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Interpretation of the proviso to Section 10(2)(vi) of the Indian Income-tax Act regarding unabsorbed depreciation and its treatment in subsequent assessment years. Analysis: The case involved a reference made by the Income-tax Appellate Tribunal regarding the treatment of unabsorbed depreciation at the end of the year 1938-39 for the assessment years 1941-42, 1942-43, and 1943-44. The assessees, a US-based company owning steamships, contended that the unabsorbed depreciation from 1938-39 should be carried forward for depreciation allowance in subsequent years. The Income-tax Officer and Appellate Assistant Commissioner initially disallowed this claim, stating it should have been raised in the assessment for 1940-41. However, the Appellate Tribunal disagreed, allowing the matter to be raised in subsequent assessments. The key issue was the interpretation of the proviso to Section 10(2)(vi) of the Income-tax Act regarding the treatment of unabsorbed depreciation in calculating depreciation for the year 1939. The proviso to Section 10(2)(vi) underwent significant amendments in 1939 and 1940. Before the amendments, the allowance for depreciation included adding unabsorbed depreciation from the previous year to the statutory percentage for the current year. The amendments introduced changes to the basis of depreciation calculation and limited the carry-forward of unabsorbed depreciation. The court analyzed the pre-amendment provisions and concluded that the allowance for depreciation in 1939 should include both the statutory percentage for that year and the unabsorbed depreciation from 1938. The court emphasized that the unabsorbed depreciation had to be added to the statutory allowance, forming the total depreciation allowance for a particular year. The court clarified that the 1940 Amendment Act did not affect the case as the unabsorbed depreciation for the year ending on 31st December 1939 could be added to the allowance for succeeding years. The judgment highlighted that the allowance for 1939 should be calculated based on the pre-amendment provisions, requiring the inclusion of unabsorbed depreciation from the previous year. The court rejected the view that the allowance for 1939 was limited to the statutory percentage, emphasizing that it also encompassed the unabsorbed depreciation. Consequently, the court ruled in favor of the assessees, holding that the Tribunal's question should be answered in the negative, affirming the right of the assessees to the costs of the proceedings. In conclusion, the judgment centered on the correct interpretation of the proviso to Section 10(2)(vi) of the Income-tax Act regarding the treatment of unabsorbed depreciation in determining the depreciation allowance for the year 1939 and subsequent assessment years. The court's analysis of the pre-amendment provisions underscored the mandatory inclusion of unabsorbed depreciation in calculating the total depreciation allowance for a specific year, leading to a favorable decision for the assessees.
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