Section 80HHC export deduction computed on current-year profits before earlier losses and depreciation are set off.

Section 80HHC export deduction was computed on current-year business profits before adjusting earlier years' unabsorbed business losses and unabsorbed depreciation. The Tribunal applied the later High Court view that the special computation under section 80HHC is governed by its own formula and is not controlled by the general restriction derived from section 80AB. Reading Chapter VI-A with the wording of section 80HHC, it held that the export deduction must first be worked out on the year's profits, and only thereafter can prior-year losses or depreciation be considered. The revenue's challenge therefore failed.

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Issues: Whether deduction under section 80HHC of the Income-tax Act, 1961 is to be allowed from the current year's business profits before setting off unabsorbed business losses and unabsorbed depreciation of earlier years.

Analysis: The Tribunal followed the later High Court view that section 80HHC operates on the business profits of the year and that the special computation under that provision is not controlled by the general restriction derived from section 80AB. It noted that the legislative scheme of Chapter VI-A and the wording of section 80HHC justify computing the export deduction on current year profits first, without first reducing them by earlier years' unabsorbed losses or depreciation.

Conclusion: The deduction under section 80HHC had to be allowed on the current year's income before setting off unabsorbed business losses and unabsorbed depreciation, and the revenue's challenge failed.

Ratio Decidendi: Where the special formula in section 80HHC governs export deduction, the deduction is computed on current year profits without first adjusting earlier years' unabsorbed business losses and depreciation.

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