Carry forward of unabsorbed depreciation survives a firm's later registration when the assessee's identity remains unchanged.

Unabsorbed depreciation could be carried forward and allowed in the assessment of a firm after it became registered in the succeeding year, because the Indian Income-tax Act, 1922 contained no express restriction denying that benefit on a change from unregistered to registered status. The firm's identity remained the same, and registration affected only its fiscal treatment, not its entitlement to the carry forward. The provisions governing depreciation and set-off were construed to permit the deduction, and any ambiguity was resolved in favour of the assessee.

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Issues: Whether the unabsorbed depreciation of an unregistered firm for one assessment year could be carried forward and allowed as a deduction in the assessment of the same firm after it became registered in the succeeding year.

Analysis: The relevant provisions of the Indian Income-tax Act, 1922 permitted depreciation allowance to be carried forward where full effect could not be given in the year of allowance. The scheme of section 10(2)(vi) proviso (b), read with section 24(1) and section 24(2), did not contain any restriction denying the benefit merely because the firm had changed from unregistered to registered status in the subsequent year. The firm's identity remained the same, and registration only altered its fiscal treatment. In case of doubt, the construction favourable to the assessee had to be adopted, and on the proper reading of the Act there was no basis to deny the carry forward.

Conclusion: The unabsorbed depreciation was allowable as a carry forward deduction in the assessment of the registered firm, and the answer was in favour of the assessee.

Ratio Decidendi: Where the statute confers carry forward of unabsorbed depreciation and does not expressly impose a restriction based on a firm's later registration, the benefit cannot be denied if the assessee's identity continues unchanged; taxing provisions are to be construed in favour of the assessee where ambiguity exists.

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