Capital subsidy treatment depends on purpose, not payment mechanism; sales-tax-linked incentive was capital in nature.

Subsidy character is determined by its purpose, not by the form or mechanism of payment. Where a Haryana sales tax incentive was tied to fixed capital investment and made available only to new industrial units or units undertaking expansion or diversification, its dominant object was to recoup capital outlay for setting up or enlarging the unit. The fact that the benefit was computed through a sales-tax deferment mechanism and became available after commencement of production did not change its essential nature. The incentive was therefore capital in receipt and not revenue in nature.

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Issues: Whether sales tax incentive received under the Haryana scheme constituted a capital receipt or a revenue receipt.

Analysis: The character of a subsidy depends on the purpose for which it is granted, not on the form or mechanism of disbursement. The scheme linked eligibility and quantum of benefit to fixed capital investment and extended concession only to new industrial units or units undertaking expansion or diversification. Though the incentive was computed with reference to sales tax deferment and became available after commencement of production, its object was to recoup the capital outlay incurred for setting up or expanding the unit.

Conclusion: The subsidy was a capital receipt and not a revenue receipt; the Tribunal was in deleting the addition on that basis.

Ratio Decidendi: A subsidy whose dominant object is to assist in setting up, expanding, or recouping the capital investment of an industrial unit is capital in nature, even if it is quantified or paid through a sales-tax deferment mechanism.

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