Unabsorbed depreciation can form part of business loss and be apportioned among partners of a registered firm.

Unabsorbed depreciation under proviso (b) to Section 10(2)(vi) of the Income-tax Act, 1922 may be treated as part of the loss of profits or gains under the business head for set-off under Section 24(1). The statutory scheme was read as requiring business profits to be computed after Section 10 allowances, with Section 24 then applying the set-off mechanism to the aggregate income. The proviso was construed as giving priority to ordinary losses over carried-forward depreciation, not as excluding depreciation from the expression "loss of profits or gains." For a registered firm, such depreciation-related loss could be apportioned among the partners.

---

---

Issues: Whether the unabsorbed portion of depreciation allowance under proviso (b) to Section 10(2)(vi) of the Income-tax Act, 1922 could be treated as a loss of profits under the head 'business' and apportioned among the partners of a registered firm under Section 24(1).

Analysis: The scheme of the Act was read as first computing business profits after the allowances under Section 10, and then applying the set-off provisions of Section 24 to the aggregate income. The proviso to Section 10(2)(vi) was held not to exclude depreciation from the expression 'loss of profits or gains' in Section 24(1), but only to give priority to ordinary losses over carried-forward depreciation. The Court relied on the structure of Sections 6, 10, 16, 23, and 24 and approved earlier authorities holding that depreciation, when it reduces the business result to a loss, may enter the computation of loss available for set-off.

Conclusion: The unabsorbed depreciation could be taken into account as a business loss and, where the assessee was a registered firm, the loss was liable to be apportioned among the partners under Section 24(1).

Final Conclusion: The reference was answered in favour of the assessee, and the claimed treatment of the depreciation-related loss for partner-wise set-off was upheld.

Ratio Decidendi: Depreciation allowance not fully absorbed in computing business profits may, subject to the priority rule in Section 24, be treated as part of the loss of profits or gains and apportioned among the partners of a registered firm.

---