Government grants for operating support are revenue receipts and taxable when not tied to creating new assets.

Government grants received by a 100 per cent Government company to support its functioning were treated as revenue receipts because they were not shown to be for acquiring or creating new assets. The assistance was credited to the profit and loss account and applied to operating support, so it bore the character of income rather than capital receipt under the governing subsidy test. On that basis, the grants were held taxable as income, since Government aid meant to carry on operations and not to bring a new capital asset into existence is revenue in nature.

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Issues: Whether grants received from the Government by a 100 per cent Government company to enable it to function constituted a capital receipt or a revenue receipt.

Analysis: The grants-in-aid were not shown to have been given for the acquisition or creation of new assets. They were received to support the company's functioning and were credited in the relevant profit and loss accounts. Applying the governing test for subsidies, assistance meant for carrying on operations, rather than for bringing a new capital asset into existence, bears the character of revenue.

Conclusion: The grants were revenue receipts and were taxable as income. The answer is against the assessee and in favour of the Department.

Ratio Decidendi: Government assistance given to support the functioning of an undertaking, and not for the creation of new assets, is a revenue receipt.

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