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Issues involved: Appeal against Tribunal's judgment regarding taxation of subsidy received from Govt. of Gujarat.
Factual Background: The respondent, a statutory Corporation, received subsidy from the Government to repay loans taken from NABARD for water resource development projects. The Revenue contended that the subsidy should be taxed as a revenue receipt. Tribunal's Decision: The Tribunal allowed the assessee's appeal after considering the tripartite agreement between NABARD, the assessee, and the State Government. It noted that the subsidy was specifically for loan repayment and that the funds were utilized for the intended purpose of water projects. Legal Precedents: The Tribunal relied on the decisions in Sahney Steel and Press Works Ltd. and Ponni Sugars and Chemicals Ltd. cases, emphasizing that subsidies for specific purposes are of capital nature and not taxable as revenue receipts. Apex Court's Interpretation: The Apex Court clarified that subsidies aimed at assisting business operations are considered revenue receipts, while those for specific capital purposes are not taxable as revenue. The purpose for which the subsidy is given determines its nature. Conclusion: The High Court upheld the Tribunal's decision, stating that the subsidy was meant for loan repayment related to capital assets for water projects, not for enhancing business profitability. Therefore, the subsidy was rightly treated as a capital receipt and not taxable as revenue. The Tax Appeal was dismissed.
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