In Income Tax Officer v. Mr.Prakash, Kerala High Court recently held that Assessee who carries on processing in an industrial undertaking belonging to another is eligible for section 80HH benefit under the Income Tax Act 1961 even if it is situated in a backward area.
The assessee in the instant case is an individual carrying the activity of processing of cashew nuts in his own factory and also in the factories of his sister concern which were situated in a backward area. While filing his return of income during the assessment year the Assessee has claimed deductions under section 80I and 80HH under of the Income Tax Act 1961 against the profits and gains from the industrial concerns.
During the course of assessment proceedings, the Assessing Officer (AO) found that the Assessee would be eligible for deduction only in respect of profits and gains derived from his own industrial concerns. It has also found that two concerns of the Assessee were not new industrial undertakings. Hence, the assessee’s claim with respect to the profits and gains derived from the sister concerns were declined under Section 80I.
On appeal both the lower authorities such as CIT(A) and the Income Tax Appellate Tribunal (ITAT) allowed the claim of deduction made by the Assessee under section 80HH of the Act. Aggrieved by the order of the lower authorities the Revenue approached the Court on appeal by raising the question that whether the assessee is entitled to claim deduction under Sections 80HH and 80I of the Income Tax Act, 1961.
After analyzing the above-narrated facts and circumstances deeply, Justice K.Vinod Chandran and Justice Ashok Menon observed that the AO made the rejection under section 80HH of the Act only for the reason that the industrial undertaking and not the assessee, but it would not be a reason for disallowance. The Court further observed that “the assessee who entrusts the processing to third parties would be entitled to claim the deduction for the profits and gains arising from the processing if the factory is in a backward area. The emphasis is on “the profits and gains derived from an industrial undertaking in backward areas” whether it be the assessee’s own industrial undertaking or of another”.
While rejecting the appeal filed by the Revenue the Court further held that “an assessee who carries on processing in an industrial undertaking belonging to another but situated in a backward area would be entitled to claim the benefit under Section 80HH of the Act”.
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