2008 (1) TMI 945 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement for deduction u/s 80HH and 80-I on the sale proceeds of old gunny bags.
2. Consideration of sale amount of old gunny bags for the purpose of granting deduction u/s 80HH and 80-I.

Summary:

Issue 1: Entitlement for Deduction u/s 80HH and 80-I on Sale Proceeds of Old Gunny Bags

The respondent (assessee), a limited company engaged in manufacturing soyabean oil, claimed special deduction u/s 80HH and 80-I on Rs. 8,73,622 realized from the sale of old gunny bags. The Assessing Officer rejected this claim, stating it was not income derived from an industrial undertaking. The CIT(A) allowed the appeal, granting the deduction, which was upheld by the Tribunal. The Tribunal held that the income from the sale of gunny bags was derived from the industrial undertaking, making it eligible for deduction u/s 80HH and 80-I.

Issue 2: Consideration of Sale Amount of Old Gunny Bags for Deduction u/s 80HH and 80-I

The High Court examined the meaning of "derived from industrial undertaking" as used in sections 80HH and 80-I. Referring to precedents, including the Supreme Court's decisions in Pandian Chemicals Ltd. v. CIT and Cambay Electric Supply Industrial Co. Ltd. v. CIT, the court emphasized that "derived from" implies a direct and immediate nexus with the industrial undertaking. The court concluded that the income from the sale of gunny bags, being incidental and not directly related to the main business of manufacturing soyabean oil, does not qualify as income derived from the industrial undertaking. Consequently, the Tribunal's decision was reversed, and the appeal by the revenue was allowed, answering the substantial questions of law in favor of the revenue and against the assessee.