Facts
The taxpayer (as lessor) is a company in the finance industry. 2. Under a written sale and leaseback agreement, the taxpayer purchased from company "O" assets, which it leased back to O for a specified term. 3. Some nine months earlier O, by written purchase agreements, bought the assets from another company "S", for a set price. S, in turn, had purchased the assets for a lesser amount. 4. In its income tax returns the taxpayer claimed a deduction for depreciation of the assets using the actual purchase price, which was greater than the purchase price that O had paid for the assets. The Commissioner was required to consider whether the amount of depreciation that should have been allowed should have been calculated based on the price S paid for the assets. 5. The taxpayer argued that the Commissioner ought to have exercised his discretion under subsection 60(2) of the ITAA 1936 to disregard the limitation placed by subsection 60(l) of the ITAA 1936 on the permissible depreciation base. Depreciation, it claimed, ought to have been allowed on the taxpayer's actual purchase price.