Nandita Traders, engaged in manufacturing activity, was in receipt of sales-tax subsidy of ₹5 lakh from State Government as its manufacturing unit was located in a backward area. The subsidy is related to the sales of it

The Supreme Court in its judgment in the case of Sahney Steel and Press Works Ltd. v/s 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. 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 revenue receipts chargeable to tax. It was held that the character of the subsidy in the hands of the recipient will have to be determined having regard to the purpose of which the subsidy is given. If the monies are given for assisting the assessee in carrying out the business operations and the money is given only after and conditional upon commencement of production, the assistance must be treated as assistance for the purpose of the trade. Therefore on the facts of the case, the sales tax subsidy was nothing but supplementary trade receipts chargeable to tax in the hands of Nandita Traders in AY 2016-17. Moreover, the Income-tax Act, 1961 , was amended by the Finance Act, 2015 to insert sub-clause (xviii) in section 2(24) to tax such receipts as "Income". The amended provisions are applicable from the assessment year 2016-17.