Deduction under section 80HH fails for scrap, gunny bag and interest receipts, but interest levy challenge remains appealable.

Receipts from sale of scraps, gunny bags and interest were held not eligible for deduction under section 80HH because the interest income had already been excluded in the assessee's own earlier case, and no factual basis was shown to treat the scrap and gunny bag proceeds as income derived from the industrial undertaking. The challenge to levy of interest under section 214 was, however, maintainable in the same appeal because other appealable issues had also been raised. The reference was thus answered partly against the assessee and partly in its favour.

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Issues: (i) Whether the assessee was entitled to deduction under section 80HH of the Income-tax Act, 1961, in respect of receipts from sale of scraps, gunny bags and interest. (ii) Whether an appeal under section 246 of the Income-tax Act, 1961 was maintainable against the levy of interest under section 214 of the Income-tax Act, 1961 when other questions were also raised in the appeal.

Issue (i): Whether the assessee was entitled to deduction under section 80HH of the Income-tax Act, 1961, in respect of receipts from sale of scraps, gunny bags and interest.

Analysis: The interest receipt had already been held, in the assessee's own earlier case, not to qualify for deduction while computing relief under section 80HH. As regards scraps and gunny bags, no factual material was placed to show that they were necessary by-products of the manufacturing process or that the sale proceeds could be treated as income derived from the industrial undertaking.

Conclusion: The claim for deduction failed and the issue was answered against the assessee.

Issue (ii): Whether an appeal under section 246 of the Income-tax Act, 1961 was maintainable against the levy of interest under section 214 of the Income-tax Act, 1961 when other questions were also raised in the appeal.

Analysis: Since the assessee had raised other appealable questions along with the challenge to interest, the levy of interest could also be questioned in the same appeal.

Conclusion: The issue was answered in favour of the assessee.

Final Conclusion: The reference was answered partly against the assessee and partly in its favour, with the deduction issue rejected and the appealability of the interest levy upheld.

Ratio Decidendi: Receipts can qualify for deduction under section 80HH only if they are shown to be derived from the industrial undertaking, and a challenge to interest levy is maintainable in an appeal where other appealable issues are also raised.

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