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2016 (7) TMI 1662 - AT - Income TaxCharacter of receipt - Addition of subsidy by way of refund/exemption of excise duty/VAT - HELD THAT:- In some and substance receipt in hands of the assessee has to be determined with respect to purpose for which the subsidy is given. One has to apply the purpose test. However, lower authorities misdirected in holding that since subsidy was to be received only after commencement of commercial production, the same was revenue in nature. Hon‟ble Supreme Court in the case of Ponni Sugar & Chemicals Ltd. [2008 (9) TMI 14 - SUPREME COURT] had clearly held that character of receipt in the hands of the assessee has to be determined with respect to the purpose for which the subsidy is given. Merely because subsidy was to be paid after commencement of production will not alter the nature of receipt, insofar as the point of time at which the subsidy paid or the source from which the subsidy is paid is immaterial, even the form in which subsidy is paid is also immaterial as observed by the Hon‟ble Supreme Court in the case of Ponni Sugars & Chemicals Ltd.(supra). Applying the proposition of law laid down we have no hesitation to hold that various incentives received by assessee was in nature of capital receipt and the same was meant for establishing new unit. Accordingly, we set aside orders of lower authorities and direct the AO to treat various incentives received by assessee as capital receipts not liable to tax.Appeals of the assessee are allowed.
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