US SUPREME COURT DECISIONS

The Internal Revenue Code of 1939, § 23(1), permitted the deduction for income tax purposes of a "reasonable allowance for the exhaustion, wear and tear . . . of property used in the trade or business." The applicable Treasury Regulations 111, § 29.23 (1)-1, defined such allowance to be

"that amount which should be set aside for the taxable year in accordance with a reasonably consistent plan . . . whereby the aggregate of the amounts so set aside, plus the salvage value, will, at the end of the useful life of the depreciable property, equal the cost . . . of the property."

Held: as applied to automobiles leased by the owner-taxpayers to others or (in the case of dealers) used by them or their employees in their business, and later sold as second-hand cars (not junk), the depreciation allowance is to be calculated on a base of the cost of the cars to the taxpayers less their resale value at the estimated time of sale, spread over the estimated time they actually will be employed by the taxpayers in their business. Pp. 364 U. S. 93-107.

(a) Congress intended that, under the allowance for depreciation, the taxpayer should recover only the cost of the asset less its estimated salvage, resale or second-hand value. P. 364 U. S. 107.

(b) For the purpose of the depreciation allowance, the useful life of the asset must be related to the period for which it may reasonably be expected to be employed in the taxpayer's business. P. 364 U. S. 107.

264 F.2d 552 affirmed.

264 F.2d 502 reversed. chanrobles.com-red

Page 364 U. S. 93