Delayed-payment interest linked to sale proceeds qualified as industrial undertaking profits for Section 80HH deduction.

Interest received from trade debtors for delayed payment was held to retain a sufficient nexus with the sale of manufactured goods, because the immediate source of the receipt was the underlying business transaction and it formed an accretion to sale consideration. On that basis, the amount was treated as profits and gains derived from the industrial undertaking and qualified for deduction under Section 80HH of the Income-tax Act, 1961.

---

---

Issues: Whether interest received from trade debtors on account of delayed payment forms part of the profits and gains derived from the industrial undertaking for the purpose of deduction under Section 80HH of the Income-tax Act, 1961.

Analysis: The deduction under Section 80HH applies only to profits and gains derived from the industrial undertaking. The assessee's business was confined to manufacture and sale of cold roll strips, and the sale proceeds as well as interest for delayed payment were separately reflected in the books. The interest was not an independent receipt divorced from the business activity; it arose directly from the sale transaction and represented an accretion to the sale consideration. The controlling test was the immediate and effective source of the receipt, and the delayed-payment interest retained a sufficient nexus with the sale of the manufactured product.

Conclusion: The interest on delayed payment was treated as part of the profits derived from the industrial undertaking and was eligible for deduction under Section 80HH. The issue was answered in favour of the assessee and against the Revenue.

---