Chapter VI-A deduction must follow prior income computation, so investment allowance is reduced before section 80HH relief.

Section 80AB requires Chapter VI-A deductions to be computed only after the relevant business income is first worked out under the Income-tax Act. On that basis, investment allowance under section 32A had to be reduced before calculating the deduction under section 80HH, because section 80HH applies only to the profits and gains as finally computed under the Act. Authorities relied on by the assessee were distinguished, and the construction supported the Revenue's view. The result was that the assessee's contention was rejected and the deduction under section 80HH was confined to the income remaining after prior statutory computation adjustments.

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Issues: Whether investment allowance under section 32A of the Income-tax Act, 1961 had to be deducted before computing deduction under section 80HH of the Income-tax Act, 1961.

Analysis: Section 80AB governs deductions under Chapter VI-A and requires the relevant income to be computed in accordance with the provisions of the Act before making any Chapter VI-A deduction. The profits and gains of business therefore have to be worked out after allowing deductions under the relevant computation provisions, and the deduction under section 80HH can only be applied to the profits and gains as so computed. The earlier authorities relied upon by the assessee were distinguished, and the ratio of the Supreme Court decision concerning the meaning of "such income" was treated as supportive of the Revenue's construction.

Conclusion: Investment allowance had to be reduced before computing deduction under section 80HH, and the assessee's contention was rejected.

Final Conclusion: The computation of deduction under section 80HH was held to be subject to the prior reduction of investment allowance under the Act, resulting in acceptance of the Revenue's position on the issue.

Ratio Decidendi: For deductions under Chapter VI-A, the relevant income must first be computed under the Act and the deduction can then be applied only to that computed income.

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