INCOME TAX ACT, 1961

--Depreciation--Unabsorbed depreciation Set off against income from other sources where business income not sufficient for full set off of unabsorbed business loss--Assessee had unabsorbed depreciation and unabsorbed business loss. In the relevant year it had earned income smaller from business and also smaller income from other sources. Total amount of business income was consumed in set off of unabsorbed business loss which still continued to survive. Assessee therefore claimed adjustment of unabsorbed depreciation against income from other sources. Lower authorities denied the claim of assessee. Held: Were not justified. Section 72(2) speaks of set off business loss against income from business and where there is loss as well as unabsorbed depreciation, then set off shall be first of the business loss as against the business income and then of unabsorbed depreciation. Section 32(2), speaks of set off of unabsorbed depreciation as per clause (ii) of sub-section (1) of section 32. When unabsorbed depreciation could not be set off against income from business in the year concerned and when income from other sources is available then, set off of unabsorbed depreciation would be permissible against the same.

A reading of section 32(2) makes it clear that if the unabsorbed depreciation allowance could not be wholly set off under clause (i) and clause (ii), the amount of depreciation not so set off can be set off from income from other head, if any, available for that assessment year. The language of section 32(2) is very clear and there is hardly anything contained in section 72(2) to prevent such set off of carried forward depreciation being given to the assessee under the head of income from business or income from other sources. [Para 6] What is spoken to under section 72(2) is as regards set off of business loss as against the income from profits and gains of business or profession and if there is loss as well as unabsorbed depreciation, the set off shall be first on the business loss as against the business income and then on unabsorbed depreciation. What is spoken to under section 32(2) is as regards set off of unabsorbed depreciation as per clause (ii) of sub section (1) and when the unabsorbed depreciation could not be set off as against the income from business or profession by reason of there being no income available under the said heads and where there is income from other sources, effect must be given to Section 32(2) of the Act for that assessment year. [Para 6]

Income Tax Act, 1961 Section 32(2)