Depreciation actually allowed means depreciation set off against profits, not merely allowable in law, for written down value computation.

Depreciation not absorbed in the earlier year because there were no profits was not depreciation "actually allowed" for computing the subsequent year's written down value. The Calcutta HC held that section 10(5)(b) uses the unambiguous expression "actually allowed" to mean depreciation in fact given effect to by being set off against profits or gains in assessable income, not depreciation merely allowable in law. As the earlier allowance could not be absorbed, it could not reduce the later written down value. The reference was answered in the affirmative, in favour of the assessee.

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Issues: Whether depreciation not given effect to in the preceding year because there were no profits could be treated as depreciation "actually allowed" while computing the written down value for the subsequent year.

Analysis: The expression "actually allowed" in section 10(5)(b) was held to be unambiguous and to mean depreciation that was in fact given effect to, not merely depreciation that was allowable in law. Depreciation is actually allowed when it is set off against profits or gains in computing assessable income. Where there were no profits in the earlier year, the depreciation allowance could not be absorbed or set off and therefore could not be treated as having been actually allowed for the purpose of reducing the written down value.

Conclusion: The depreciation brought forward from the earlier year was not "actually allowed" and could not be deducted from the written down value. The answer to the reference was in the affirmative, in favour of the assessee.

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