What is the nature of incentive received under the scheme formulated by the Central Govt. for recoupment of capital employed and repayment of loans taken for setting up/expansion of sugar factory - Capital or Revenue?

CIT v. Kisan Sahkari Chini Mills Ltd. (2010) 328 ITR 27 (All.)

The assessee, engaged in the business of manufacture and sale of sugar, claimed that the incentive received under the Scheme formulated by the Central Government for recoupment of capital employed and repayment of loans taken from a financial institution for setting up/expansion of a new sugar factory is a capital receipt. The Assessing Officer, however, treated it as a revenue receipt.

On this issue, the High Court followed the ruling of the Apex Court in CIT v. Ponni Sugars and chemicals Ltd.(2008) 306 ITR 392, wherein a similar scheme was under consideration. In that case, the Apex Court had held that the main eligibility condition for the scheme was that the incentive had to be utilized for the repayment of loans taken by the assessee to set up a new unit or substantial expansion of an existing unit. The subsidy receipt by the assessee was, therefore, not in the course of a trade and hence, was of capital nature.