Depreciation on leased equipment allowed when asset is put to use in leasing business, even before lessee's physical installation.

In a leasing business, equipment purchased and put on lease during the relevant year was treated as used for the assessee's business for depreciation purposes. The Court held that "used" under section 32 is not limited to the assessee's own physical operation of the asset; earning lease rent from the asset's deployment in the leasing business is sufficient. The comparable treatment under section 32A supported this construction. Depreciation was therefore allowable, even though the lessee's physical installation or use may have occurred later.

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Issues: Whether depreciation under section 32 of the Income-tax Act, 1961 is allowable where the assessee, engaged in leasing business, had purchased equipment and given it on lease during the relevant previous year, though the lessee's physical installation or use may have occurred later.

Analysis: The expression "used" in section 32 is not confined to the assessee's own physical operation of the asset. In the context of a leasing business, the asset is employed in the assessee's business when it is put on lease and lease rent is earned. The reasoning adopted in the comparable investment allowance provision under section 32A, where the machinery leased out was treated as used for the assessee's business, supports a similar construction of section 32. The decisive test is whether the asset was used for the purposes of the assessee's business, not whether the lessee had actually put it to physical use.

Conclusion: Depreciation was rightly allowed to the assessee, and the Revenue's challenge failed.

Ratio Decidendi: Where the assessee's business is leasing, an asset given on lease is treated as used for the purposes of the business for depreciation under section 32, even if the lessee's physical use is not established.

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