In the 1942 case of Interstate Transit Lines v. Commissioner of Internal Revenue, the Supreme Court ruled on a dispute regarding tax deductions for depreciation. The petitioner, Interstate Transit Lines (ITL), argued that they should be allowed to deduct from their taxable income an amount representing depreciation on their bus fleet. They claimed this was necessary due to wear and tear as well as obsolescence over time. However, the Commissioner of Internal Revenue denied these claims stating that ITL had not proven any loss in value beyond normal repairs and maintenance which were already accounted for separately. The Supreme Court sided with ITL ruling that taxpayers are entitled to annual allowances for exhaustion, wear and tear including obsolescence of property used in trade or business under Section 23(l) of the Revenue Act of 1936 even if there is no proof showing actual decrease in market value during each year's operation provided it can be shown that useful life will eventually end within a determinable period because such factors do cause gradual diminution in value.

In the dissenting opinion for the case of Interstate Transit Lines v. Commissioner of Internal Revenue, it was argued that the majority's decision to allow a deduction for depreciation on leased buses contradicted established tax principles and unfairly favored certain businesses over others. The dissenting justices believed that allowing such deductions would create an imbalance in taxation as only those who lease their equipment could benefit from this provision while those who own their equipment outright could not. They also pointed out that there is no actual loss or expenditure incurred by lessees under these circumstances since they do not bear any risk associated with ownership, making it unjustifiable to grant them a depreciation allowance meant to compensate owners for wear and tear on property used in business operations. Furthermore, they expressed concern about potential abuse where companies might structure transactions specifically to take advantage of this loophole in tax law.