Interest on intercorporate deposits not deductible under Section 80HH. Tribunal's relief decision overturned. Lease rent deduction denied.

The High Court held that interest on intercorporate deposits does not qualify for deduction under Section 80HH as it is not part of manufacturing activity, affirming the Tribunal's decision to grant relief was incorrect. Additionally, the Court found the Tribunal's decision on deduction for lease rent unsustainable as it did not establish a connection with manufacturing activity, setting aside the Tribunal's order on both deductions and disposing of related petitions without awarding costs.

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Issues:
1. Deduction under Section 80HH of the Income Tax Act for interest on intercorporate deposits.
2. Deduction under Section 80HH of the Income Tax Act for lease rent.

Analysis:
1. The respondent, a manufacturer and exporter of drugs, claimed deductions under Section 80HH for interest on intercorporate deposits and lease rent. The Commissioner granted relief for two claims, while the Tribunal allowed relief for the remaining two. The High Court focused on the deductions for interest on intercorporate deposits. It held that such interest does not qualify for deduction under Section 80HH as it is not part of the manufacturing activity. Referring to a previous case, the Court emphasized that income from intercorporate deposits cannot be considered for the incentive meant for establishing an industry in a backward area. The Court concluded that the interest on intercorporate deposits does not meet the criteria for deduction under Section 80HH, affirming the Tribunal's decision to grant relief was incorrect.

2. The High Court also addressed the issue of deduction for lease rent amounting to &8377;25,000. It noted that the Tribunal did not provide sufficient facts to determine if the lease was related to the manufacturing activity. The Court highlighted that for the deduction to be allowed, the lease should be connected with the principal manufacturing activity. However, since the Tribunal did not establish this connection or analyze if leasing was part of the principal activity, the Court found the Tribunal's decision unsustainable in law. Therefore, the High Court allowed the appeal, setting aside the Tribunal's order on both the deductions. The Court did not award costs and disposed of all related petitions.

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