Licence-based business discontinuance defeats depreciation and business expense claims when no lawful trading activity occurs.

Absence of a valid liquor licence under the State excise law prevented the assessee from lawfully carrying on wholesale liquor business, so the inactivity was treated as a legal discontinuance rather than a temporary lull. On that basis, depreciation under section 32 was not allowable because the assets were not used for business, and business expenditure under section 37(1) failed because it was not incurred wholly and exclusively for a lawful business operation. The claimed stock transfers at cost and the absence of purchases or sales reinforced the finding that no genuine business activity was carried on during the year.

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Issues: (i) Whether, on the facts, the absence of a liquor licence resulted only in a temporary lull in the assessee's business or in a legal discontinuance of business; (ii) Whether depreciation and other expenses were allowable when no wholesale liquor business was carried on during the year.

Issue (i): Whether, on the facts, the absence of a liquor licence resulted only in a temporary lull in the assessee's business or in a legal discontinuance of business?

Analysis: The assessee had no licence during the relevant year and, therefore, could not lawfully carry on wholesale liquor . The statutory scheme under the State Excise law made unlicensed possession, sale, or dealing in liquor punishable. The record also showed that no purchases or sales were carried out in the ordinary course of business and that the stock was merely transferred at cost. In these circumstances, the absence of activity was not a temporary lull but a legal bar to carrying on the business.

Conclusion: The issue is answered against the assessee and in favour of the Revenue.

Issue (ii): Whether depreciation and other expenses were allowable when no wholesale liquor business was carried on during the year?

Analysis: Depreciation under section 32 is available only where the assets are used for the purpose of business or profession, and revenue expenditure under section 37(1) must be laid out wholly and exclusively for the purpose of business. Since no business activity was carried on during the year and the claimed expenditure was not connected with any lawful business operation, the statutory conditions for allowance were not satisfied. The prohibition created by the excise law also prevented the expenditure from being treated as incurred for the purpose of business.

Conclusion: The issue is answered against the assessee and in favour of the Revenue.

Final Conclusion: The majority held that the assessee was not merely experiencing a temporary lull but was legally prevented from carrying on business during the year, so the claims for depreciation and business expenditure failed.

Ratio Decidendi: Where the assessee has no legal licence to carry on a regulated business and the law prohibits the activity itself, the absence of operations is a discontinuance rather than a temporary lull, and depreciation or business expenditure cannot be allowed unless the statutory conditions for business use are met.

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