Set-off of eligible unit losses against other business profits permitted before Chapter VI-A deduction computation.

Loss from a unit eligible for deduction under section 80-IC was first aggregated with other income under the Act's normal set-off rules, and only thereafter was gross total income computed for Chapter VI-A purposes. Sections 80-IC(7) and 80-IA(5) were read as not barring set-off of that loss against profits of other taxable units on the facts considered. The CBDT circular relied on was also treated as consistent with prior inter-source and inter-head adjustments before examining the deduction. The eligible unit's loss therefore did not have to be notionally isolated from the assessee's other business income for the year in question.

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Issues: Whether the loss of an undertaking eligible for deduction under section 80-IC of the Income-tax Act, 1961 could be set off against the profits of other taxable units while computing gross total income.

Analysis: The scheme of the Act requires income and loss from different sources under the same head to be aggregated under section 70(1), and thereafter the gross total income is computed before Chapter VI-A deductions are considered. The statutory framework in sections 80-IC(7) and 80-IA(5) does not create a prohibition against such set-off in the present factual situation. The CBDT circular relied on also proceeds on the basis that first the normal inter-source and inter-head adjustments are to be made and only then the Chapter VI-A benefit is examined. The authorities and the Tribunal were distinguished on facts, and the loss from the eligible unit was not required to be notionally isolated from the assessee's other business income for the year in question.

Conclusion: The loss of the eligible unit was rightly set off against the profits of the other units and the Revenue's challenge failed.

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