Chapter VI-A deduction computed on undertaking profits, not on residual income after prior reliefs

Section 80-I deduction was required to be computed at 20% of the profits and gains of the undertaking itself, not on residual income left after allowing section 80-HH relief. Section 80HH(9) only determines the order in which multiple Chapter VI-A deductions are applied, while section 80A(2) limits only the aggregate deduction to the gross total income. The computation base therefore remains the commercial profits of the undertaking, subject to the statutory ceiling, rather than a reduced figure after prior deductions.

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Issues: Whether deduction under section 80-I was to be computed at 20% of the profits and gains of the undertaking, or only on the residual income after allowing deduction under section 80-HH.

Analysis: The provisions of section 80HH(1) and section 80-I(1) emphasise deduction at 20% of the profits and gains of the undertaking and do not state that the deduction is to be calculated on income remaining after Chapter VI-A reliefs. Section 80HH(9) only ensures that, where multiple reliefs are available, the deduction under section 80-HH is allowed first. Section 80A(2) merely imposes an overall ceiling that the aggregate deduction under the Chapter cannot exceed the gross total income. The basis of computation therefore remains the profits of the undertaking, i.e. commercial profits, and not a reduced income figure after prior reliefs.

Conclusion: Deduction under section 80-I had to be allowed at 20% of the profits and gains of the undertaking, without reducing it by the deduction granted under section 80-HH; the assessee succeeded.

Ratio Decidendi: Where Chapter VI-A provisions prescribe deduction as a percentage of profits and gains of an undertaking, the deduction is to be computed on those profits themselves, subject only to the statutory ceiling on aggregate deductions, and not on income remaining after prior deductions under other sections.

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