Description:
In CIT & Udupi Builders (p) Ltd. [2010] 32[I] ITCL 22 [Karn-HC]:[2009] 319 ITR 440[Karn]:[2010]229 CTR [Karn] 452, the assessee received a certain sum a subsidy granted by the state to encourage Hotel industry which he claimed towards capital investment . AO disallowed the claim but the CIT[A]Held that the subsidy had been granted to assessee by the State as per the 1982-87/88 package of incentive and not revenue receipt . This order of CIT[A] was conformed by the tribunal. Revenue, Thus aggrieved, contended that when the subsidy was received by assessee after completion of hotel project and commencing of business, such receipt has taken as revenue receipt and not a capital investment. It was held that admittedly, the subsidy had been announced by The State of Karnataka to encourage the hotel industry and the State was in the habit of releasing subsidy amount depending upon budgetary allocation in each year. The State had in several cases, released subsidy amount even after ten years of the commencement of the project. Therefore, the contention of revenue that subsidy received by assessee after completion of hotel project and commencing of business was to be treated as revenue receipt could not be accepted. Thus the subsidy received had to be treated as capital receipt not liable to tax.
Source:
1. www.tpcc.in
2. The Tax Referencer .Volume117. Issue No.2 10 January2011 Page No.37.
Subsidy received as encouragement for investment which based on investment made is not taxable since capital in nature
