Carry forward of unabsorbed depreciation depends on the assessment year, not the accounting year, under the amended proviso.

Unabsorbed depreciation relating to a year ending 31 March 1939 was treated as part of the depreciation allowance for the succeeding assessment year under section 10(2)(vi) of the Indian Income-tax Act, 1922. The amended proviso was held to operate by reference to the assessment year, not the accounting year, so the exclusion of years ending before 1 April 1939 did not bar carry forward for assessment year 1939-40. The statutory scheme deemed unabsorbed depreciation of one year to form part of the allowance for the next year, and the proviso did not prevent carry forward where the relevant assessment year was not excluded and full effect could not be given because of insufficient profits or gains.

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Issues: Whether unabsorbed depreciation relating to the year ending 31 March 1939 could be treated as part of the depreciation allowance for the subsequent assessment year and carried forward under section 10(2)(vi) of the Indian Income-tax Act, 1922.

Analysis: The amended proviso to section 10(2)(vi) operated with reference to the assessment year, not the accounting year. The exclusion of years ending prior to 1 April 1939 did not apply to the assessment year 1939-40, which ended on 31 March 1940. The statutory scheme made unabsorbed depreciation of a year, by legal fiction, part of the allowance for the succeeding year, and the restriction in the amended proviso did not prevent carry forward in the present case because the relevant year was not an excluded year. The contention that non-allowance in the earlier assessment arose from failure to appeal was rejected as a misreading of the section, since the language requires only that full effect cannot be given owing to insufficient profits or gains.

Conclusion: The unabsorbed depreciation could be carried forward and treated as part of the depreciation allowance for the succeeding assessment year, in favour of the assessee.

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