Unabsorbed depreciation set-off against other income heads upheld, with business losses given priority under the carry-forward rules.

Unabsorbed depreciation carried forward from earlier years and deemed under section 10(2)(vi) to form part of the current year's depreciation allowance could be set off against income under other heads. Section 24(1) permitted such set-off once the depreciation was brought into the current year by the deeming provision. Section 24(2) and proviso (b) were treated as governing the priority between carried-forward business losses and unabsorbed depreciation, requiring business losses to be adjusted first, but not barring set-off of unabsorbed depreciation against other heads of income. The question was answered in the affirmative in favour of the assessee.

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Issues: Whether unabsorbed depreciation allowance of earlier years, deemed to be part of the depreciation allowance of the current year under section 10(2)(vi), could be set off against income under other heads.

Analysis: Section 10(2)(vi) treated unabsorbed depreciation carried forward from earlier years as part of the depreciation allowance of the relevant year. Read with section 24(1), a loss under the head of business profits, once brought into the current year by the deeming provision, was capable of being set off against income under any other head. Section 24(2) and proviso (b) thereto were held to regulate the priority between carried-forward business losses and unabsorbed depreciation, requiring business losses to be given effect to first, but not excluding the set-off of unabsorbed depreciation against other heads of income. Proviso (b) to section 24(2) did not support the contrary contention.

Conclusion: The unabsorbed depreciation allowance of earlier years was available for set-off against income under other heads, and the question was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: Unabsorbed depreciation carried forward under section 10(2)(vi) retains its character as depreciation of the relevant year and, absent an express exclusion, may be set off against income under other heads, subject only to the priority rule in section 24(2).

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