Section 80HH deduction denied for receipts not derived from the industrial undertaking, applying the immediate and effective source test.

Deduction under section 80HH was confined to profits relatable to the industrial undertaking and derived from its business activity; the operative test was whether the receipt had the immediate and effective source in that undertaking. On that basis, income from sale of import licences, export house premium and customs drawback did not qualify because there was no material showing that those receipts were derived from the industrial undertaking. The issue was therefore answered in the negative, and the deduction was denied.

---

---

Issues: Whether the assessee was entitled to deduction under section 80HH on income from sale of import licences, export house premium and customs drawback.

Analysis: The question was governed by the requirement that profits claimed as special deduction under section 80HH must be relatable to the industrial undertaking and must be shown to have been derived from the business activity of that undertaking. The relevant test is whether the activity is the immediate and effective source of the profit or gain. Following the earlier decision in the assessee's own case, the absence of material showing that the impugned receipts were derived from the industrial undertaking was decisive.

Conclusion: The answer is in the negative. The assessee was not entitled to deduction under section 80HH on those receipts, and the issue is decided in favour of the Revenue and against the assessee.

---