Carry forward of unabsorbed depreciation and validity of voluntary returns were upheld under the Income-tax Act, 1922.

Unabsorbed depreciation under the Income-tax Act, 1922 was treated as governed by section 10(2)(vi) and not by section 24(2), so section 22(2A) did not control carry forward of depreciation losses. A voluntary return filed under section 22(3) before assessment was recognised as a valid return and could not be ignored merely because it showed income below the taxable limit or was filed within the permitted period after the assessment year. On both points, the assessee's position was accepted and the revenue's contrary view was rejected.

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Issues: (i) Whether unabsorbed depreciation allowance fell within the scope of section 24(2) of the Income-tax Act, 1922 so as to attract section 22(2A) of that Act; (ii) Whether a voluntary return filed before assessment under section 22(3) of the Income-tax Act, 1922 could be treated as invalid or as no return.

Issue (i): Whether unabsorbed depreciation allowance fell within the scope of section 24(2) of the Income-tax Act, 1922 so as to attract section 22(2A) of that Act.

Analysis: The scheme of carry forward of unabsorbed depreciation under section 10(2)(vi) and proviso (b) was treated as independent of section 24(2). Section 24(2) was held to deal only with business losses other than depreciation losses and to contain merely a rule of priority. Since depreciation did not fall within section 24(2), compliance with section 22(2A) was not a condition for carrying forward unabsorbed depreciation.

Conclusion: The view that depreciation was governed by section 24(2) was incorrect, and the assessee succeeded on this issue.

Issue (ii): Whether a voluntary return filed before assessment under section 22(3) of the Income-tax Act, 1922 could be treated as invalid or as no return.

Analysis: A return filed voluntarily in response to the general notice under section 22(1) and before assessment was held to be a valid return under section 22(3). It could not be treated as waste paper merely because it disclosed income below the taxable limit or because it was filed after the assessment year within the permissible period.

Conclusion: The return was valid and could not be ignored as a nullity, and this issue was decided in favour of the assessee.

Final Conclusion: The impugned order could not stand because the depreciation issue was wrongly decided and the return was not invalid for the reasons adopted by the revenue authorities.

Ratio Decidendi: Carry forward and set-off of unabsorbed depreciation under the Income-tax Act, 1922 are governed by section 10(2)(vi) and not by section 24(2), and a voluntary return filed before assessment under section 22(3) remains a valid return.

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