Capital receipt treatment for sales-tax incentive depends on the scheme's object, not the timing of disbursement.

A sales-tax incentive under the Maharashtra incentive scheme was treated as a capital receipt because the scheme's purpose was to promote fixed capital investment and industrial development in backward areas. The Tribunal held that the decisive test was the object of the scheme, not the fact that the subsidy was disbursed after production began. It also viewed retention of sales tax as only the method of disbursal, not the character of the incentive. The incentive was therefore linked to setting up and expanding industrial units, rather than to assisting trading operations, and was not chargeable as revenue income.

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Issues: Whether the sales-tax incentive received by the assessee under the Maharashtra incentive scheme constituted a capital receipt not liable to tax.

Analysis: The decisive factor was the purpose of the incentive scheme. The Tribunal examined the scheme, the eligibility certificate process, and the manner in which the incentive was linked to fixed capital investment and industrial development in backward areas. It held that the timing of disbursement after commencement of production did not change the character of the receipt where the object of the scheme was to induce setting up and expansion of industrial units in the specified backward area. The Tribunal distinguished cases dealing with operational subsidies and held that the Maharashtra scheme was oriented towards capital investment, not assistance for carrying on trade. The reasoning also treated the mode of retention of sales-tax as only the method of disbursal of the subsidy.

Conclusion: The sales-tax incentive was a capital receipt and was not chargeable to tax as revenue income.

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