Section 80E deduction must follow total income computation, with non-priority business losses set off before applying the percentage deduction.

Section 80E deduction had to be computed only after total income was first determined under the Act, so losses from non-priority business were required to be set off before applying the 8% deduction on profits attributable to the specified industry. The statutory scheme did not permit isolation of priority-industry profits from other business losses for the purpose of calculating the deduction, and the construction in Cambay Electric Supply Industrial Co. Ltd. was treated as confirming that approach. The assessee's method of ignoring non-priority losses was therefore inconsistent with the provision.

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Issues: Whether the deduction under section 80E of the Income-tax Act, 1961 had to be computed on the profits of the priority industry before setting off losses from non-priority business, or after computing the total income in accordance with the other provisions of the Act.

Analysis: Section 80E required the total income to be computed first in accordance with the other provisions of the Act and only thereafter could the statutory deduction of 8% be allowed from the profits and gains attributable to the specified industry. The computation of total income necessarily included adjustment of losses from other business activities, and the Supreme Court's construction of the provision in Cambay Electric Supply Industrial Co. Ltd. made it clear that the deduction under section 80E could not be worked out by isolating priority-industry profits from such losses. The assessee's contention that non-priority losses should be ignored before applying the deduction was therefore inconsistent with the statutory scheme.

Conclusion: The question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: Under section 80E, the assessee's total income must first be computed under the Act without reference to that section, and losses from non-priority business must be adjusted before applying the percentage deduction on the remaining priority-industry profits.

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