Government rehabilitation grant-in-aid used to clear loan liabilities treated as capital receipt under purpose test, not taxable revenue.

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....Grant-in-aid/subsidy received from the Government under a rehabilitation scheme was examined to determine whether it constituted a revenue receipt or a capital receipt. Applying the "purpose test", the financial assistance was held to be intended predominantly to rehabilitate the loss-making assessee by pulling it out of financial stringency, with the funds earmarked primarily for clearing loan liabilities. Performance-linked conditions were treated as monitoring mechanisms to ensure proper utilisation of rehabilitation assistance, not as indicators of a revenue character. Even assuming some performance objective, the dominant purpose of rehabilitation prevailed. Accordingly, the receipt was held to be a capital receipt not chargeable as revenue income, and the issue was decided against the revenue. - HC....