Purpose test for subsidy classification: power tariff concession was revenue, while scrap sales were excluded from Section 80HHC turnover.

Power tariff concession granted under an industrial policy and a statutory supply notification was treated as revenue in nature because the purpose test showed it was meant to assist ongoing business operations and reduce recurring electricity expenses, rather than fund the setting up or expansion of the unit. Scrap sales were separately considered for Section 80HHC computation and were not included in total turnover, as they did not constitute turnover from manufactured goods under the applicable precedent. The appeal was therefore partly allowed on the deduction issue, while the taxability of the concession was upheld against the assessee.

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Issues: (i) Whether the power tariff concession received by the assessee was a revenue receipt liable to tax or a capital receipt; (ii) Whether scrap sales were required to be included in the total turnover for computing deduction under Section 80HHC.

Issue (i): Whether the power tariff concession received by the assessee was a revenue receipt liable to tax or a capital receipt.

Analysis: The concessional tariff was granted under the industrial policy and the statutory notification governing high tension supply. The concession was subject to conditions tied to commencement and conduct of production and was intended to assist the assessee in carrying on business more profitably. Applying the purpose test, the character of the receipt depended on the object of the subsidy, not on the form, source, or timing of payment. A subsidy that reduces running expenses and goes towards electricity bills is revenue in nature.

Conclusion: The power tariff concession was a revenue receipt and the finding was against the assessee.

Issue (ii): Whether scrap sales were required to be included in the total turnover for computing deduction under Section 80HHC.

Analysis: Scrap sales did not represent turnover from the assessee's manufactured goods for the purpose of the statutory computation. The issue stood covered by the applicable binding precedent relied upon by the assessee and accepted by the Court.

Conclusion: Scrap sales were not to be included in the total turnover and the finding was in favour of the assessee.

Final Conclusion: The appeal succeeded only on the deduction computation issue, while the challenge to the taxability of the power tariff concession failed, resulting in a partial allowance of the appeal.

Ratio Decidendi: For determining whether a subsidy is capital or revenue, the controlling test is the purpose for which it is granted; a subsidy intended to assist business operations or reduce recurring expenses is revenue in nature, whereas a subsidy meant to enable setting up or expansion of a unit is capital in nature.

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