Kerry v The Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Koylass, C.,Burke, M.,Julumsingh, M. |
| Judgment Date | 02 February 1982 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | I 38 of 1978 |
| Date | 02 February 1982 |
Tax Appeal Board
Koylass, C.; Burke, M.; Julumsingh, M.
I 38 of 1978
T. M. Milne for appellant
B. Roopnarine and Mrs. E. Bridgeman Volney for respondent.
Revenue Law - Appeal vs. additional assessments — Income Tax and unemployment levy — Question whether expenditure had been incurred wholly or exclusively in the production of income — Whether certain machinery qualified for grant on an initial allowance funding as machinery for use in the trade of sand and gravel operations — Appeal allowed — Assessments referred back to respondent for consideration and reassessment by allowing wear and tear and initial allowances.
By notice of appeal filed on 16th October, 1978, the appellant appealed against additional assessments to income tax and unemployment levy in the sums of $35,034,00 and $3,003.40 respectively, for the year of income 1973.
The grounds of appeal were stated as follows:–.4t “(a) Statement of allegations of fact:
(1) The expenses incurred for plant, equipment and necessary repairs and maintenance were stated in the assessment to be $314,111.00 instead of $319,747.00 as claimed;
(2) The sales at the gas station were erroneously stated in the assessment to be $156,281 instead of $153,149.00;
(3) The wear and tear of plant and machinery, including the Agua Santa Plant, of $7,777.00 claimed were disallowed; and
(4) The initial allowance of $75,094.00 on the Readymix operations were disallowed.
(b) Statement of the reasons to be advanced in support of the appeal:
(1) The expenses in (a) (1) above were properly incurred and are adequately documented and are reasonable and ought not to have been disallowed;
(2) The sales in (a) (2) above are properly and conclusively recorded and there ought to have been no reduction thereof;
(3) The wear and tear claimed in (a) (3) is reasonable having regard to the type of machinery and the nature of the operations;
(4) The initial allowance claimed in (a) (4) is reasonable and effectively documented;”
The contentions of the respondent were stated on pages 3 and 4 of the statement of case as follows:–
“(1) That the Income Tax Return submitted by the appellant for the income year 1973 did not reflect the true income of the appellant for the said year of income.
(2) That the audit examination carried out by the respondent revealed:
(a) that the appellant understated income received from sales by $44,281.00 in that the appellant reported $1,230,950.00 in his income tax return and the audit revealed $1,275,231.00.
(b) that the appellant overstated his total expenses for plant, equipment, machinery repairs and maintenance by $5,636.00 in that the appellant reported $319,747.00 in his income tax return and the audit revealed $314,111.00.
(c) that the appellant understated his income from gas station Sales by $3,132.00 in that the appellant reported $153,149.00 in his income tax return and the audit revealed $156,281.00.
(d) that the appellant received $10,000.00 in cash as the consideration given by Seereeram Brothers Limited for the right to extract quarry materials from the appellant's gravel pit — adjacent to W. Scott. This is therefore treated as undisclosed income and added to the appellant's chargeable income.
(3) That the wear and tear allowance of $337.00 claimed by the appellant on the equipment called “Prestman Tiger” was disallowed since this equipment was not in use during the year of income and several years prior to the said year of income.
(4) That the wear and tear allowance of $1,180.00 on the Barge was disallowed since this equipment was not in use during the income year 1973.
(5) That depreciation of $2,387.50 claimed on the car PM 3948 was disallowed since the said car was not registered as being owned by the appellant's company.
(6) That depreciation of $3,873.40 claimed on the Ague Santa Plants and Machinery purchased in late 1973 was disallowed since they were not put in use in the year of income 1973.
(7) That the appellant's claim for Initial Allowance of $75,094.00 was disallowed since the appellant did not qualify for such an allowance under the Income Tax (In Aid of Industry) Ordinance Chapter 33 No. 2.
(8) That although reasonable opportunity was given to the appellant, the appellant failed to satisfy the respondent that the Additional Assessment raised upon the appellant was incorrect.”
In an answer filed by the appellant on 11th November, 1981, he indicated that his appeal would be confined to the disallowance of his claims for depreciation allowance in respect of the Agua Santa plant and for the initial allowances under section 15(1) of the Income Tax (In Aid of Industry) Ordinance Ch. 33 No. 2 referred to hereinafter as “Ch. 33 No. 2”. Section 15(1) of Ch. 33 No. 2 now appears as 16(1) in the Income Tax (In Aid of Industry) Act, Chap. 85:04, of the Laws of Trinidad and Tobago.
