Carried-forward depreciation under the unamended income-tax rule was added to the next year's allowance.

Under the unamended Section 10(2)(vi) of the Indian Income-tax Act, unabsorbed depreciation from the immediately preceding year had to be added to the depreciation allowance for the next year because proviso (b) required the amount not given effect to to be carried forward. The 1939 and 1940 amendments did not alter that position for assessment year 1939-40, as they operated prospectively. Accordingly, the allowance for that year was not limited to current-year depreciation alone, but included the brought-forward unabsorbed depreciation from 1938, and the assessee's contention was upheld.

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Issues: Whether unabsorbed depreciation relating to the year ending 31 December 1938 could be carried forward and added to the depreciation allowance for the assessment year 1939-40, and thereby affect the allowance available for the subsequent assessment years.

Analysis: The allowance under Section 10(2)(vi) of the Indian Income-tax Act, as it stood before the 1939 amendment, required the depreciation for the relevant year to be computed together with any unabsorbed depreciation of the immediately preceding year, because proviso (b) expressly directed that the amount not given effect to "shall be added" to the allowance for the following year. The 1939 and 1940 amendments did not displace that position for the year in question, since the amending provisions operated prospectively and the year 1939-40 was governed by the unamended provision. On that construction, the allowance for 1939 was not confined to the current year's percentage alone, but included the brought-forward unabsorbed depreciation from 1938.

Conclusion: The question was answered in the negative and the assessee's contention was upheld.

Ratio Decidendi: Where the unamended depreciation provision mandates that unabsorbed depreciation "shall be added" to the next year's allowance, the depreciation allowance for that year includes both the current year's statutory depreciation and the brought-forward unabsorbed depreciation from the preceding year.

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