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Allocation of unabsorbed depreciation in a registered firm among partners. Analysis: The judgment delivered by the High Court of Kerala pertains to the allocation of unabsorbed depreciation in a registered firm among partners. The case involved a partnership firm that had undergone a name change and was registered for the assessment year 1979-80. The Income-tax Officer initially allocated the unabsorbed depreciation among the partners of the firm. However, on appeal, the Appellate Assistant Commissioner directed the Income-tax Officer to carry forward the unabsorbed depreciation in the hands of the firm for adjustment against future profits. Subsequently, the Appellate Tribunal held that unabsorbed depreciation of a registered firm should not be allocated among partners but carried forward for adjustment against future profits of the firm. Upon hearing arguments from both the Revenue and the assessee, the High Court observed that the Appellate Assistant Commissioner and the Tribunal had erred in their approach by considering the wrong question regarding the allocation of unabsorbed depreciation. The Court clarified that in the case of a registered firm, the net loss, including depreciation allowance, is to be allocated among the partners as per the provisions of the Income-tax Act, allowing them to set off the loss in their individual assessments and carry forward any unabsorbed loss. The Court emphasized that the issue at hand was whether the unabsorbed depreciation of the current year in a registered firm should be allocated among the partners or not. The Court cited conflicting decisions from various High Courts on the treatment of unabsorbed depreciation, some holding that it should be carried forward and set off against subsequent profits, while others favored allocating it among partners without carry forward. However, the Court clarified that the specific question in this case was limited to the allocation of unabsorbed depreciation for the current year among partners. In conclusion, the High Court held that the unabsorbed depreciation of a registered firm for the current year should be allocated among the partners and upheld the assessment made by the Income-tax Officer. The Court answered the question referred to them in the negative, in favor of the Revenue and against the assessee. A copy of the judgment would be forwarded to the Income-tax Appellate Tribunal, Cochin Bench for further action.
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