Law:

Section:

Section 80HH, read with section 80-I, of the Income-tax Act, 1961 - Deductions - Profits and gains from hotels or industrial undertakings, etc., in backward areas - Assessment years 1993-94 and 1994-95 - Whether liquidated damages received by assessee from its supplier and purchaser on account of breach alleged to have been committed by them qua assessee in performance of contract were not price/value of goods but it were in nature of compensation/damages and same could not be equated at par with actual profit whichassessee earned by sale of finished goods - Held, yes - Whether, therefore, assessee was not entitled to deduction under sections 80HH and 80-I - Held, yes FACTS The assessee-company had received liquidated damages from their supplier of raw material and also from their customers on account of non-performance of contracts entered into between the parties and, accord- ingly, claimed deduction under sections 80HH and 80-I treating the same to be profits/gains derived from an industrial undertaking. However, the Assessing Officer rejected the claim of the assessee. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On second appeal, the Tribunal set aside the orders of the Assessing Officer and the Commissioner (Appeals) and held that the liquidated damages received by the assessee on account of breach of contract were nothing but a part of profit received from the industrial undertaking to which the assessee was entitled to deduction under sections 80HH and 80-IA. On appeal: HELD It was not in dispute that the sum claimed by the assessee to be in the nature of profit said to be derived from the industrial undertaking was not an amount earned directly by sale of its finished commodity manufactured in its undertaking/plant. In other words, the amount claimed was alleged to be received by the assessee from its supplier and purchaser not as a price/value of the goods but it was in the nature of compensation/damages on account of breach alleged to have been committed by them qua assessee in performance of contract. Thus, such sum could not be equated at par with actual profit which the assessee earned by sale of the finished…

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