Purpose test for subsidy character: Haryana industrial incentive sales tax subsidy treated as capital receipt and not taxable income.

Sales tax subsidy received under the Haryana industrial incentive scheme was treated as a capital receipt because the scheme's object was to promote new investment and industrial expansion, not to supplement trading income. The purpose test controlled the character of the subsidy: the decisive factor was the scheme's underlying aim under Rule 28C and the industrial policy framework, rather than the mode of payment or accounting treatment. Following an earlier coordinate bench ruling on an identical subsidy scheme, the Tribunal held that the receipt was capital in nature and therefore not taxable as revenue income.

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Issues: Whether the sales tax subsidy received under the Haryana industrial incentive scheme was a capital receipt or a revenue receipt liable to tax.

Analysis: The subsidy was granted under Rule 28C of the Haryana General Sales Tax Rules, 1975 and the related industrial policy framework to encourage new investment and expansion in the State. Applying the purpose test, the decisive question was the object of the scheme, not the mode of disbursement or the manner in which the assessee accounted for the receipt. The scheme was linked to industrial development and capital investment, and the Tribunal followed the ratio of the earlier coordinate bench decision on an identical Haryana subsidy scheme.

Conclusion: The subsidy was held to be a capital receipt and not taxable as revenue income, and the assessee succeeded on this issue.

Ratio Decidendi: The character of a subsidy is determined by the purpose for which it is granted; if the object is to promote setting up or expansion of industry and not to supplement trading receipts, the subsidy is capital in nature.

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