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Issues Involved:
1. Whether Cash Compensatory Support (CCS) received by the assessee constitutes income derived from an industrial undertaking and is eligible for relief under section 80J of the Income-tax Act, 1961. 2. Whether duty drawback received by the assessee constitutes income derived from an industrial undertaking and is eligible for relief under section 80J of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Cash Compensatory Support (CCS): The core question was whether CCS received by the assessee could be considered income derived from an industrial undertaking and thus eligible for relief under section 80J of the Income-tax Act, 1961. The Commissioner of Income-tax (CIT) argued that CCS receipts could not be termed as profits derived from the industrial undertaking and proposed to withdraw the relief under section 80J. The Tribunal, however, had held that CCS constituted income derived from an industrial undertaking and was eligible for relief under section 80J. The High Court referenced several decisions, including the Supreme Court ruling in *CIT v. Sterling Foods* and the Madras High Court's ruling in *CIT v. Jameel Leathers & Uppers*, which interpreted the expression "derived from" as requiring a direct nexus between the profits and the industrial undertaking. The Court concluded that CCS is attributable to, but not derived from, the industrial undertaking. The direct source of CCS was the Government scheme for incentives, not the industrial undertaking itself. Thus, the High Court held that CCS could not be included in the profits and gains of the business for the purposes of deduction under section 80J. 2. Duty Drawback: The question of whether duty drawback could be considered as income derived from an industrial undertaking was also examined. The assessee argued that duty drawback is a reimbursement of customs and excise duties paid on raw materials and is directly linked to the manufacturing activity. The High Court distinguished duty drawback from other incentives like CCS. It noted that duty drawback is intended to reduce the cost of production by reimbursing the customs and excise duties, which are integral parts of the cost of production. The Court referenced section 75(1) of the Customs Act and section 36 of the Central Excise Act, which provide for duty drawback to relieve exporters from the burden of duties. The Court held that duty drawback is inextricably linked with the cost of production of the industrial undertaking and thus constitutes income derived from the industrial undertaking. Therefore, duty drawback is eligible for relief under section 80J of the Income-tax Act, 1961. Conclusion: The High Court concluded that while CCS does not constitute income derived from an industrial undertaking and is not eligible for relief under section 80J, duty drawback does constitute such income and is eligible for the relief. Judgment: - For Cash Compensatory Support (CCS): The answer is in the negative, in favor of the revenue, and against the assessee. - For Duty Drawback: The answer is in the affirmative, in favor of the assessee, and against the revenue. Both references were disposed of accordingly.
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