Law:

Section:

Section 32(2) of the income-tax act, 1961-Depreciation-Unabsorbed depreciation of "registered firm allocated to partners not wholly set off due to absence of profits in that year with partners-Brought back for computation of total income of firm in subsequent years-Whether tribunal justified in law in allowing impugned claim for carry forward in firm's assessments-Held, yes Facts The ITO completed the assessment of the assessee, a registered firm, for the assessment year 1972-73 determining the unabsorbed depreciation at Rs. 21,846, which was the amount for the assessment years 1969-70, 1970-71 and 1971-72. For the next assessment year 1973-74, the assessee-firm claimed that the said amount should be carried forward in its favour to be added to its current year's depreciation and set off against its profits and carry forward the balance to the subsequent assessment years. The ITO disallowed the claim on the ground that the unabsorbed depreciation could be allocated to the partners in terms of section 32(2) and that they alone could take the benefit of its carry forward and set off in their hands. The AAC, however, allowed the appeal, holding that the unabsorbed depreciation of the previous years in the hands of the partners, due to insufficient profits with them, reverted back to the firm as its unabsorbed depreciation for set off in the following years. The Tribunal upheld the AAC's orders. On reference : Held 1. The effect of the provisions of section 32(2) is that the unabsorbed depreciation retains its colour or character as depreciation allowance in the following year and has to be deducted as an "allowance" and not as a "business loss". The unabsorbed depreciation allowance was not subject to limitation of eight years for set off as is applicable in the case of "business loss" and "losses in speculation business" under sections 72(3) and 73(4 ), respectively, which provide for inter se priority of set off of various types of losses against the income. The manner of carry forward and set off of depreciation allowance is distinct and separate and covered by section 32(2) . Thus, the provisions of section 75 relating to the carry forward and set off of…

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