Unabsorbed Depreciation treated as Current Year Depreciation, deductible after applying carried forward business losses in prescribed sequence.

Unabsorbed depreciation from prior years is to be treated as part of the current year's depreciation allowance and added to current depreciation, subject to asset-cost limitations; that aggregate is deductible from total income of the relevant year provided the statutory sequence for set-off is followed. Carried forward business losses must be set off first against profits and any surplus applied to unabsorbed depreciation, which then becomes the depreciation of the following year and may be set off against income from other heads when business losses have been exhausted.

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Issues: Whether unabsorbed depreciation of prior years should be added to the current year's depreciation and the aggregate deducted from the total income of the previous year relevant to assessment year 1952-53.

Analysis: The issue requires construction of section 10(2)(vi) read with proviso (b) and section 24(2) read with proviso (b) of the Income-tax Act in the context of an assessee with multiple heads of income. Section 10(2)(vi) treats any unabsorbed depreciation as part of the depreciation allowance for the following year, so that if current year depreciation is X and unabsorbed past depreciation is Y the allowable depreciation for the year is X+Y, subject to not exceeding original cost. Section 24(1) permits set-off of business loss against income under other heads, and section 24(2) (with proviso (b)) prescribes the sequence for applying carried forward business losses and unabsorbed depreciation: business losses are to be set off first and any surplus then applied towards unabsorbed depreciation which, by section 10(2)(vi) proviso (b), becomes the depreciation of the following year. Authorities applying these provisions have held that unabsorbed depreciation not absorbed by business profits may be set off against income from other heads; the combined statutory scheme supports treating unabsorbed depreciation as part of the depreciation allowance for the year and permitting its set-off against other heads when the statutory sequence in section 24 is observed.

Conclusion: Unabsorbed depreciation of past years shall be added to the current year's depreciation and the aggregate deducted from the total income of the previous year; result in favour of the assessee.

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