Section 80-HHC deduction computed at threshold before set-off of carried forward losses and depreciation.

Deduction under Section 80-HHC was to be computed at the threshold, using the income forming part of the gross total income, rather than after setting off carried forward losses and depreciation. The analysis applied Section 80B(5), which defines gross total income as income computed before Chapter VI-A deductions, and Section 80AB, which requires deductions to be calculated by reference to income included in gross total income. The use of the expression "total income" in Section 80-HHC was treated as significant, leading to the conclusion that the deduction is allowable before unabsorbed losses and depreciation are applied.

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Issues: Whether deduction under Section 80-HHC of the Income-tax Act, 1961 is to be computed at the stage of gross total income or from the total income before set-off of carried forward losses and depreciation.

Analysis: Section 80B(5) defines gross total income as total income computed before making any deduction under Chapter VI-A. Section 80AB requires deductions under the relevant heading to be computed with reference to the income included in the gross total income. The text of Section 80-HHC uses the expression total income, which was treated as significant in fixing the stage of computation. On that basis, the deduction was held to be allowable at the threshold, before other deductions such as unabsorbed losses and depreciation are applied. Support was also drawn from the Supreme Court decisions referred to in the judgment.

Conclusion: Deduction under Section 80-HHC is to be allowed at the threshold and not postponed to the stage after set-off of carried forward losses or depreciation.

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