Section 10A Offers Deduction, Not Exemption; Setoff of Losses Limited Under Section 80B(5) Clarifies Income Computation

The HC held that Section 10A provides a deduction, not an exemption, and must be applied when computing business profits and gains. Brought forward unabsorbed depreciation and losses of the unit cannot be set off against income not eligible for deduction under Section 10A. Further, Section 80B(5) clarifies that gross total income for Chapter VI-A purposes is computed before any deductions under that Chapter.

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Issues: Whether deduction under Section 10A of the Income-tax Act, 1961 is to be allowed at the stage of computing business profits before setting off brought forward business losses and unabsorbed depreciation of non-10A units.

Analysis: Section 10A is a deduction provision and not an exemption provision. The deduction must be given effect to while computing the profits and gains of business, which stage precedes the application of Section 72 dealing with carry forward and set-off of business losses. The scheme of Chapter VI-A, including Section 80A(1) and Section 80B(5), was noted to show that the Revenue's attempt to telescope that scheme into Section 10A was not permissible in the absence of an express statutory provision.

Conclusion: The deduction under Section 10A had to be allowed before setting off brought forward losses of non-10A units, and the Revenue's appeal failed.

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