Carry-forward rules for registered firms: prior business loss cannot be reclaimed, but unabsorbed depreciation may still be set off later.

A registered firm could not claim a second set-off of an earlier business loss in a later year where that loss had already been apportioned to partners under section 24, because proviso (c) to section 24(2) barred re-claim by the firm. Unabsorbed depreciation, however, retained its character as depreciation allowance under section 10(2)(vi), proviso (b), and could be carried forward to the firm's succeeding assessment year if full effect had not been given earlier, subject to prior adjustment of carried-forward business losses under section 24(2).

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Issues: (i) Whether a registered firm could deduct business loss of an earlier year in computing its total income for the later year for the purpose of levy of tax on the firm. (ii) Whether unabsorbed depreciation of earlier years could be carried forward and deducted from the firm's income of the later year.

Issue (i): Whether a registered firm could deduct business loss of an earlier year in computing its total income for the later year for the purpose of levy of tax on the firm.

Analysis: The scheme of assessment under section 23(5) treated the income-tax payable by the registered firm and the apportionment of its income among partners as part of the same assessment machinery, but the carry-forward of business loss was governed by section 24(2). Since the loss had already been apportioned between the partners under the proviso to section 24(1), proviso (c) to section 24(2) barred the registered firm from claiming that same loss again in a later year. The firm could not secure a second set-off of a loss already allocated to the partners.

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

Issue (ii): Whether unabsorbed depreciation of earlier years could be carried forward and deducted from the firm's income of the later year.

Analysis: Unabsorbed depreciation was held to retain its character as depreciation allowance and to be carried forward under section 10(2)(vi), proviso (b), rather than as a business loss under section 24(2). The reference in that proviso to the assessment of partners in a registered firm was relevant only to ascertain whether full effect had been given to the allowance in the partners' assessments. If full effect had not been given, the unabsorbed depreciation had to be brought forward and given effect in the firm's succeeding year's assessment, after giving priority to carried-forward business losses under section 24(2).

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

Final Conclusion: The firm was not entitled to re-claim the earlier business loss, but it was entitled to carry forward and set off the unabsorbed depreciation in the later year, subject to the statutory priority for carried-forward losses.

Ratio Decidendi: Business loss apportioned to partners under section 24 cannot be claimed again by the registered firm in a subsequent year, but unabsorbed depreciation carried forward under section 10(2)(vi), proviso (b), remains depreciation allowance and must be given effect to in the firm's succeeding assessment year.

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