Section 80HH computation excludes head office interest on borrowings used to fund a new industrial unit

Relief under section 80HH is computed on the income of the industrial undertaking itself, and interest on borrowings raised by the head office for setting up a new unit cannot be deducted from that unit's income unless the statute clearly so provides. The borrowings remained a head office liability and did not become a liability of the unit. The deduction under section 80HH, therefore, was not reduced by such interest.

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Issues: Whether interest on borrowings taken by the head office for setting up the new industrial unit was required to be deducted from the unit's income before computing relief under section 80HH of the Income-tax Act, 1961.

Analysis: Relief under section 80HH has to be determined on the income of the industrial undertaking itself. The borrowings, though raised by the head office for investment in the new unit, remained borrowings of the head office and did not become a liability of the unit. In the absence of a clear statutory provision permitting deduction of such interest while computing the undertaking's income, the deduction under section 80HH could not be reduced by the interest paid on the head office borrowings.

Conclusion: The interest on the head office borrowings was not required to be deducted from the new unit's income for purposes of section 80HH, and the assessee succeeded.

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