Law:

Section:

Section 32(2) of the Income-tax Act, 1961 - Depreciation - Unabsorbed depreciation - Whether unabsorbed depreciation can be allowed even in year in which business in which depreciation was initially allowed is not carried on - Held, yes Section 33(2)(ii) of the Income-tax Act, 1961 - Development rebate - Unabsorbed development rebate - Whether unabsorbed development rebate can be carried forward to subsequent years notwithstanding the fact that assessee in subsequent years is not carrying on original business in which development rebate had initially been allowed - Held, yes Facts In the assessment year 1970-71, the assesses discontinued its old business and started a new one. The assessee had been allowed depreciation and development rebate in earlier assessment years in respect of the assets used in the old business which had remained unabsorbed. In the assessment years 1970-71 and 1971-72, the assessee claimed that such unabsorbed depreciation and development rebate should be allowed to be carried forward and set off against its business income for the said years. The ITO disallowed the claim on the ground that the assessee did not carry on its earlier business in the relevant years. The assessee contended before the Tribunal that to claim set off of unabsorbed depreciation and development rebate, it was not necessary that the business in which such depreciation and development rebate was initially allowed should be carried on in subsequent years. The Tribunal allowed the assessee's claim. On reference : Held In the instant case, there was no dispute that in the relevant years the assessee continued to own the machinery and assets of its earlier business and that in such earlier years depreciation had been allowed and had remained unabsorbed, which it was entitled to carry forward. According to section 32(2), once depreciation has been allowed in a particular year but could not be given effect to by reason of the chargeable profits or gains being less than the allowance, the same had to be added to the amount of allowance for depreciation for the following previous year or, alternatively, if there is no allowance in that year, it would be deemed to be the…

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