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2018 (5) TMI 702 - HC - Income TaxNature of receipt - revenue or capital - subsidy allowed by the State Government on account of power consumption - purpose of the scheme under which such incentive or subsidy is made available to a business unit - scope of purpose test - Held that:- When an entrepreneur sets up a business unit, particularly a manufacturing unit, or embarks on an exercise for expanding an existing unit, the entrepreneur factors in the cost of setting up the unit or the cost of its expansion and the costs to be incurred in running the unit or the expanded unit. Capital expenditure and the expenses to run it that are taken into account by the entrepreneur. The investment by an entrepreneur by way of capital expenditure is recovered over a period of time and has a gestation gap. If the running expenses are made cheaper by way of any subsidy or incentive and made applicable only to new units or expanded units, the realisation of the capital investment is quicker and the decision as to the quantum of capital investment is influenced thereby. That is the exact scenario in the present case where the lower operational costs by way of subsidy on consumption of power helps in the quicker realisation of the capital expenditure or the servicing the debt incurred for such purpose. In view of the acceptance of the wider ambit of the “purpose test” in the most recent judgment of the Supreme Court cited by the parties and the scheme in this case being available only to new units and units which have undergone an expansion, the real purpose of the incentive in this case has to be seen as a capital subsidy and has to be regarded, as such, as a capital receipt and not a revenue receipt.
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