The deduction under Section 80HH is available only in respect of the profits and gains "derived" from the newly established industrial undertaking, and the subsidy amount is not a part of the profit which was derived from the newly established industrial undertaking.

( 1 ) ON an application under Section 256 (1) the Tribunal has referred the following question for our opinion :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding the view that the assessee in the present case was eligible for deduction under Section 80hh of the Income-tax Act, 1961, in respect of transport subsidy received by it ?"

( 2 ) THE return was filed on September 30, 1985, disclosing a total income of Rs. 29,98,041. Subsequently, another return was filed on September 30, 1986, in VDIW Scheme disclosing a total income of Rs. 35,56,620. The relevant assessment year is 1985-86 and the year ending is on March 31, 1985. During the course of assessment, the Assessing Officer found that the assessee has claimed the benefit of Section 80hh of the Income-tax Act, 1961, on profits and gains derived from an industrial undertaking which includes the grant of subsidy of Rs. 6,29,871 under the Transport Subsidy Scheme, 1971. The Assessing Officer has considered the submissions on the issue whether the transport subsidy amount is eligible for deduction under Section 80hh. According to the Assessing Officer, the assessee is not entitled for a deduction under Section 80hh of the transport subsidy amount. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals), has also dismissed the appeal of the assessee on this ground. In appeal before the Tribunal preferred by the assessee, the Tribunal observed that when contrary views have been taken by different High Courts, the view taken in favour of the assessee should be followed and it allowed the appeal of the assessee on the ground that the transport subsidy amount is eligible for the benefit under Section 80hh of the Act.

( 3 ) ON the question referred learned counsel for the Revenue submits that the deduction under Section 80hh is available only in respect of the profits and gains "derived" from the newly established industrial undertaking and the subsidy amount is not a part of the profit which was derived from the newly established industrial undertaking.

( 4 ) HE placed reliance on the decisions of the apex court in the case of CIT v. Sterling Foods [1999] 237 ITR 579 ; CIT v. Pandian Chemicals Ltd. and Ashok Leyland Ltd. v. CIT.

( 5 ) LEARNED counsel for the assessee, Mr. Khaitan, submits that the transport subsidy received is profit derived by the assessee from the newly established industrial undertaking as the transport subsidy reduced the cost and has direct nexus with the profit earned. He placed reliance on the decision of the Gujarat High Court in the case of Ahmedabad Manufacturing and Calico Printing Co. Ltd. v. CIT [1982] 137 ITR 616 and the decision of the Madhya Pradesh High Court in the case of Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. v. CIT [1983] 143 ITR 590.

( 6 ) THE facts are not in dispute that the assessee has received a sum of Rs, 6,29,871 as transport subsidy under the Transport Subsidy Scheme, 1971. The only controversy for our consideration in this case is whether this amount of subsidy has been treated as income derived from the newly established industrial undertaking or it is an income incidental to the business of the assessee. In CIT v. Pandian Chemicals Ltd. [1998] 233 ITR 497, the Madras High Court has considered whether the interest received on deposits with the Electricity Board made out of the statutory compulsion can be treated as profit derived from the industrial undertaking. The Madras High Court held that the immediate and effective source of interest was the deposit and not the industrial undertaking. Therefore, interest could not be treated as income derived from an industrial undertaking for the purpose of relief under Section 80hh of the Act.

( 7 ) IN Ashok Leyland Ltd. v. CIT, their Lordships have quoted the observations made in the earlier decision in the case of Cambay Electric Supply Industrial Co. Ltd. v.