Deduction under section 36(1)(viii) must be computed on pre-deduction total income, not on a reduced base.

Section 36(1)(viii) requires the deduction to be computed on total income as determined before allowing that deduction, and not on a figure first reduced by the same deduction. Total income under section 2(45) must be worked out in the manner laid down by the Act, so the assessment machinery cannot circularly diminish the deduction base by applying the deduction itself at the outset. The permissible deduction therefore has to be calculated on the pre-deduction total income, and the answer was against the Revenue.

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Issues: Whether the deduction under section 36(1)(viii) of the Income-tax Act, 1961 was to be computed on the assessee's total income before allowing that very deduction.

Analysis: Section 36(1)(viii) requires the deduction to be calculated on the basis of total income computed before making deductions under Chapter VI-A. Total income, as defined in section 2(45), is the amount of income computed in the manner laid down in the Act. The assessment machinery could not first reduce the total income by the deduction under section 36(1)(viii) itself and then use the reduced figure to limit the deduction. The permissible deduction had therefore to be worked out on the pre-deduction total income.

Conclusion: The deduction under section 36(1)(viii) had to be calculated on the assessee's total income as it stood before allowing that deduction, and the answer was against the Revenue.

Ratio Decidendi: Where a deduction provision directs computation on total income before Chapter VI-A deductions, the deduction must be calculated on the pre-deduction total income and cannot be curtailed by first applying the same deduction to reduce the base.

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