, the court found that the subsidy was given as an incentive for capital investment in backward areas, not to boost profits. The court distinguished the case from previous decisions cited by the Revenue and concluded that the subsidy was a capital receipt. Therefore, the Tribunal's decision to delete the additions made by the Income-tax Officer was justified. The reference was answered in favor of the assessee, and the additions of Rs. 24,481 and Rs. 66,990 for the respective assessment years were deemed non-taxable.
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