Set-off priority between current depreciation and carried forward loss: current year's depreciation reduces current profits first.

Proviso (b) to section 10(2)(vi) and clause (b) of section 24(2) govern the sequencing of depreciation and carried forward loss for set-off: current-year depreciation is first applied against current-year profits under the Act's operational sequence, and the priority rule in section 24(2)(b) applies only where depreciation has already become a carried forward amount at the same procedural stage as a carried forward loss. Applied to the stated facts, the current year's depreciation was correctly set off against current profits and the earlier carried forward loss could not be given priority.

---

---

Issues: Whether the depreciation allowance of Rs.12,52,117 for the current year was rightly set off against the profits of Rs.9,56,479 for that year rather than first setting off the loss of Rs.27,359 carried forward from earlier years.

Analysis: Proviso (b) to section 10(2)(vi) contemplates that any part of depreciation allowance not given effect to in a year is to be added to the allowance for the following year and treated as part of that allowance, subject to clause (b) of section 24(2). Clause (b) of section 24(2) prescribes a rule of priority applicable where carried forward depreciation and carried forward loss are both available at the same stage for set off, directing that carried forward loss be given effect to first. The operational sequence under the Act requires that the current year's depreciation be set off against current profits (under section 10(1) and section 24(1)) before any question of carried forward amounts and the priority under section 24(2)(b) arises. The phrase "also to be carried forward" in clause (b) indicates that the priority rule applies only where depreciation has already become a carried forward amount at the same procedural level as the carried forward loss. In the present facts the current year's depreciation had not reached that carried-forward stage when determining the year's net result; therefore the priority in section 24(2)(b) did not apply.

Conclusion: The depreciation allowance for the current year was correctly set off against the current year's profits before any set off of the carried forward loss; the claimed first set off of the earlier loss is not permissible in the circumstances.

---