- (1.) THE following two questions have been referred in this case : "1. Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal is justified in holding that interest income from investment in banks be treated as income derived from an industrial undertaking and entitled to deduction under s. 80 -I of the Act ? 2. Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal is justified in directing that deduction under s. 80 -I should be allowed without deducting the amount of deduction permissible under s. 32AB of the Act - Question No. 1
(2.) UNDER s. 80 -I of the IT Act, 1961, a deduction of 20 per cent is given from the gross total income of an assessee, if the income includes any profits or gains derived from an industrial undertaking. Income derived from items other than industrial undertaking, which are mentioned in s. 80 -I(1) is not relevant for this case.
(3.) IN the case before us, the assessee derived certain income (a) which was derived from an industrial undertaking, and (b) to which s. 80 -I applied by virtue of sub -s. (2) thereof. That income (or rather part of that income) derived from the industrial undertaking was invested in banks as capital upon which interest was earned by the assessee. The assessee claimed that this interest should also be treated as income derived from the industrial undertaking and accordingly claimed 20 per cent, deduction permissible under s. 80 -I. The Department contends otherwise. The purpose of s. 80 -I, as is apparent from sub -s. (2) thereof, is firstly to encourage establishment of new industries by granting the deduction aforesaid. However, a detailed reading of that statutory provision suggests that the idea of granting deduction does not appear to stop upon establishment of the new industry, but the purpose continues also to encourage the production in that new industry and accordingly profits derived from the industrial undertakings qualify for deduction upto a certain period. In the light of the above purpose, s. 80 -I should not be stretched to the limit where income derived from the industrial undertaking is reinvested by the assessee in a non -industrial undertaking for the purpose of earning income from the non -industrial undertaking. Therefore, on the first impression we would be inclined not to allow deduction of 20 per cent on the interest earned by the assessee merely because the original nucleus funds which have yielded the interest come from an industrial undertaking.;