Direct nexus test for industrial undertaking deduction denies section 80HH relief on interest from bank fixed deposits.

Interest receipts from bank fixed deposits were held not to be profits and gains "derived from" an industrial undertaking for deduction under section 80HH. The controlling source of the income was the bank deposit, not the industrial undertaking, and the settled direct-nexus test requires the undertaking to be the immediate source of the income. On that reasoning, the interest income did not satisfy the statutory for deduction, and the claim was rejected in favour of the Revenue.

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Issues: Whether interest receipts from fixed deposits held in banks constitute profits and gains derived from an industrial undertaking so as to qualify for deduction under section 80HH of the Income-tax Act, 1961.

Analysis: The receipts in question arose from bank fixed deposits, and the controlling source of the income was the deposit with the bank rather than the industrial undertaking. Applying the settled test that the expression "derived from" requires a direct nexus with the eligible undertaking, interest income earned from bank deposits does not satisfy the statutory requirement for deduction under section 80HH.

Conclusion: The assessee was not entitled to claim deduction under section 80HH on the interest receipts from fixed deposits, and the question was answered in favour of the Revenue and against the assessee.

Ratio Decidendi: Income qualifies as "derived from" an industrial undertaking only when the industrial undertaking is the immediate and direct source of the income; interest on bank fixed deposits fails that test.

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