Chapter VI-A deductions are capped by gross total income, and inter-division losses must be adjusted first.

Chapter VI-A deductions cannot exceed gross total income, so losses from one division must be adjusted against profits of another before the deduction ceiling is applied. The eligible-undertaking computation mechanism for quantifying deduction does not override the requirement to first determine gross total income under the Act, nor does its non obstante clause displace the statutory ceiling on deductions. On that basis, where the adjusted gross total income is nil, no deduction under the relevant incentive provisions can be claimed.

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Issues: Whether, for claiming deductions under sections 80HH and 80-I, the assessee could compute the deduction on the profits of one division without first adjusting the losses of another division against the gross total income.

Analysis: Section 80-I(1) permits deduction only where the gross total income includes profits derived from the eligible undertaking. Section 80-I(6) governs the manner of computing the quantum of deduction by treating the eligible undertaking as the only source of income, but that computation does not displace the ceiling imposed by section 80A(2). The expression gross total income, as defined in section 80B(5), requires computation of total income in accordance with the Act before Chapter VI-A deductions, which means losses from one division must be adjusted against profits of another division before applying the deduction ceiling. The non obstante clause in section 80-I(6) operates only for quantification of the deduction and does not override sections 80A(2) and 80B(5). The decision in Canara Workshops was held inapplicable on the facts because the present controversy concerned the ceiling on deduction and the computation of gross total income, not merely the isolation of profits for quantification.

Conclusion: The assessee was not entitled to claim deductions under sections 80HH and 80-I when the gross total income, after adjustment of losses, was nil; the question was answered in favour of the Revenue.

Ratio Decidendi: Deduction under Chapter VI-A cannot exceed gross total income, and the eligible-unit computation under section 80-I(6) does not override the statutory requirement to first determine gross total income by adjusting losses before granting the deduction.

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