Section 80HH deduction must follow statutory income computation, after set-off rules for unabsorbed investment allowance are applied.

Section 80AB requires Chapter VI-A deductions to be computed only on income first determined under the Income-tax Act, so profits of the industrial undertaking must be worked out after normal statutory adjustments, including set-off of unabsorbed investment allowance under section 32A, before any deduction under section 80HH is applied. The article states that section 80HH cannot be calculated on commercial profits divorced from the Act's computation provisions, and that the deduction is available only on profits and gains computed in accordance with the Act after giving effect to section 32A.

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Issues: Whether deduction under section 80HH is to be computed on commercial profits before setting off unabsorbed investment allowance of the preceding year, or only after computing the industrial undertaking's profits in accordance with the Income-tax Act, 1961, including section 32A and section 80AB.

Analysis: Section 80AB governs the computation of deductions under Chapter VI-A and requires the relevant income to be computed in accordance with the provisions of the Act before any Chapter VI-A deduction is made. The profits of the industrial undertaking therefore had to be ascertained under the normal computational provisions of the Act, including the set-off and adjustment rules relating to unabsorbed investment allowance under section 32A, before the deduction under section 80HH could be worked out. A deduction under section 80HH cannot be calculated on commercial profits divorced from the statutory computation of income.

Conclusion: The question was answered in favour of the Revenue and against the assessee. Deduction under section 80HH is allowable only on profits and gains computed in accordance with the Income-tax Act, 1961, after giving effect to section 32A and before applying section 80HH.

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