Carry-forward depreciation must be included in Chapter VI-A computation once it merges with current year allowance.

Unabsorbed depreciation carried forward from earlier years merges with the current year's depreciation by operation of law and must be considered in computing deduction under Chapter VI-A, even if the assessee did not separately claim it. The assessee cannot split the merged depreciation or exclude the carried-forward component once the statutory fiction applies. This interpretation was applied to the period before insertion of Explanation 5 to Section 32(1), and the computation had to proceed on the basis that depreciation, whether expressly claimed or not, formed part of the current year allowance.

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Issues: Whether depreciation, whether claimed or not, could be foisted upon the assessee for the purpose of calculating deduction under Chapter VI-A prior to insertion of Explanation 5 to Section 32(1) of the Income-tax Act, 1961.

Analysis: The Court applied the principle that unabsorbed depreciation of earlier years, once merged with the depreciation of the current year by legal fiction, becomes part of the current year's depreciation. On that basis, the assessee cannot split the two and decline the carry-forward depreciation while seeking computation of deduction under Chapter VI-A. The governing interpretation was taken from the Supreme Court's exposition of the effect of merger of depreciation and the inability of the assessee to exercise a contrary choice once the statutory fiction operates.

Conclusion: Depreciation, whether claimed or not, could not be foisted upon the assessee even before insertion of Explanation 5 to Section 32(1) for the purpose of calculating deduction under Chapter VI-A. The answer was in favour of the assessee and against the revenue.

Ratio Decidendi: Once unabsorbed depreciation is carried forward and merges with current year depreciation, it forms part of the current year allowance and must be taken into account for Chapter VI-A computation, irrespective of whether the assessee separately claims it.

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