Taxability of subsidy - Revenue receipt or capital receipt - "10 per cent Central Outright Grant of Subsidy Scheme, 1971" - Income Tax - 142/1974

Circular No. 142 Dated 1/8/1974 Taxability of subsidy - Revenue receipt or capital receipt - "10 per cent Central Outright Grant of Subsidy Scheme, 1971" 1. The Board had occasion to consider whether the amount of subsidy received under 10 per cent Central Outright Grant of Subsidy Scheme for industrial units to be set up in certain selected backward districts/areas would constitute revenue receipt or capital receipt in the hands of the recipient for the purpose of income-tax. 2. I am directed to say that the payment of subsidy under the scheme is primarily given for helping the growth of industries and not for supplementing their profits. Under the scheme, the quantum of subsidy is determined with reference to the fixed capital and not the profits. The working capital has been specifically excluded from the computation of fixed capital for this purpose. One of the conditions for the grant of the subsidy is that the undertaking must remain in production at least for a period of five years after it goes into production. Since the subsidy is intended to be a contribution towards capital outlay of the industrial unit, the Board are advised that such subsidy can be regarded as being in the nature of capital receipt in the hands of the recipient. Circular : No. 142 [F. No. 204/25/74-IT(A-II)], dated 1-8-1974 .