Unabsorbed depreciation may be carried forward and set off only against subsequent business profits, not other heads.

The text clarifies two tax questions: first, additional remuneration paid to a managing director under service agreements does not constitute business income where the functions and tenure reflect employment/directorship rather than carrying on business, so such receipts are not taxable as profits under the business head; second, unabsorbed depreciation from a prior year is carried forward and becomes part of the subsequent year's depreciation allowance and may be set off only against business profits chargeable to tax in that year, thereby neutralising business profit to the extent available, but cannot be treated as a loss for set off against other heads of income.

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Issues: (i) Whether the additional remuneration of Rs. 77,568/77,569 received by the assessee from two companies constituted income assessable as profits and gains of business under section 10; (ii) If not, whether the unabsorbed depreciation allowance of Rs. 29,485 from assessment year 1955-56 was available to be added to and set off against the business profits for assessment year 1956-57 under proviso (b) to section 10(2)(vi).

Issue (i): Whether the additional remuneration received by the assessee was business income under section 10.

Analysis: The Court examined the terms of the service agreements and the resolution creating the percentage remuneration, the functions, powers and tenure of the managing-director appointments, and authorities distinguishing remuneration as salary/wages from remuneration as business receipts. The Court applied the agent/principal versus master/servant test and considered whether the nature and scope of activities constituted carrying on of business, with reference to relevant precedent on managing directors and managing agents.

Conclusion: The additional remuneration is not business income under section 10; question (i) is answered against the assessee.

Issue (ii): Whether the unabsorbed depreciation of Rs. 29,485 could be added to the depreciation allowance of 1956-57 and set off against business profits under proviso (b) to section 10(2)(vi).

Analysis: The Court analysed proviso (b) to section 10(2)(vi) together with section 24(2), emphasizing that depreciation allowance is a charge on chargeable business profits; it considered competing High Court authorities and accountancy principles, and gave illustrations showing that unabsorbed depreciation becomes part of the following year's depreciation allowance but can only be absorbed to the extent of business profits chargeable to tax in that year.

Conclusion: The unabsorbed depreciation allowance of Rs. 29,485 is available to be added to the depreciation allowance for 1956-57 and the aggregate may be set off against the business profits of 1956-57 (thereby neutralizing the business profit) but the carried forward depreciation cannot be treated as a loss available for set off against income from other heads.

Final Conclusion: The Court answered issue (i) against the assessee (additional remuneration is not business income) and issue (ii) in favour of the assessee (unabsorbed depreciation may be carried forward and set off only against business profits), producing a split outcome on the referred questions.

Ratio Decidendi: Depreciation allowance under proviso (b) to section 10(2)(vi) is a charge only on chargeable business profits for the relevant year; unabsorbed depreciation is carried forward and may be absorbed only to the extent of business profits chargeable to tax in subsequent years, and remuneration payable under a managing-director/service arrangement is business income under section 10 only if the nature and scope of the activities amount to carrying on business rather than employment or director's remuneration.

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