The assessee, a co-operative milk union, received a grant-in-aid of 3.50 crores from the Government under a central sector rehabilitation scheme. The Assessing Officer, CIT(A), and Tribunal treated this grant as a revenue receipt. On appeal, the Hon’ble Madras High Court applied the “purpose test” laid down by the Supreme Court. The Court found that the text, tenor, and dominant purpose of the financial assistance were to pull the loss-making cooperative out of a financial crunch as part of a rehabilitation plan, with explicit conditions to utilise the funds first for clearing loan liabilities. Performance-related checks were merely ensuring proper utilisation of funds and did not change the character of the receipt. Therefore, the receipt was held to be a capital receipt and not eligible to tax. (AY. 2007-08)