Integrated engineering contract income cannot be split for deduction claims where business profits are inseparable.

Engineering contract activity was treated as an integrated whole, so profit could not be isolated by apportioning income to a supposed manufacturing component for relief under sections 80HH, 80-I and 80J. Relying on the Supreme Court's Budharaja principle, the court noted that such construction activity does not justify a separate inquiry into whether part of the business generated deductible profit. The Tribunal's direction to compute entitlement by identifying income relatable to manufacturing activities was therefore contrary to settled law and unsustainable; the issue was answered against the assessee and in favour of the Revenue.

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Issues: Whether the assessee, engaged in engineering contracts, was entitled to deductions under sections 80HH, 80-I and 80J of the Income-tax Act, 1961 on an apportionment of income relatable to manufacturing activities, and whether the Tribunal's direction to compute such entitlement was valid.

Analysis: The activity of the assessee was found to be on the same footing as that considered by the Supreme Court in Budharaja, where it was held that construction activity of this nature does not permit a separate inquiry into whether a part of the business generated profit for the purpose of section 80HH. The business was treated as an integrated whole, and it was not possible to isolate one component and attribute profit to it for claiming the deduction. On that basis, the Tribunal's direction to work out entitlement by identifying income relatable to manufacturing activities was held to be contrary to the settled legal position.

Conclusion: The question was answered against the assessee and in favour of the Revenue; the Tribunal's direction was held unsustainable.

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