Depreciation on allotted business assets turns on actual cost to the recipient, while earlier loss labels do not settle tax character.

Under the Indian Income-tax Act, 1922, an earlier assessment order describing a carried-forward amount as loss did not by itself prevent later examination of whether it was in fact unabsorbed depreciation, because depreciation carry-forward is treated separately from business loss. For depreciation on factories taken over on dissolution or similar division, the relevant figure is the actual cost to the recipient, and where assets are genuinely valued and allotted with cash adjustment, that allotted value can be adopted as the cost. The reference was thus mixed, with the first issue favouring the Revenue and the second favouring the assessee.

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Issues: (i) Whether the assessment order for the earlier year finally concluded that the amount carried forward represented loss and not unabsorbed depreciation; (ii) Whether the written down value for depreciation of the two factories was the value at which they were allotted to the assessee.

Issue (i): Whether the assessment order for the earlier year finally concluded that the amount carried forward represented loss and not unabsorbed depreciation.

Analysis: The amount described in the earlier assessment order as carried forward loss did not, by itself, determine whether it included unabsorbed depreciation. Under the scheme of the Indian Income-tax Act, 1922, unabsorbed depreciation is dealt with under proviso (b) to section 10(2)(vi) and is carried forward in a manner distinct from business loss under section 24(2). The mere form of the earlier order did not preclude enquiry into the true character of the amount in the later assessment.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether the written down value for depreciation of the two factories was the value at which they were allotted to the assessee.

Analysis: For computing depreciation, the relevant figure is the actual cost to the assessee. Where partnership assets are genuinely valued and divided on dissolution, with cash adjustment to equalise shares, the value fixed for allotment represents the assessee's cost of the assets taken over. The principles governing partition and real allotment value support adopting that value rather than the earlier written down value in the hands of the dissolved firm.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The reference was answered with one question decided for the Revenue and the other for the assessee, resulting in a mixed outcome.

Ratio Decidendi: For depreciation on assets taken over on dissolution or partition-like division, the decisive figure is the actual cost to the recipient as fixed by genuine allotment and value adjustment, and an earlier description of a sum as carried forward loss does not bar examination of whether it includes unabsorbed depreciation.

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