Taxability of subsidy

1. The Supreme Court in its judgment in the case of Sahney Steel And Press Works Ltd v. CIT (1997) 228 ITR 253 (SC) has held that the payment from public funds to assist the assessee in carrying on trade or business must be treated as revenue receipt.
2. The subsidy granted to the assessee such as sales tax refund, power concession or refund of bills paid and exemption from payment of water charges are to be treated as revenuereceipts chargeable to tax. It was held that the character of the subsidy in the hands ofthe recipient will have to be determined having regard to the purpose for which thesubsidy is given. If the monies are given for assisting the assessee in carrying out thebusiness operations and the money is given only after and conditional uponcommencement of production, the assistance must be treated as assistance for thepurpose of the trade.
3. In the case of Madras High Court in CIT v. Kanyakumari District Cooperative Spinning Mills Ltd (2003) 264 ITR 684 (Mad) has held that subsidy received for providing employment to weaker sections of the society was held as capital receipt and not chargeable to tax.

Thanks

With Regards

Shankar Singh