Capital receipt treatment for government grant confirmed where funds were earmarked for a permanent purpose.

A Government payment initially made as a repayable advance does not become income merely because it is later converted into an outright grant. Where the subsequent Government orders earmarked the amount for creating a permanent fund for exhibitions and fairs, the receipt retained its capital character. The Tribunal's view that the amount was capital in nature was upheld, and the referred question was answered in favour of the assessee and against the Revenue.

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Issues: Whether the sum of Rs. 5 lakhs received by the assessee from the Government, first as an advance and later as an outright grant for a specific purpose, was taxable income or a capital receipt.

Analysis: The amount was initially made available subject to refund, but the subsequent Government orders converted it into an outright grant earmarked for creating a permanent fund for exhibitions and fairs. The Tribunal had found, on a consideration of the Government orders and the position at the end of the year, that the receipt was capital in nature. A liability in the form of a repayable advance does not become income merely because it is later transformed into a grant; where the payment is ultimately designated for creating a permanent fund for a specific capital purpose, it retains the character of a capital receipt.

Conclusion: The receipt was not taxable income but a capital receipt, and the answer to the referred question was in favour of the assessee and against the Revenue.

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