Special capital incentive by state govt: whether capital receipt

Last updated: 26 April 2014

Court :
Bombay High Court

Brief :
Assessee is a company engaged in the business of manufacturing of internal combustion engines had filed the return of income for the Assessment Year 1997-98 on 30.11.1997 declaring the total income of Rs.41,93,64,490/.The Assessing Officerassessed the income at Rs.61,74,05,557/-. The Assessee filed the Appeal before the Commissioner of Income Tax (Appeals) on the grounds that Rs. 20 lacs was a capital receipt, an incentive received by State Government for setting up new industries in the state and thus directly credited to the capital receipt reserve account. It was held that repeatedly the Revenue has misunderstood and misconstrued the nature of receipts despite the Honourable Supreme Court addressing the issue and the Division Benches of this Court. The Revenue, therefore, should bear in mind that in every such case and whenever the funds or receipts are from the schemes and packages devised by the State, it should note the object and purpose of the same. If that is of the nature specified in the judgments of this Court and equally that of the Honourable Supreme Court, then, the Revenue must act accordingly. The Appeal was dismissed since it does not raise any substantial question of law.

Citation :
The Commissioner of Income Tax Appellant- VERSUS - Kirloskar Oil Engines Ltd.- Respondent