Purpose test for subsidy characterisation: sales tax remission linked to capital expansion was held to be a capital receipt.

A sales tax remission under the West Bengal Incentive Scheme, 1999 was treated as a capital receipt because the governing test is the purpose of the subsidy. Where the incentive is linked to fixed capital investment, expansion of an existing unit, addition to fixed assets, or repayment of expansion loans, it is on capital account. The remission here was tied to those objectives and was used for expansion and loan repayment, so it was not taxable as revenue receipt. Section 43B was inapplicable because no sales tax amount had been claimed as a deductible expense in the profit and loss account.

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Issues: Whether the sales tax remission received under the West Bengal Incentive Scheme, 1999 was a capital receipt or revenue receipt, and whether section 43B could be invoked to add the unpaid amount to income.

Analysis: The decisive test for characterising a subsidy is the purpose for which it is granted. Where the object of the incentive is to enable the assessee to set up a new unit, expand an existing unit, make fixed capital investment, or repay loans taken for such expansion, the receipt is on capital account. The remission in question was linked to fixed capital investment and repayment of loans, and the assessee had utilised it for expansion of installed capacity, addition to fixed assets, and repayment of loans. Section 43B had no application because no sales tax amount was claimed as a deductible expenditure in the profit and loss account.

Conclusion: The sales tax remission was a capital receipt and not taxable as revenue receipt; section 43B did not justify the addition. The deletion of the addition was upheld and the Revenue's appeals failed.

Ratio Decidendi: The character of a subsidy is determined by its purpose, and a remission granted for fixed capital investment, expansion, or repayment of loans is a capital receipt; section 43B cannot be invoked where the amount was not claimed as deductible expenditure.

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