1996 (5) TMI 78 - HC - Income Tax

Deduction From Profits And Gains Fixed Assets Income From Other Sources Interest Income New Industrial Undertaking In Backward Area Profit On Sale Profits And Gains Of Business Special Deduction

Summary

Issues: Interpretation of Section 80HH of the Income-tax Act, 1961 regarding inclusion of interest income and profit on sale of fixed assets as part of profits and gains derived from an industrial undertaking.

The judgment delivered by the High Court of GAUHATI under section 256(1) of the Income-tax Act, 1961, addressed the question of whether interest income and profit on sale of fixed assets should be considered as part of profits and gains derived from an industrial undertaking for the purpose of claiming deduction under section 80HH of the Act. The case involved an assessee assessed as a company for the year 1985-86, who earned interest income of Rs. 6,06,943 and incurred a loss from business operations. The assessee claimed relief under section 80HH, which was denied by the Assessing Officer on the grounds that there was no profit from the industrial undertaking. The Commissioner of Income-tax (Appeals) and the Tribunal upheld this decision, leading to the reference before the High Court.

During the proceedings, the assessee argued that the interest income and profit from asset sale were directly derived from the industrial undertaking, making them eligible for deduction under section 80HH. Conversely, the Revenue contended that interest income falls under "Income from other sources" and not under "profits and gains of business," as specified in section 14D of the Act. The Revenue also highlighted that profits and gains eligible for section 80HH should be directly derived from the industrial undertaking.

The High Court analyzed various judicial precedents, including decisions from Karnataka, Kerala, Bombay, Madhya Pradesh, and Delhi High Courts, emphasizing the requirement of a direct nexus between the activity and the earnings to qualify as profits derived from the industrial undertaking. The court noted that the interest income and profit from asset sale did not meet this criterion and were not directly sourced from the industrial undertaking, as mandated by section 80HH.

Ultimately, the High Court ruled in favor of the Revenue, concluding that the interest income and profit on sale of fixed assets could not be considered as profits and gains derived from an industrial undertaking under section 80HH of the Income-tax Act, 1961. The court dismissed the assessee's claim for relief and directed the transmission of the judgment to the Income-tax Appellate Tribunal, without awarding any costs in the case.