Brought-forward depreciation must be added to current depreciation before loss set-off rules apply in computing total income.

Brought-forward unabsorbed depreciation is treated as part of the depreciation allowance of the following year and must be aggregated with current-year depreciation before computing total income. In computing business income, that combined allowance is given effect to first under the depreciation provisions, while the set-off rules for business loss under section 24 operate only after the statutory order of adjustment. Where no separate business loss exists apart from unabsorbed depreciation, the amount remains available for set-off against income under other heads, including dividend income. The effect is that prior-year unabsorbed depreciation is deducted from the relevant assessment year's total income after being merged with the current year's allowance.

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Issues: Whether unabsorbed depreciation of earlier years is to be added to the current year's depreciation and the aggregate deducted in computing the total income for the relevant assessment year.

Analysis: Under the Indian Income-tax Act, depreciation not absorbed in an earlier year is deemed to form part of the depreciation allowance for the following year. In computing business income, the current year's depreciation and the brought-forward unabsorbed depreciation must first be aggregated and given effect to under section 10(2)(vi) read with its proviso. In the case of an assessee having income under multiple heads, section 24 governs the set-off mechanism, and the carrying forward of business loss under section 24(2) operates after the statutory order of adjustment. On the facts, there was no separate business loss apart from unabsorbed depreciation, and the amount was therefore available to be set off against the dividend income.

Conclusion: The unabsorbed depreciation of prior years had to be added to the current year's depreciation and the aggregate deducted from the total income for the assessment year 1952-53.

Ratio Decidendi: Brought-forward unabsorbed depreciation is to be treated as part of the depreciation allowance of the following year and given effect to before the application of the loss set-off rules under section 24.

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