Chapter VI-A deductions require positive gross total income after depreciation and loss set-off, not pre-adjustment profits

Deduction under Chapter VI-A must be computed only after income is determined under the Act and gross total income is arrived at after setting off depreciation, unabsorbed depreciation and brought forward losses. The HC held that Sections 80HH and 80I do not permit deduction on pre-adjustment commercial profits, because Section 80AB and the scheme of Sections 80A(2) and 80B(5) require a positive resultant gross total income. Where the adjusted income is nil or negative, no deduction is admissible under those provisions.

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Issues: Whether deduction under Sections 80HH and 80I of the Income-tax Act, 1961 is to be computed on the profits and gains of the industrial undertaking before setting off depreciation, unabsorbed depreciation and unabsorbed losses, or only after computing the gross total income in accordance with the Act.

Analysis: The deduction under Chapter VI-A has to be worked out only after the income of the assessee is computed under the Act and the gross total income is determined after giving effect to the statutory adjustments for depreciation, unabsorbed depreciation and brought forward losses. Section 80AB applies to deductions under Chapter VI-A and the computation cannot ignore the scheme of Sections 80A(2) and 80B(5). The authorities and the Supreme Court decisions relied on in the judgment establish that where the resultant income is nil or negative after such adjustments, no deduction under Sections 80HH and 80I is admissible. The expression profits and gains in those sections does not authorise a deduction on a pre-adjustment commercial profit basis.

Conclusion: The deduction under Sections 80HH and 80I is not allowable on pre-depreciation or pre-set-off profits, and in the absence of positive gross total income the claim fails.

Final Conclusion: The appeals were dismissed because the assessee was not entitled to deduction under Sections 80HH and 80I after accounting for depreciation, unabsorbed depreciation and unabsorbed losses.

Ratio Decidendi: For deductions under Chapter VI-A, gross total income must first be computed in accordance with the Act after setting off statutory losses and depreciation, and only a positive resultant income can qualify for relief under Sections 80HH and 80I.

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