Court clarifies deduction eligibility under section 80HH: Net income basis prevails over gross total income

The High Court held that the deduction under section 80HH of the Income-tax Act should be allowed on the net income as computed in accordance with the Act, rather than on the gross total income. The Court emphasized that the net income after deductions should be considered for claiming the deduction, ruling in favor of the Revenue's contention that the gross total income must be computed after deducting unabsorbed losses and unabsorbed depreciation to determine the income eligible for the deduction under section 80HH.

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Issues Involved:
The issue involves the interpretation of deduction under section 80HH of the Income-tax Act, 1961, specifically whether it should be allowed on the gross total income or the net income as computed in accordance with the Act before making any deduction under Chapter VI-A.

Summary:

The case involved the assessment of Vishnu Oil and Dal Mills, Jodhpur, for the assessment year 1979-80. The assessee claimed a deduction under section 80HH at the rate of 20% of the gross profit, but the Income-tax Officer allowed the deduction based on the net income computed under the Act, leading to a dispute. The Commissioner of Income-tax, Jodhpur, allowed the claim under section 80HH on the gross total income, which was challenged by the Revenue before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur. The Tribunal upheld the Commissioner's decision, prompting the Revenue to seek a reference to the High Court for the question of law regarding the deduction under section 80HH.

The Revenue contended that deduction under section 80HH should be allowed only on the net income, citing section 80AB of the Income-tax Act, 1961, which specifies the treatment of deductions in relation to the gross total income. The High Court analyzed the provisions of section 80HH and section 80AB, emphasizing that the net income after deductions should be considered for the purpose of claiming deduction under section 80HH. Referring to relevant case law, the Court concluded that the gross total income must be computed after deducting unabsorbed losses and unabsorbed depreciation to determine the income eligible for deduction under section 80HH.

In light of the above analysis, the High Court ruled in favor of the Revenue, holding that the deduction under section 80HH should be allowed on the net income as computed in accordance with the Act, rather than on the gross total income.

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