1. When the cup is being filed with the during it cannot be said that one is engaged in drinking. A similar question arises when depreciation is claimed in respect of a building constructed in the course of the erection of a new plant. Can depreciation allowance be claimed for the building for a period :

(1) before the completion of the installation of machinery in the said building;

(2) before it starts functioning effectively;

(3) before the production (even trial run) is commenced and the business of the company of manufacturing an article with the aid of the said machinery has commence ?

2. Can depreciation be allowed in these facts and circumstances when it is allowable upon the property being used for or in the business of the said unit of the compan ? In other words, the question is whether it can be said that the building has been used in the business even before the articles, for production of which the plant is set up, have not been produced and the machinery itself has become functional later on. This question has arisen in the background of the following facts.

3. An existing company installed a new plant for the manufacture of dyestuffs and pigments. In the course of the erection of the plant a building meant for housing the machines was erected. Some time later, the work of installing the machinery in the building commenced. There is no clear evidence but a finding has been recorded to the effect that the installation of the machinery was completed before March 1, 1965.. It is common ground that the machinery started functioning with effect from March 7, 1965. A question regarding the claim for depreciation has arisen in the context of these facts. Having regard to the relevant rules, the assessee would be entitled to claim appropriate depreciation in case it is held that the building has been used by the assessee for the purpose of his business from a point of time prior to March 1, 1965, i.e., from a point of time when the machinery was being installed in the building. On the other hand, if the view is taken that on a true interpretation of he rule in question it can be said that the building has been used by the assessee for the purpose of his business only with effect from March 7, 1965, on which date the machinery started functioning, the assessee musts fail.

4. The ITO and the AAC of Income-tax, Ahmedabad, took a view adverse to the assessee. the assessee succeeded before the I. T. Appellate Tribunal (hereinafter referred to as "the Tribunal") in the appeal preferred by the assessee-company. Thereupon at the instance of the revenue, the following question has been referred to this High Court for our opinion under s. 256(1) of the i. T. Act, 1961 (hereinafter referred to as "the Act") :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the `Azo' building was used for the purposes of business for more than one month in the relevant accounting year for the assessment year 1965-66 and was entitled to depreciation in the said assessment yea ?"

5. The view taken by the Tribunal is that the date on which the machinery installed in the building became functional is irrelevant. What is relevant is the date on which the machinery was installed in the building. Now, provisions on which reliance is placed for claiming depreciation allowance, namely, s. 32(1) read with r. 5, as they stood at the relevant time (relevant for the assessment in question, i.e., 1965-66) may be quoted.

Section 32(1), so far as it is material for our purpose, reads as under :

"32. (1) In respect f depreciation of building, machinery, plant or furniture owned by the assessee and used for the purposes of the business or profession, the following deductions shall, subject to the provisions of section 34, be allowed.......

(ii) in the case of buildings, machinery, plant or furniture, other than ships covered by clause (i), such percentage on the written down value thereof, as may in any case or class of cases be prescribed....."

Rule 5 of the Rules, so far as it is material for our purpose reads as under :

"5. Depreciation. - (1) Subject to the provisions of sub-rules (2) and (3), the allowance under clause (i) or clause (ii) or sub-section (1) of section 32 in respect of depreciation of buildings, machinery, plant or furniture shall be at a percentage of the actual cost or the written down value, as the case may be, equal to (i) 100 per cent., (ii) fifty per cent., or (iii) nil per cent. of the number shown in the corresponding entry in the second column of the statement in Part I of Appendix I to these Rules according as the buildings, machinery, plant or furniture, have been used by the assessee in his business or profession during the previous year, (i) for a period of 180 days or more, (ii) for a period of less than 180 days but more than thirty days, or (iii) for a period of thirty days or less than thirty days, respectively......."

6. It must be realised that what was being erected was a new plant though it was being erected by an existing company. the machines which were installed in the building in question in respect of which depreciation allowance is claimed became functional only on March 7, 1965. The business of the company was to manufacture dyestuffs, etc. The production of dyestuffs could not have commenced before March 7, 1965, the date on which the machines became operative. Under the circumstances, can it be said that the building was used by the assessee for the purpose of his business at a point of time when the machines, had not become functional, merely because the machines had already been installe ? In order to succeed, the assessee must establish -

(1) that the building in question was used for the purpose of his business, and (2) that it was used for the purpose of his business during the relevant period.

7. Now, attention must be focused on the expression "have been used by the assessee in his business or profession during the previous year". The emphasis is on "user " of the building "in the business of the assessee". Mere preparation for the user cannot amount to user. There must be actual, effective and real user in the commercial sense. And the user must be so linked with the business that it can be said that there is an immediate nexus between the user and the business, i.e., the real business of the assessee. The business of the assessee was to produce the dyestuffs, etc. The building was used for the purpose of business of production of dyestuffs only after the machine became operative with effect from March 7, 1965. Counsel for the assessee had argued that the machines had first to be installed before these machines could be operated. The user had, therefore, it is so argued, commenced on the date on which the installation was completed. In fact, if this argument were valid, it can be said that the user had begun as soon as the work of installation had commenced regardless of when it was completed. In our opinion, there is a built-in fallacy in this argument. the fallacy will become evident if the argument is tested by evisionsing an hypothetical situation. Take the case of a building which was completed, say in 1970, and the installation of the machinery was commenced in 1971, but could not be completed, for say five years thereafter, till 1974. Could it then be contended that the building was "used" for the purpose of the "business" of the assessee and could the assessee have claimed depreciation for these five year ? Five years even before the machinery became functional and the plant was commissione ? In Other words, even before it could have commenced trial production let alone actual productio ? The answer is obviously "no". Depreciation, it must not be overlooked, if inseparable from the actual user for business. And, depreciation allowance in permissible only on that account. It is not an allowance for natural wear and tear by reason of the aging process. In a way, every, building must have started aging from the day it was constructed. But depreciation cannot be claimed in that behalf by way of compensation for such diminution in life span and value. It is claimable only on account of its user for business which can result in profits or gains. This can happen only when production commences. Another illustration may also make the position abundantly clear. Take the case of a factory which has totally closed down its business operations for five years during which it does not operate the factory or work for profit or gain. Can depreciation be claimed for this period notwithstanding this facto ? In our opinion, therefore, the commencement of the business by way of the production of the articles for the manufacture of which the plant was being set up is an essential precondition for holding that the business of the company had started. If the business had not started till then, there was no question of claiming depreciation for using a particular building or machinery "in the business". A somewhat similar question had arisen before this court in I. T. R. No. 205/74, decided on October 19, 1978. (Addl. CIT v. Speciality Paper Ltd. - see supra p. 879). Depreciation was claimed by the assessee with effect from the date on which trial production was commenced. It appears that there was a time lag between the date when the trial production commenced that a date when the actual production commenced. The court took the view that the date on which the trial production commenced was irrelevant for the purpose of claiming depreciation and that it cannot be said that the company had set up its business at the point of time when the trial production had commenced. In other words, the company had not commenced its business from the standpoint of the right to claim depreciation for the user of a building or machine in the business of the assessee-company. Under the circumstances, the reversing the view taken by that the ITO as confirmed by the AAC and in deciding the question in favour of the assessee. We, therefore, answer the question referred to us, as under :