The unabsorbed depreciation of the earlier years should be deemed to be part of the allowance contemplated by section 32(1) of the Income Tax Act, 1961, and the computation of the taxable income should be made on that basis. Section 80J cannot override section 32(2) and the relief under section 80J can be considered only after giving effect to the provisions of sections 32(2), 33(2), and 41(2).

RAMANUJAM J.

At the instance of the Revenue, the following common question of law has been referred to this court

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal's findings that for the purpose of computing the profits of the industrial undertaking under section 80J(1), the unabsorbed depreciation of the earlier years will have to be set off last after the determination of the current year's relief under section 80J is sustainable in law ?" *

The assessee is a co-operative society and the ITO computed its total income for the assessment year 1971-72, as follows

Rs Rs Rs

Interest on securities 2, 000

Business income before allowance of depreciation 11, 51, 247

Less : Depreciation for current year 5, 58, 678

Brought forward depreciation 6, 36, 173 11, 84, 860(sic) 412

33, 613 (sic) 2, 412

Balance depreciation to be carried forward 31, 201 Development rebate

Assessment years Rs

1967-68 7, 20, 405

1968-69 66, 559

1969-70 nil

1970-71 1, 16, 270

1971-72 27, 324

9, 30, 558

The assessee was entitled to deduction under s. 80J to the extent of Rs. 2, 81, 972 for the said assessment year. As the income computed was loss, the ITO held that the said sum of Rs. 2, 81, 972 will be carried forward and set off against the income, if any, in the subsequent years. Similarly, for the assessment year 1972-73, the ITO computed the income as under

Rs. Rs. Rs

Interest on securities 2, 000

Business-spinning mills-income before

depreciation 13, 75, 960

Inadmissible as per audited statement 4, 000 13, 79, 960 Less . Current depreciation 5, 47, 904

2. Allowance u/s. 32(1)(v) 13, 789

3. Bonus actually paid 80, 078

4. Brought forward depreciation 31, 201 6, 72, 972 7, 06, 988

Less : Brought forward development rebate 9, 03, 234 1, 96, 246Current year development rebate 67, 350 2, 63, 596 Remaining development rebate to be carried forward 2, 61, 596

The ITO computed the relief to which the assessee was entitled under s. 80J at Rs. 2, 90, 226 and directed that this should be carried forward and set off against the income, if any, in the subsequent years

The assessee appealed to the AAC in respect of the assessment for both the assessment years 1971-72 and 1972-73. The AAC affirmed the order of the ITO. Thereafter, the assessee appealed to the Tribunal. Before the Tribunal, the assessee questioned the method of computation of the profits of a new industrial undertaking for the purpose of working out the relief under s. 80J. According to the assessee, the relief under s. 80J should be given first before allowing deduction for carried forward loss or carried forward development rebate or carried forward depreciation. The Tribunal held that the carried forward loss and the unabsorbed development rebate of the earlier years have to be taken note of before granting relief under s. 80J. But the carried forward unabsorbed depreciation will, however, be taken note of only after granting the relief under s. 80J. The decision of the Tribunal so far as it relates to the unabsorbed development rebate and the carried forward business loss is against the assessee. The assessee has not questioned it by seeking a reference. Therefore, the view of the Tribunal that the carried forward unabsorbed loss or the unabsorbed development rebate has to be deducted in the computation of total income first before working out the relief to which the assessee is liable under s. 80J is not under challenge before us. It is only the view taken by the Tribunal that the unabsorbed depreciation will have to be set off lastly after working out the relief under s. 80J that is challenged by the Revenue. Therefore, the only question we are called upon to consider in this case is whether the unabsorbed depreciation, which is carried forward from the earlier years, could be deducted first before the relief under s. 80J is worked out and deducted from the current year's profits. The reasoning of the Tribunal is contained in paragraph 14 of the order which is as follows

"The brough