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Issues: Interpretation of provisions regarding unabsorbed depreciation allowance and set-off against income of a registered firm.
Analysis: The judgment pertains to a reference made by the Commissioner of Income-tax, Orissa, regarding the treatment of unabsorbed depreciation of a registered firm for the assessment year 1979-80. In the previous year, the unabsorbed depreciation was apportioned among the partners and set off against their incomes. The firm claimed that the unabsorbed depreciation should be carried forward to the current year and adjusted against the profits. The Commissioner of Income-tax (Appeals) found that unabsorbed depreciation not fully set off in partners' assessments should revert to the firm and be allowed as a deduction in subsequent years. The Tribunal upheld this view based on prevailing judicial decisions favoring the assessee. The High Court referenced the decision in CIT v. Singh Transport Co., emphasizing that unabsorbed depreciation allowance is distinct from business losses and is governed by section 32(2) of the Income-tax Act, allowing for set-off and carry forward. The court held that unabsorbed depreciation allocated to partners but not fully set off should be considered as the firm's unabsorbed depreciation in subsequent years. This interpretation aligns with the Supreme Court decisions in Jaipuria China Clay Mines (P.) Ltd.'s case and S. Sankappa's case, supporting the allowance of unabsorbed depreciation to be set off by the firm in succeeding years. In conclusion, the High Court found that the Tribunal's decision was in line with established legal principles and previous judicial interpretations. The court answered the question in favor of the assessee, disposing of the Special Jurisdiction Case without costs.
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