Law:

Section:

Section 32(2) of the Income-tax Act, 1961 - Depreciation - Carry forward and set off - One of the partners of assessee-firm died, but as per provisions of partnership deed partnership continued with deceased partner's share belonging to remaining partners - Whether shares of unabsorbed depreciation of all partners, including deceased, which could not be set off against their individual incomes colfld be permitted to be carried forward by firm - Held, on facts, yes Facts As per the provisions of the partnership deed of the assessee-firm, consisting of the father and his two sons, on the death of father the partnership continued with his share belonging in equal shares to the two sons. The assessee claimed that the unahsorhed depreciation of the assessee-firm which had been apportioned among the partners, including the deceased, but could not be absorbed against their individual incomes should be brought back and carried forward in the assessment of the firm. This claim was negatived by the ITO. On appeal, the AAC held that in view of section 78(1) unabsorbed depreciation of the deceased partner could not be carried forward and only the remaining two partners would be entitled to carry forward their share in the unabsorbed depreciation. The Tribunal, however, upheld the assessee's claim. On reference: Held In view of this Court's decision in Ballarpur Collieries Co. v. CIT [1973] 92 ITR 219, it is concluded that once unabsorbed depreciation is allocated to the partner and it cannot be fully set off in the assessment of the partner, it should be permitted to be carried forward by the firm. Though a contrary view has been taken by some other High Courts on this issue, the decision of this Court does not require any reconsideration as it does not stand as a lone view but it has been followed by two other High Courts. Section 78(1) whose principle the AAC had extended to the instant case of depreciation deals with a case of unabsorbed loss in the case of individual partners. The principle cannot be extended to a depreciation allowance in respect of which no such provision has been thought fit to be made by the Parliament. It was obvious, in the instant case, that…

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