Section 80-IA eligible profits must be computed separately, with wind turbine depreciation set off only against power-generation income.

Depreciation on wind turbines used in the eligible power-generation business had to be deducted only against that business's receipts when computing deduction under section 80-IA, because section 80-IA(5) requires eligible profits to be worked out as if the undertaking were the sole source of income. The assessee could not apportion that depreciation against consultancy, sales and marketing receipts to expand the deduction through a composite-business approach. Non-eligible income could not be brought into the section 80-IA computation, and the eligible-business profits had to be determined independently.

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Issues: Whether depreciation on wind turbines had to be set off wholly against the income from power generation for computing deduction under section 80-IA, or whether it could be apportioned against the assessee's consultancy, sales and marketing receipts as part of a composite business.

Analysis: The deduction under section 80-IA is confined to profits and gains derived from the eligible business, and section 80-IA(5) requires those profits to be computed as if the eligible business were the only source of income. The wind turbines were used in the eligible power-generation business, and there was no material to show that they were used in or for the consultancy activity. Any other use was only incidental. Depreciation on the turbines therefore had to be deducted from the receipts of the power-generation business itself before working out the deduction. Allowing the assessee's composite computation would indirectly extend the deduction to non-eligible consultancy, marketing and sales income, which is impermissible.

Conclusion: The depreciation on wind turbines was correctly adjusted against the power-generation income alone, and no deduction under section 80-IA survived on that basis. The issue was decided in favour of the Revenue.

Final Conclusion: The Revenue succeeded because the eligible-business profits had to be computed independently and the assessee could not enlarge the deduction by mixing non-eligible consultancy receipts with the power-generation undertaking.

Ratio Decidendi: For deduction under section 80-IA, the eligible business must be computed separately in accordance with section 80-IA(5), and expenditure or depreciation attributable to that business must be fully deducted before allowing the deduction; non-eligible income cannot be brought into the computation by treating the business as composite.

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