Law:

Section:

Section 80HH of the Income-tax Act, 1961 - Deductions - In respect of certain incomes of hotels or industries in backward areas - Whether deduction under section 80HH has to be allowed on profits and gains derived from industrial undertaking, and therefore, gross total income computed in accordance with provisions of sections 30 to 43A would not be relevant for said purpose - Held, yes - Whether in view of aforesaid, Tribunal rightly set aside ITO's order allowing deduction under sec. 80HH after deducting investment allowance under sec. 32A from profits earned by assessee - Industrial undertaking - Held, yes FACTS The ITO determined profits of the assessee at Rs. 55,641. Thereupon, he deducted investment allowance of Rs. 15,000 under section 32A from the aforesaid profits. In this way, gross total income was calculated at Rs. 40,641 and deduction under section 80HH was allowed on gross total income. The ITO rejected the assessee's contention that, for granting deduction as contemplated by section 80HH, the profit as reduced by allowing investment allowance was not the legal way to compute the same. On appeal, the AAC also rejected the case of the assessee. On second appeal, the Tribunal, however, accepted the contention of the assessee. On reference : HELD Section 80HH requires granting of deduction from the profits and gains from the industrial undertakings. According to the provisions of the Act, income is different from profits, though the former includes the latter. The various provisions of the Act would bear out the statement that, though an industrial undertaking may earn profits, its gross total income may be substantially less than the figure of profit, and the taxable income may, in some cases, become nil. As under section 80HH deduction has to be allowed on the profits and gains, the gross total income, as computed in accordance with the provisions contained in sections 30 to 43A, would not be relevant for the purpose. In the instant case, as the profit was determined at Rs. 55,641 by the ITO, the figure of Rs. 40,641 has to be regarded as the gross total income. As under section 80HH deduction had to be allowed on the profits and gains derived from…

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