Business use of leased assets supports depreciation and investment allowance where leasing forms part of the assessee's activity.

Leased workers' quarters constructed by the assessee were treated as having a continuing business nexus because the lease income was assessed as business income; on that basis, depreciation under section 32(1)(iv) remained available even though the quarters were not occupied by the assessee's own workers. For plant and machinery leased out by the assessee, investment allowance under section 32A was considered admissible where leasing formed part of the assessee's business activity and the assets were used for the purposes of that business. The note treats leasing as a business incident capable of satisfying the statutory use requirement when the income is business income.

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Issues: (i) whether depreciation at 40% was admissible under section 32(1)(iv) on workers' quarters constructed by the assessee and leased along with the plant, and (ii) whether investment allowance was admissible under section 32A on plant and machinery leased out by the assessee.

Issue (i): whether depreciation at 40% was admissible under section 32(1)(iv) on workers' quarters constructed by the assessee and leased along with the plant.

Analysis: The quarters were let out as part of the plant, and the income from the lease was assessed as business income. On that footing, the asset retained a nexus with the assessee's business, and the fact that the quarters were not used by the assessee's own workers did not by itself negate entitlement to depreciation.

Conclusion: Depreciation was rightly allowed, and the issue was decided in favour of the assessee.

Issue (ii): whether investment allowance was admissible under section 32A on plant and machinery leased out by the assessee.

Analysis: The allowance under section 32A depends on ownership, use for the purposes of the assessee's business, and the asset falling within the specified category. Leasing of machinery may still amount to use for the purposes of the assessee's business where leasing is an incident of the business and the income is assessed as business income. The assessee's case satisfied that principle, and the contrary view was treated as distinguishable on its facts.

Conclusion: Investment allowance was rightly allowed, and the issue was decided in favour of the assessee.

Final Conclusion: The reference was answered against the revenue on both questions, affirming the allowance of depreciation and investment allowance claimed by the assessee.

Ratio Decidendi: Where leased assets generate business income and leasing forms part of the assessee's business activity, the assets may be treated as used for the purposes of that business for depreciation and investment allowance claims.

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