Chapter VI-A deductions must follow computed income, with section 80AB treated as clarificatory and retrospective.

Section 80HH deduction must be computed on profits and gains of the industrial undertaking as income computed under the Income-tax Act, after giving effect to sections 30 to 43A, because Chapter VI-A deductions apply only to income included in gross total income under section 80B(5). The later insertion of section 80AB is treated as clarificatory and declaratory of the same position, so it applies retrospectively rather than prospectively. A gross-basis deduction without statutory adjustments was therefore not the correct method.

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Issues: Whether, for assessment year 1974-75, deduction under section 80HH had to be computed with reference to profits and gains derived from the industrial undertaking after giving effect to sections 30 to 43A of the Income-tax Act, 1961, and whether section 80AB was merely declaratory and applicable to the interpretation of section 80HH.

Analysis: Section 80HH operates on profits and gains included in the gross total income, and gross total income under section 80B(5) means income computed in accordance with the Act before Chapter VI-A deductions. On that basis, the income from the industrial undertaking must itself be computed under the Act, including the provisions governing business income and depreciation-related allowances. The later insertion of section 80AB was treated as clarificatory and declaratory of the position that had always existed. The Court relied on the settled position that a circular cannot pre-empt judicial interpretation and followed the binding interpretation that section 80AB is retrospective in nature.

Conclusion: Deduction under section 80HH had to be computed after applying sections 30 to 43A, and section 80AB was not merely prospective. The contention that the deduction should be allowed on a gross basis without those adjustments failed.

Ratio Decidendi: For deductions under Chapter VI-A, the relevant income is the income computed under the Act and not the gross receipt itself; therefore, a provision like section 80HH must be applied to profits computed after the statutory adjustments required by the Act, and a later clarificatory provision may declare the law as it always stood.

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