Law: Income Tax Act, 1961

Section: 32,32(2)

Income-tax-----Depreciation---Registered firm---Unabsorbed depreciation allocated to partners and not wholly set off in their individual assessments---Allowable in the hands of registered firm in subsequent year---Indian Income Tax Act, 1961, S.32. Though a firm and its partners are distinct assessees for the purposes of income-tax, the Income Tax Act, 1961, still recognises the principle that a firm is only a compendious name for its partners and the business carried on by the firm is as well a business carried on by each of the partners too. Section 32(2) of the Income Tax Act, 1961, contemplates and envisages that the unabsorbed depreciation should first be adjusted in the assessment of the registered firm against its other business income and against its income under other heads. Depreciation which remains unabsorbed has first to be apportioned to the partners and adjusted against the business and other income of the partners pro tanto. If full effect cannot be given to the depreciation allowance of the firm against the income of the registered firm or its partners in that year and some depreciation remains unadjusted, then the registered firm can carry forward the remaining unadjusted depreciation to the subsequent years. Garden Silk Weaving Factory v. CIT (1991) 189 ITR 512 (SC) fol. JUDGMENT ASHOK BHAN, J.---At the instance of the Revenue, the following question of law has been referred to this Court by the Income-tax Appellate Tribunal Chandigarh Bench, Chandigarh (hereinafter referred to as "the Tribunal), for its opinion: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal erred in allowing carry forward of unabsorbed depreciation amounting to Rs.1,70,631 in the hands of the firm for adjustment and set off against profits in the subsequent years?" Shortly stated, the facts are: The assessee is a registered firm. For the assessment year 1980-81, depreciation admissible to the assessee was worked out to Rs.3,30,671. The net income of the assessee before allowing the depreciation was worked out by the Income-tax Officer at Rs.1,60,040. Depreciation to this extent was set off against this income. The balance…

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