Paragraphs 1 and 2 of the answer read as follows:–
“1. The appellant will confine his appeal to the disallowance of his claim for depreciation of the Agua Santa Plant and the initial allowance under the Income Tax (In Aid of Industry) Act Ch, 85:04.
2. The appellant will contend:
(a) that the Agua Santa Plant was on operation in the year 1973 and he is therefore entitled to claim a depreciation allowance in respect thereof;
(b) that the appellant's trade of working mining and processing of the mineral deposits of sand, gravel and stone is a trade within the First Schedule of the said Act and the appellant is entitled to the initial allowance provided in section 16(1) of the Act.”
The relevant contentions of the respondent, in the light of the answer, are therefore those contained in subparagraphs (6) and (7) of the statement of case. The depreciation allowance, referred to at 2(a) above, should properly relate to an allowance for wear and tear in accordance with section 11(1)(b) of the Income Tax Ordinance (hereinafter referred to as “the Ordinance”) and section 16(1) of Ch. 33 No. 2. These read as under –
“11. (1) For the purpose of ascertaining the chargeable income of any person for any year of income from any trade, business, profession or vocation, there shall be allowed –
(b) a reasonable amount for the exhaustion by wear and tear of any plant and machinery, and any buildings used exclusively for housing such plant and machinery owned by him arising out of the use or employment of such plant or machinery in the trade, business, profession or vocation during that year;”
“16. (1) For the purposes of section 11 of the Income Tax Ordinance (which provides, in ascertaining the chargeable income of any person in a trade for the deduction of a reasonable amount for the exhaustion by wear and tear of any machinery arising out of its use in the trade) the machinery or plant in use at the end of the basis period shall, in the case of the year of assessment in which the appointed day falls or any subsequent year of assessment be taken to be the machinery or plant used for the purposes of the trade during the year.”
The other issue involves consideration of section 15(1) of Ch. 33 No. 2, which reads as under –
“15. (1) Where, on or after the appointed day, a person carrying on a trade incurs capital expenditure on the provision of machinery or plant for the purposes of the trade, there shall be made to him, for the year of assessment in the basis period for which the expenditure is incurred, an allowance (in this Part of this Ordinance referred to as “an initial allowance”) equal to one-fifth of the expenditure.”
Section 1(2) of Ch. 33 No. 2 and item 3 of the First Schedule thereof are also relevant. These read as under –
“1. (2) This Ordinance shall, except as may be otherwise expressly provided therein, be applicable to the trades specified in the First Schedule hereto:
Provided that the President may from time to time vary the said Schedule by adding thereto any other trade.”
“This Ordinance shall, except as may be otherwise expressly provided therein, be applicable to the following trades:–
3. The working of any mine, oilwell, or other source of mineral deposits and the manufacture, refining and processing of oil and other minerals and their derivatives.”
The record discloses that as a result of an audit examination of the appellant's tax affairs for the year of income 1973, he had been informed in a tax audit report, submitted under cover of a letter dated 20th July, 1977, of the disallowance by the respondent of his claims, inter alia, for wear and tear in respect of the Agua Santa plant and for initial allowances under section 15(1) of Ch. 33 No. 2. The reasons given therein were, respectively, as follows: –
(a) “Depreciation on the Agua Santa Plants, Machinery purchased in late 1973 is disallowed since they were not put in use in the year of income. Add back $3,873.00.”
(b) “Your claim for Initial Allowance is disallowed since you are not carrying on a qualifying trade under the IN Aid of Industry Ordinance.”
The statement of accounts submitted with the appellant's tax return reveals that the total of $75,094, claimed as initial allowances, was in respect of the following:–
Motor Vehicles Capital Expenditure Initial Allowance
$ $
(1) Cement Mixers:
2 Readymix Trucks
TM 7145/46 – 142,017.08 – 28,403.41
(2) Other Vehicles:
4 Nissan Dump Trucks
TO 7249/52 – 101,700.00)
Toyota Markir
PM 3948 – 9,549.80)
Truck TM 2758 –20,118.45)
Toyota Crown
TM 5344 – 10,411.80
Plant and Machinery Light and heavy:
Batching Plant — 33 575.11
Agua Santa Plant and Machinery — 58,101.00)
– 375,473.24
– 281356.01
– 18,335.22
– 75,094.64
We now proceed to consider the evidence as it relates to the two issues.
The appellant testified that he had acquired the Agua Santa Quarry some time after April 1973. The area of the...
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