Law:

Section:

Section 32(2) of the Income-tax Act, 1961 - Depreciation - Carry forward and set off of - Assessment years 1979-80 - Whether unabsorbed depreciation of the registered firm of 'current year' is to be allocated among partners and is not allowed to be carried forward for being adjusted against future profit of the firm - Held, yes FACTS For the assessment year 1979-80, the assessee, a registered firm, claimed before the ITO that its unabsorbed depreciation be carried forward and that the net loss be apportioned among the partners. The ITO rejected the claim and allocated unabsorbed depreciation among the partners of the assessee's firm. The Commissioner (Appeals) and the Tribunal upheld the assessee's claim. On reference: HELD In the instant case, the Commissioner as well as the Tribunal proceeded on an erroneous appreciation of facts, and considered the question as to whether the unabsorbed depreciation of a registered firm of the previous year should not be allocated among the partners but should be carried forward for being adjusted against the future profits of the firm. The question was whether unabsorbed depreciation of the assessee in the year in question was to be allocated among the partners or not. It cannot be disputed that in the case of registered firms, the net loss including depreciation allowance, if any, is allocated to the partners, who alone are entitled to set off the loss allocated to them in their individual assessments and to carry forward any loss which remained unabsorbed, as provided in section 32(2) and section 75(2). The question whether the unabsorbed depreciation of the previous year could be carried forward and set off against the profits of 'the subsequent year' in the case of the registered firm, did not arise for consideration in this case. The question that arose for consideration in this case was whether the unabsorbed depreciation of the registered firm of 'the current year' was to be allocated among the partners or not. There was no dispute that it had to be done so. Unabsorbed depreciation of the registered firm for 'the current year' should be allocated among the partners and the assessment made by the ITO on the assessee…

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