Carry-forward of unabsorbed depreciation fails once business assets become partnership property and depreciation ceases for the assessee.

Unabsorbed depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922 could be carried forward only where the assessee remained entitled to depreciation in the later year. Once the business assets were contributed to a partnership, they ceased to be the assessee's personal property and became partnership assets, so depreciation was no longer available to him on those assets. As a result, the earlier unabsorbed depreciation could not be set off against his share of partnership income. Proviso (c) did not apply because it addresses exhaustion of depreciation up to original cost, not a transfer of ownership out of the assessee.

---

---

Issues: Whether the assessee could set off unabsorbed depreciation relating to the years when he carried on the business as sole proprietor against his share of income from the same business after it had been converted into partnership.

Analysis: Depreciation under section 10(2)(vi) of the Indian Income-tax Act, 1922 is allowable only in respect of property of the assessee and is computed with reference to the original cost to the assessee. Once the business assets were brought into partnership, the plant and machinery ceased to be the personal property of the assessee and became partnership assets. In that situation, the assessee was no longer entitled to claim depreciation for the partnership years. The right to carry forward unabsorbed depreciation under proviso (b) presupposes that the assessee is entitled to depreciation in the following year. Since the assessee had no such entitlement after conversion of the business into partnership, the earlier unabsorbed depreciation could not be set off against his share of partnership income. The position under proviso (c) did not assist him, as that proviso addresses exhaustion of the depreciation allowance up to original cost and not a case where ownership itself had passed out of the assessee.

Conclusion: The assessee was not entitled to the claimed set-off of unabsorbed depreciation against his partnership income.

Final Conclusion: The reference was answered against the assessee on the only surviving question, and the revenue succeeded with costs.

Ratio Decidendi: Unabsorbed depreciation can be carried forward only where the assessee remains entitled to depreciation in the subsequent year; once the business asset becomes partnership property and ceases to be the assessee's own property, the carried-forward depreciation cannot be set off against the assessee's share of partnership profits.

---