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Issues involved: Interpretation of deduction under section 80HH of the Income-tax Act, 1961 based on calculation method involving investment allowance under section 32A.
Summary: The High Court of Orissa addressed the issue of whether the Income-tax Appellate Tribunal correctly directed the allowance of relief under section 80HH on profits of an industrial undertaking before deducting the investment allowance allowed under section 32A of the Income-tax Act. The Tribunal's decision was based on the case law of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC), which was analyzed in detail. The Tribunal's interpretation was challenged by the Department, leading to the reference question before the court. The Income-tax Officer had calculated the deduction under section 80HH by reducing the profit by the investment allowance, resulting in a lower amount for deduction. However, the Tribunal disagreed with this approach, emphasizing that the investment allowance should not be deducted from the profit for the purpose of section 80HH relief. The court noted the definition of "gross total income" and the requirement to consider investment allowance under section 32A in computing the total income. The court highlighted the distinction between income and profit under the Act, emphasizing that section 80HH deduction is specifically meant for profits and gains derived from industrial undertakings. Therefore, the gross total income, as per sections 30 to 43A, may not be directly relevant for determining the deduction under section 80HH. Ultimately, the court held that the deduction should be allowed on the actual profits and gains derived from the industrial undertaking, as determined by the Income-tax Officer, rather than after deducting the investment allowance. In a concurring opinion, Justice D. M. Patnaik agreed with the interpretation and decision of the court, affirming that the deduction under section 80HH should be based on the profits and gains of the industrial undertaking without reducing it by the investment allowance.
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