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TMI Blog2018 (5) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... o account by the entrepreneur. The investment by an entrepreneur by way of capital expenditure is recovered over a period of time and has a gestation gap. If the running expenses are made cheaper by way of any subsidy or incentive and made applicable only to new units or expanded units, the realisation of the capital investment is quicker and the decision as to the quantum of capital investment is influenced thereby. That is the exact scenario in the present case where the lower operational costs by way of subsidy on consumption of power helps in the quicker realisation of the capital expenditure or the servicing the debt incurred for such purpose. In view of the acceptance of the wider ambit of the “purpose test” in the most recent judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he overwhelming consideration in ascertaining whether the subsidy or the money was to be treated as a capital receipt or as a revenue receipt. Upon the difference being referred to a referee, the assessee s point of view was accepted and the purpose of the scheme was regarded to be one for setting up a new unit or expanding an existing unit and, as such, the subsidy had to be treated as a capital receipt notwithstanding the mode and manner of the subsidy. The issue had been decided in Sahney Steel where the Court was of the opinion that when a benefit was received by an assessee for the purpose of carrying on its business, it was a benefit incidental to its business and, as such, it had to be regarded as a revenue receipt. The matter was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The form of subsidy is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units (Emphasis supplied). It is easy to fall for such distinguishing feature in Ponni Sugars and confine the test recognised therein to cases only where the quantum of incentive is used to discharge a capital debt or a term loan or some capital expenditure or the like. However, the sweep of the purpose test has been expanded in a recent judgment of the Supreme Court reported at 400 ITR 279 (CIT vs. Chaphalkar Brothers) where the subsidy in the form of exemption from p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or it having expanded itself. In such a scenario, the incentive would have to be invariably regarded as a revenue receipt. However, when the scheme itself makes the incentive applicable only to new and expanding units, the fact that the incentive is in the form of a rebate by way of sales tax or concessional charges on account of use of power or a lower rate of duty being made applicable would be of little or no relevance. When an entrepreneur sets up a business unit, particularly a manufacturing unit, or embarks on an exercise for expanding an existing unit, the entrepreneur factors in the cost of setting up the unit or the cost of its expansion and the costs to be incurred in running the unit or the expanded unit. It is the totality of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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