Carried forward depreciation follows the same deduction basis as current year depreciation and applies against total world income.

Carried forward unabsorbed depreciation under the proviso to section 10(2)(vi) was treated as retaining the same character as current year depreciation and, on that basis, was deductible against the assessee's total world income. The court held that the basis for setting off the carried forward balance must follow the basis applicable to depreciation for the relevant year, rather than being confined to total income. The reference was answered in favour of the Revenue, and costs were awarded against the assessee.

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Issues: Whether carried forward unabsorbed depreciation allowance under the proviso to section 10(2)(vi) was to be adjusted against the assessee's total income only or against its total world income.

Analysis: The allowance of depreciation for the relevant assessment year was held to be deductible against the assessee's total world income, and the unabsorbed depreciation carried forward from the earlier year was treated as assuming the same character and colour as the depreciation allowance for the later year. On that construction, the treatment of the carried forward amount depended on the basis on which current year depreciation was deductible. Since the current year depreciation was deductible against total world income, the carried forward balance was also required to be adjusted on that basis.

Conclusion: The carried forward depreciation allowance was to be allowed against the assessee's total world income, not merely against its total income.

Final Conclusion: The reference was answered in favour of the Revenue, and the assessee was held liable to bear the costs.

Ratio Decidendi: Carried forward unabsorbed depreciation takes the same character as current year depreciation and is deductible on the same basis as the depreciation allowance for the relevant year.

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