A.K.SIKRI.. J - (1.)Leave granted. Delay condoned.
(2.)In all these appeals issue relates to the interpretation that is to be accorded to the provisions of Section 80HH of the Income Tax Act, 1961 (hereinafter referred to as the 'Act'). Section 80HH and other related provisions, as it existed at the relevant time, are to be taken note of. since we are concerned with the Assessment Years 1979-80 and 1980-81. Section 80HH provides deduction from income at specified rates in respect of certain industrial undertakings which are covered by the said provision. Issue is limited, namely, while computing the deduction whether it is to be available out of 'income' as computed under the Act or out of 'profits and gains', without deducting therefrom 'depreciation' and 'investment allowance'. Language of sub-section (1) of Section 80HH will have to be seen, in order to comprehend the aforesaid issue. It reads:
"80HH. Deduction in respect of profits and gains from newly established industrial undertakings or hotel business in backward areas.

(1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking, or the business of a hotel, to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to twenty per cent thereof."

(3.)As can be seen from the above, this Section grants deduction from profits and gains to an undertaking engaged in manufacturing or in the business of the hotel. The deduction is admissible at the rate of 20% of the profits and gains of undertaking for 10 assessment years. Certain conditions are to be fulfilled in order to be eligible for such a deduction, about which there is no dispute insofar as these appeals are concerned. Conflict is confined to one aspect viz. 20% deduction of gross profits and gains or net income. Whereas assessees want deduction at the rate of 20% of profits and gains, i.e., gross profits, the stand of the Income Tax Department is that deduction at the rate of 20% is to be computed after taking into account depreciation, unabsorbed depreciation and investment allowance. To put it otherwise, as per the Department, the income of the assessee is to computed in accordance with the provisions contained in Sections 28 to 44DB which are the provisions for computation of 'income' under the head 'profits and gains of business or profession'. Once income is arrived at after the application of the aforesaid provisions, 20% thereof is allowable as deduction under Section 80HH. The assessees, on the other hand, submit that Section 80HH uses the expression 'profits and gains' which is different from 'income'. Therefore, whatever profit and gains are earned by an undertaking covered by Section 80HH of the Act, 20% thereof is admissible as deduction. As a corollary, from such profits and gains of the industrial undertaking, depreciation or unabsorbed investment allowances which are the deductions admissible under Sections 32 and 32AB of the Act, cannot be taken into consideration.