Depreciation entitlement: where no prior allowance was made, depreciation is computed on the asset's original cost.

Whether depreciation may be claimed where assets were acquired before July 1, 1953, and no depreciation was claimed or allowed because the assessee was tax-exempt: the court applies the statutory scheme treating written down value as actual cost less depreciation actually allowed, so an exemption from tax or failure to file returns does not create deemed prior allowance. Where no depreciation was actually allowed in earlier assessments, nothing is deductible from actual cost and depreciation for the assessment year must be computed on the original cost; outcome: entitlement to claim depreciation on original cost.

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Issues: Whether depreciation is allowable on the original cost of plant, machinery and other assets acquired and used prior to July 1, 1953, where no depreciation was claimed or actually allowed in prior years because the assessee was exempt from payment of tax.

Analysis: The legal framework comprises the computation provisions for business profits, notably the allowance for depreciation at prescribed percentages on the written down value of assets (Section 10(2)(vi)) and the statutory definition of "written down value" as actual cost less all depreciation actually allowed under the Act (Section 10(5)(b)). Where an asset was acquired before the relevant previous year, the written down value is determined by subtracting from actual cost only such depreciation as has been actually allowed in prior assessments. An exemption from payment of tax does not equate to an exemption from having income computed; however, entitlement to depreciation depends on actual allowance in earlier years. If in prior years no return was filed, no particulars were furnished, no claim for depreciation was made, and no depreciation was actually allowed, there is nothing to deduct from actual cost when computing written down value for the first year in which assessment is made. Precedent supports that an allowable depreciation which was not actually set off or allowed in prior assessments cannot be treated as having been allowed for computing subsequent written down value.

Conclusion: Depreciation for the assessment year must be computed on the original cost (actual cost) of the assets when no depreciation was claimed or actually allowed in prior years; i.e., the assessee is entitled to claim depreciation on the original cost.

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