Unabsorbed Depreciation carry forward permitted; set off allowed even if original assets not in use, business continuity upheld.

Whether unabsorbed depreciation carried forward under the proviso to section 10(2)(vi) can be set off: the proviso treats previously allowed unabsorbed depreciation as an allowance in the assessment year to permit carry forward and set off, and the qualification that depreciation was properly allowed in earlier years suffices; therefore the carried forward unabsorbed depreciation is allowable and may be set off. Whether the business in the assessment year was the same as before: changes in contractual terms, use of customer supplied machinery or materials and sale of old plant alter the method of carrying on the activity but not its essential nature; accordingly business continuity is upheld.

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Issues: (i) Whether the applicant company is entitled to set off unabsorbed depreciation of past years amounting to Rs. 73,404 against the assessable income of Rs. 80,210 for assessment year 1958-59; (ii) Whether the business carried on by the applicant company in assessment year 1958-59 was the same as the business carried on in preceding years.

Issue (i): Whether the unabsorbed depreciation carried forward under the proviso to section 10(2)(vi) can be set off in the assessment year 1958-59 against the assessable income.

Analysis: The proviso to section 10(2)(vi) treats unabsorbed depreciation allowed in earlier years as deemed to be an allowance for the assessment year so as to permit carry forward and set off. The qualification that depreciation was properly allowed in earlier years is satisfied at the time it was allowed. Nothing in clause (b) requires that the specific assets in respect of which depreciation was allowed must continue to be in use in the assessment year for the carried forward depreciation to be available.

Conclusion: The unabsorbed depreciation of Rs. 73,404 is allowable to be set off in assessment year 1958-59.

Issue (ii): Whether the business carried on in assessment year 1958-59 was different in nature from the business carried on in preceding years.

Analysis: The contract between the parties continued to describe the activity to be performed as processing and finishing of cloth and related goods. Variations in contractual terms (supply of special machinery by the customer, provision of raw materials by the customer, special rates, requirement of separate accounts, or exclusive volume of work for one customer) alter the method of carrying on the activity but do not change the essential nature of the business activity. The sale of the assessee's older machinery and use of machinery supplied by the customer reflect a change in method or means of performance rather than a change to a different kind or category of business.

Conclusion: The business carried on by the applicant company in assessment year 1958-59 was the same business as that carried on in the preceding years; therefore the contention of a change of business is rejected and the claim based on continuity succeeds.

Final Conclusion: Both questions referred are answered in favour of the assessee, entitling the assessee to set off the carried forward unabsorbed depreciation against the assessable income for assessment year 1958-59; the departmental decision is set aside and the assessee is entitled to costs.

Ratio Decidendi: A change in the method of carrying on an activity, including use of machinery or materials supplied by a customer, does not alter the essential identity of the business; unabsorbed depreciation properly allowed in earlier years may be carried forward and set off in a later year under clause (b) of the proviso to section 10(2)(vi) without requiring that the original assets remain in use in the assessment year.

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