Set-off of brought forward business loss must precede section 10B deduction, leaving only net profits eligible for relief.

Carried forward business loss had to be set off before computing deduction under section 10B of the Income-tax Act, because the deduction forms part of the statutory computation and cannot be applied on gross profits. The profits eligible for section 10B relief must first be determined in accordance with the Act, and only the net amount after giving effect to brought forward losses can qualify. Applying the deduction before set-off was treated as inconsistent with the amended scheme of sections 10A and 10B and as producing an artificial result. The assessee's claim to claim section 10B deduction on gross profits was rejected.

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Issues: Whether carried forward business loss was required to be set off against the profits of the undertaking before computing deduction under section 10B of the Income-tax Act, 1961.

Analysis: The deduction under section 10B was held to be part of the computation under the Act and could not be applied on gross profits without first giving effect to the set-off of brought forward business losses. The profits eligible for deduction had first to be computed in accordance with the Act, and only the net amount so arrived at could be considered for section 10B relief. The contrary method was found to produce an artificial and unintended result and was treated as inconsistent with the amended scheme of sections 10A and 10B as aligned with the deduction provisions.

Conclusion: The carried forward business loss had to be set off before granting deduction under section 10B, and the assessee's claim to apply the deduction on gross profits was rejected.

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