Unabsorbed depreciation cannot pass to a successor on amalgamation; post-transfer depreciation must be based on the successor's own cost.

Unabsorbed depreciation under Section 10(2)(vi) was treated as personal to the assessee whose property it related to, and not as a balance that passed to a successor on amalgamation. Section 26(2) was held to govern the successor's liability to assessment, not to alter the computation of depreciation allowances or transfer the predecessor's unused depreciation. Depreciation was required to be computed on the cost of the property to the successor after transfer, not on the predecessor's original cost. The predecessor's unabsorbed depreciation therefore did not carry forward into the successor company's hands.

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Issues: Whether, on the transfer and amalgamation of a business during the accounting year, the unabsorbed depreciation allowance standing to the credit of the transferor could be carried forward and aggregated in the hands of the successor company, and whether depreciation for the year was to be computed on the original cost to the predecessor after the transfer.

Analysis: Section 26(2) was held to deal with the liability to assessment of the successor and not with the computation of depreciation allowances. The scheme of Section 10(2)(vi) was treated as allowing depreciation only in respect of property of the assessee, calculated on the cost to that assessee. The definition of assessee in Section 2(2) did not justify extending the word to include a predecessor so as to transfer an unused depreciation balance. Once the property passed to the successor, depreciation had to be computed on the successor's own cost, and the predecessor's unabsorbed depreciation did not pass with the business.

Conclusion: The unabsorbed depreciation allowance of the predecessor could not be carried forward to the successor company, and depreciation for the post-transfer period was not to be computed on the predecessor's original cost in the successor's hands.

Final Conclusion: The appeal failed because the statutory scheme did not permit the transfer of the predecessor's unused depreciation allowance to the successor on amalgamation.

Ratio Decidendi: Unabsorbed depreciation under Section 10(2)(vi) is personal to the assessee whose property it is and cannot be transferred to a successor merely because Section 26(2) deems the successor to have carried on the business for the year for assessment purposes.

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