1998 (4) TMI 67 - HC - Income Tax

Summary

Issues involved:
The judgment addresses the eligibility of a domestic company, engaged in manufacturing V-belts, oil seals, O-rings, and rubber products, for deduction under section 80HH of the Income-tax Act, 1961. The specific issues include the deduction claim for (i) profit on sale of scrap, (ii) interest earned by the industrial undertaking, and (iii) cash assistance received from the Government for exports.

Deduction for Profit on Sale of Scrap:
The court considered whether the company is entitled to a deduction of 20% on profits from the sale of scrap materials under section 80HH. The Revenue argued that such profits were not derived directly from the industrial undertaking. However, the court held that since the scrap materials were a byproduct of the manufacturing process and had a market value, they were eligible for the deduction. The court emphasized that the industrial undertaking itself must be the direct source of profit to qualify for the deduction.

Deduction for Interest Earned:
Regarding the interest earned by the industrial undertaking, the court referred to a previous case where it was held that interest income cannot be considered as income derived from the industrial undertaking for the purpose of claiming a deduction under section 80HH. Citing this precedent, the court concluded that interest earned by the industrial undertaking is not eligible for inclusion in the gross total income for the deduction, thereby denying the deduction for interest earned.

Conclusion:
The court ruled in favor of the assessee regarding the deduction for profit on the sale of scrap materials, as the profits were deemed to be derived from the industrial undertaking. However, the deduction for interest earned by the industrial undertaking was disallowed based on the precedent set by a Division Bench of the court. The case was disposed of with no order as to costs.