Whether subsidy received from government for establishing a hotel
is a capital receipt or not ?
Case : CIT v. Udupi Builders P. Ltd. (2009) 319 ITR 440 (Kar.)
Facts
AO held it as
revenue receipt. The Commissioner (Appeals) held that the subsidy had been granted
to the assessee by the State Government as per the package of incentives and
concessions and that it was towards investment and not a revenue receipt. The
Tribunal confirmed the order passed by the Commissioner (Appeals).
An appeal to
High Court by the revenue , it was argued by the Revenue that since the subsidy is received by
the assessee after completion of the hotel project and commencing of the
business, such receipt has to be taken as a revenue receipt and not a capital
investment.
The High Court held that the
hotel industry was established based on the subsidy announced by the State
Government to encourage tourism and the State Government was in the habit of
releasing the subsidy amount depending upon the budgetary allocation in each
year. In several cases, the State Government had released the subsidy amount
even after ten years of the commencement of the project. Therefore, the subsidy received has to be
treated as a capital receipt and would not be liable to tax.
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