Capital subsidy for plant expansion is not revenue receipt when scheme reimburses fixed asset cost and follows the purpose test.

Grant-in-aid received as reimbursement of expenditure for expansion of a food processing unit was treated as capital receipt because the subsidy was linked to capital investment and the purpose test showed it was meant to meet plant and machinery cost. The character of the receipt depended on the object of the scheme, not the timing or form of payment, and reimbursement of already incurred capital did not make it revenue in nature. The amount was also reduced from the written down value of fixed assets, aligning with the statutory treatment of subsidies connected to actual cost. The subsidy issue was decided in favour of the assessee, with partial relief on the remaining ground.

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Issues: Whether the grant-in-aid received from the Ministry of Food Processing Industries as reimbursement of expenditure incurred for expansion of the plant and machinery was a capital receipt or revenue receipt.

Analysis: The grant was sanctioned for expansion of the food processing unit and the amount received during the relevant year represented an instalment of assistance linked to capital investment. The record showed that the expenditure on plant and machinery had already been incurred and the subsidy was released on the basis of audited accounts as reimbursement of such expenditure. The later assessment year was also accepted by the Assessing Officer on the same factual premise. Applying the purpose test, the character of the receipt depended on the object of the subsidy and not on the timing or form of payment. Where the assistance is intended to reimburse capital cost or enable expansion of the unit, it is not a revenue receipt. The assessee had also reduced the amount from the written down value of the fixed assets, bringing it within the exclusion contemplated by the statutory framework relating to subsidies linked to actual cost.

Conclusion: The grant-in-aid was a capital receipt and the addition made by treating it as revenue was deleted, in favour of the assessee.

Final Conclusion: The appeal succeeded on the subsidy issue, while the remaining ground was not pressed, resulting in partial relief to the assessee.

Ratio Decidendi: A subsidy or grant given for reimbursement of capital expenditure or for expansion of an existing unit is capital in nature when the purpose of the scheme is to meet capital cost, and the form or timing of payment does not alter that character.

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