Business Use Requirement for Depreciation: deduction allowed only if asset was used or discarded in the relevant accounting year.

The article addresses whether depreciation and discarded machinery deductions under section 10(2) require actual use or events within the accounting year. It applies a temporal attribution principle: deductions must correspond to the profits of the specific previous year and are allowable only where the asset was employed in earning income, depreciated due to that employment, or actually discarded in that accounting year. Outcome: depreciation is not claimable for assets idle outside the year, and discarded machinery claims are admissible only if the discard occurred in the accounting year for which the deduction is sought.

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Issues: (i) Whether the phrase "used for the purposes of the business" in section 10(2)(iv) (as governing section 10(2)(vi)) requires that buildings, machinery, plant or furniture be actually used in the accounting year for which depreciation is claimed; (ii) Whether an allowance under section 10(2)(vii) is admissible for machinery or plant discarded before the beginning of the accounting year in question.

Issue (i): Whether the words "used for the purposes of the business" require actual use during the accounting year for which deduction for depreciation is claimed.

Analysis: The provision for deduction is tied to the profits or gains of the previous year and deductions must correspond to that period. Where an allowance relates to a different period, statute provides specific provisos; absent such proviso the allowance is confined to assets employed in earning income during the accounting year. Depreciation allowance is granted as a consequence of employment of the asset in the business during the relevant year, not for mere physical deterioration while idle.

Conclusion: The phrase means assets must have been used for the purposes of the business during the accounting year; deduction is not admissible for assets not actually used in that year (in favour of Revenue).

Issue (ii): Whether deduction under section 10(2)(vii) is allowable for machinery discarded before the beginning of the accounting year.

Analysis: The claim for discarded machinery falls within the same temporal principle: allowance is confined to events occurring in the accounting year. A claim for machinery discarded can be allowed only if the machinery was actually discarded in the accounting year for which the deduction is claimed.

Conclusion: Deduction for machinery discarded is admissible only where the machinery was actually discarded in the accounting year in question (in favour of Revenue).

Final Conclusion: Both reference questions are answered against the assessee: depreciation and discarded-machinery claims are admissible only in respect of use, depreciation or discard occurring in the accounting year for which the deduction is claimed.

Ratio Decidendi: A deduction for depreciation or for discarded machinery under section 10(2) of the Income-tax Act is allowable only to the extent that the asset was used, depreciated in consequence of earning income, or actually discarded within the accounting year to which the claim relates.

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