Unabsorbed depreciation can be carried forward and set off against total income, not only business profits, under the statutory scheme.

Unabsorbed depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922 could be carried forward and added to the current year's depreciation allowance, then set off against the assessee's total income, including income under other heads. The Court read proviso (b) as permitting full effect to the allowance where it could not be absorbed in the assessment year, and held that section 24 on loss set-off did not exclude this operation. The contrary view limiting depreciation relief to business profits alone was rejected, and the assessee's entitlement to the broader set-off was upheld.

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Issues: Whether unabsorbed depreciation of earlier years could be added to the current year's depreciation and allowed to be deducted from the assessee's total income, including income under other heads, under the Indian Income-tax Act, 1922.

Analysis: The Act required computation of total income by pooling income and losses under the various heads. Depreciation under section 10(2)(vi) was an allowance to be deducted in computing business profits, and proviso (b) to that clause contemplated carry forward of unabsorbed depreciation by adding it to the depreciation of the following year and treating it as part of that allowance. On the language of the proviso, the expression that full effect could not be given to the allowance in the assessment of the assessee or partner necessarily covered situations where the allowance had to be absorbed against income under other heads in the individual assessment. Section 24 dealt with set-off and carry forward of losses other than depreciation, and its preference clause did not exclude the operation of section 10(2)(vi) in relation to unabsorbed depreciation. The Court approved the line of authority supporting that view and rejected the contrary construction that depreciation could only be absorbed against business profits.

Conclusion: The question was answered in the affirmative in favour of the assessee. Unabsorbed depreciation could be carried forward and set off against income from other heads in the assessee's assessment.

Final Conclusion: The revenue's appeal failed, and the assessee's entitlement to the set-off of unabsorbed depreciation was upheld.

Ratio Decidendi: Unabsorbed depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922 is not confined to absorption against business profits alone and may be carried forward and set off in the assessee's total income according to the statutory scheme governing computation of income and loss set-off.

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