Carried forward business loss takes priority over current depreciation in taxable income computation.

Under the Indian Income-tax Act, 1922, carried forward business loss had priority over current depreciation when computing taxable income. Unabsorbed depreciation under section 10(2)(vi) was treated as part of the succeeding year's depreciation allowance, but section 24(2) and its proviso gave preference to set-off of carried forward business loss. Read together, the provisions required the earlier business loss to be deducted before current depreciation, so that the statutory priority for loss adjustment was preserved.

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Issues: Whether, for the assessment years 1951-52 and 1952-53, unabsorbed business loss of the earlier year had priority over current depreciation allowance while computing the assessee's taxable income.

Analysis: Under the Indian Income-tax Act, 1922, unabsorbed depreciation is carried forward under proviso (b) to section 10(2)(vi) and is deemed to become part of the depreciation allowance of the succeeding year. Section 24(2), and in particular proviso (b) thereto, gives priority to carried forward business loss over carried forward depreciation. Reading sections 10 and 24 together, the carried forward business loss must also be adjusted before giving effect to current depreciation, because the legislative preference for loss set-off would be defeated if current depreciation were taken first.

Conclusion: The assessee was entitled to deduct the unabsorbed business loss before setting off the current depreciation allowance, and the answer was in the assessee's favour.

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