Section 80HH deduction must be computed on net income after depreciation and investment allowance adjustments

While computing deduction under section 80HH, the eligible amount is the income as computed under the Act, read with section 80AB, and not gross income before statutory allowances. Depreciation and investment allowance must therefore be deducted before calculating the section 80HH relief. On that basis, the reference was answered in favour of the Revenue and against the assessee.

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Issues: Whether, while computing deduction under section 80HH of the Income-tax Act, 1961, depreciation and investment allowance are required to be ignored.

Analysis: The reference was answered by applying the principle that section 80HH must be read with section 80AB, so that the relief is computed on income as determined under the Act and not on gross income. On that basis, the amount eligible for deduction under section 80HH has to be arrived at after deducting depreciation and investment allowance.

Conclusion: The deduction under section 80HH has to be computed after deducting depreciation and investment allowance. The question was answered in favour of the Revenue and against the assessee.

Ratio Decidendi: For computing relief under section 80HH, the eligible income is the net income as computed under the Act in the light of section 80AB, and not the gross income before allowance for depreciation and investment allowance.

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