Section 10B loss set-off and unit-linked income rules clarified, with remand on deduction and book profit issues.

A section 10B deduction is computed from total income, so loss of an eligible unit can be set off against other income under sections 70 and 71 because the provision does not expressly bar those general set-off rules. Interest income was treated as business income but not as income derived from the eligible unit; training fees were regarded as unit-linked and eligible; and profit from sale and purchase of software was not shown to be derived from export production and was excluded from relief. The disallowance under section 35D and the book profit computation under section 115JB were both remitted for fresh consideration because the factual and statutory adjustments required proper re-examination.

---

---

Issues: (i) whether the loss of a unit eligible under section 10B could be set off against other income under sections 70 and 71; (ii) whether interest income, training fees and profit from sale and purchase of software were income derived from the section 10B unit; (iii) whether the disallowance under section 35D required interference; and (iv) whether the computation of book profit under section 115JB required fresh consideration.

Issue (i): whether the loss of a unit eligible under section 10B could be set off against other income under sections 70 and 71.

Analysis: A deduction under section 10B is allowed from the total income, so the profits or losses of the eligible unit enter the computation of total income. The provision excludes certain adjustments through its own non obstante clause, but it does not exclude sections 70 and 71. In the absence of an express bar, the general set-off provisions continue to operate.

Conclusion: The loss of the section 10B unit was eligible for set-off against other income, and the contrary view was not sustained.

Issue (ii): whether interest income, training fees and profit from sale and purchase of software were income derived from the section 10B unit.

Analysis: Interest income was treated as business income but not as income derived from the eligible unit. Training income was held to arise from the unit. Profit from purchase and sale of software was not shown to be derived from export of articles, things or computer software manufactured or produced by the unit.

Conclusion: Interest income was excluded from section 10B relief, training income was included, and profit from sale and purchase of software was not eligible as income derived from the unit.

Issue (iii): whether the disallowance under section 35D required interference.

Analysis: The claim under section 35D was not established, but the alternative claim under section 37(1) required examination of the real nature of the expenditure. The record did not contain a proper factual finding on that question, so the matter required reconsideration by the Assessing Officer.

Conclusion: The disallowance was set aside and the matter was remitted for fresh adjudication.

Issue (iv): whether the computation of book profit under section 115JB required fresh consideration.

Analysis: The adjustment made by the Assessing Officer was not shown to have been worked out correctly under the Explanation to section 115JB. The amount relatable to the section 10B unit had to be recomputed after properly applying the statutory adjustments and giving the assessee an opportunity of hearing.

Conclusion: The matter on book profit computation was remitted for fresh adjudication.

Final Conclusion: The appeal succeeded on the principal set-off issue, partly succeeded on the treatment of section 10B-linked receipts, and the remaining issues were sent back for reconsideration, resulting in only a partial allowance of the appeal.

Ratio Decidendi: Unless expressly excluded, the general set-off provisions of the Act apply while computing total income in respect of a section 10B unit, because section 10B is a deduction provision and its non obstante clause does not override sections 70 and 71.

---