1. In this reference made under s. 256(1) of the I.T. Act, 1961 ("Act" called shortly), the following question has been referred for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the unabsorbed depreciation allowance of Rs. 39,543 for the assessment year 1973-74 cannot be allowed to be adjusted while computing the income of the assesses firm in the assessment year 1973-74 ?"

2. The answer to this question turns on the scope of s. 32(2) of the Act which has given rise to acute conflict of judicial opinion.

3. The facts behind the legal formulation are as follows :

Unabsorbed depreciation of Rs. 1,14,779 in the assessment of the assessee, a registered firm, was left to be adjusted against the individual income of the partners under s. 32(2) for the assessment year 1972-73. After setting it off against the individual income of its partners for the same assessment year, a sum of Rs. 39,543 still remained being unabsorbed.

4. It was claimed on behalf of the firm in its assessment for the assessment year 1973-74 that the said balance of unabsorbed depreciation should be set off against its income as