Capital receipt treatment of development grant confirmed where export-linked quantification did not alter the grant's capital purpose.

Development grant received for acquiring new machinery and replacing old machinery was treated as capital in nature, because the scheme's reference to export shipments was only a method of quantifying assistance and did not change the purpose of the receipt. A payment made for capital purposes does not become revenue income merely because it is measured by sales or export performance. The grant was therefore not taxable as income, and the related question was not answered because it did not arise.

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Issues: Whether the development grant received by the assessee for acquiring new machinery and replacement of old machinery was a capital receipt not taxable as income, and whether the second question referred required answer.

Analysis: The grant was found to have been received for acquiring new machinery and replacing old machinery. The fact that the scheme measured the benefit by reference to the quantity shipped for export did not alter the character of the payment, because that basis was only a method of quantifying the assistance under the scheme and not the source or purpose of the receipt. A receipt made for capital purposes cannot be treated as revenue merely because it is calculated with reference to sales or exports.

Conclusion: The development grant was held to be a capital receipt and not income, and the first question was answered in favour of the assessee and against the Revenue. The second question was declined to be answered as not arising.

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