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TMI Blog1979 (1) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... unabsorbed depreciation allowance of 1967-68 brought forward to the extent of Rs. 40,29,734. After making those adjustments it was found that the unabsorbed depreciation of 1967-68 was Rs. 26,29,705. He deducted certain capital gain amounting to Rs. 8,816 from the said sum resulting in the unabsorbed depreciation allowance of 1967-68 to be carried forward at Rs. 26,20,889. Since there was no balance of income left for setting off the unabsorbed development rebate allowable under s. 33 of the I.T. Act (hereinafter referred to as "the Act"), brought forward of 1966-67, he did not give a set-off in that regard. Aggrieved by the order of the ITO declining to set off the unabsorbed development rebate before setting off the depreciation allowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al was right in law in holding that the unabsorbed depreciation allowance of a later year should first be considered and set off before considering for set off the unabsorbed development rebate of an earlier year ? " Although there are two questions referred to us the only question which arises for consideration as stated by Sri T. V. Natarajan, learned counsel for the assessee, is : " whether the unabsorbed development rebate should be treated as part of loss which is allowed to be carried forward and allowed to be adjusted under s. 72(2) before the unabsorbed depreciation allowance under s. 32 can be set off against the income of a business while computing the tax liability of the assessee ? " In so far as the current year's depreci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (2), namely, 'where any allowance or part thereof is to be carried forward', referred to a situation wherein provisions relating to the deeming fiction contemplated by sub-section (2) of section 32 come into play. According to Shri Shah, therefore, sub-section (2) of section 72 comes into play not merely where the question of the adjustment of carried forward allowance arises, but also where the deeming fiction contemplated by sub-section (2) of section 32 comes into existence. Since, according to this deeming fiction, carried forward depreciation allowance is to be added to the current year's depreciation allowance, and is to be treated as such, effect to sub-section (2) of section 72 can be given only by giving priority to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72 have to be worked out, since the impact of sub-section (2) of section 72 is only on 'carried forward allowance', it must follow that at the time of working out sub-section (2) of section 72, the concept of the deeming fiction should not enter into our consideration. Thus, the extent and the operation of the said deeming fiction of section 32(2) are thus circumscribed and limited by the operation of section 72(2)." It is seen from the extract of the decision of the Gujarat High Court set out above that but for s. 32(2) being made subject to s. 72(2), by reason of the legal fiction enacted in s. 32(2), the entire unabsorbed depreciation allowance would have been treated as current year's depreciation and deducted even before the carried ..... X X X X Extracts X X X X X X X X Extracts X X X X
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