Current year depreciation takes priority over brought forward business losses in computing taxable profits.

Current year depreciation must be deducted first in computing taxable business profits, because it is a charge against the profits of that year and true net profits cannot be ascertained without it. The Court preferred this computation principle over the assessee's attempt to defer depreciation and give priority to brought forward business losses. Carried forward losses under the set-off provisions did not override the mandatory adjustment of current year depreciation, as taxable profits must first be determined on commercial and accountancy principles before any question of set-off priority arises. The issue was answered against the assessee.

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Issues: Whether non-speculative business profits should be set off against brought forward business losses before adjusting current year depreciation.

Analysis: The assessee sought to defer current year depreciation and give priority to carried forward business losses. The controlling principle accepted by the Court was that current year depreciation is a charge against the profits of that year and the true net profits or gains cannot be ascertained unless such depreciation is first deducted. The Court preferred the view that carried forward losses under the relevant set-off provisions do not override the deduction of current year depreciation, because the computation of the year's taxable profits must be made on commercial and accountancy principles before any question of priority for carried forward losses arises.

Conclusion: The question was answered in the negative and against the assessee.

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