Montai v Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Barnes, C. |
| Judgment Date | 17 December 1985 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | I 37 of 1982 |
| Date | 17 December 1985 |
Tax Appeal Board
Barnes, C.; Burke, M.; Seemungal, M.
I 37 of 1982
Mr. C. Phelps for appellant
Mrs. I..Ramoo-Haynes for respondent
Revenue Law - Appeal against assessment to income tax — Whether work undertaken on appellant's property was of a capital nature or in nature of repairs — Evidence that expenditure was on repairs and therefore allowable as a deduction pursuant to Income Tax Ordinance, ss. 5(1)(h), 10(1), 12(c) and (d).
By notice filed on 13th January, 1982, the appellant disputed assessment to income tax in the sum of $20,749.35 for the year of me 1977.
The grounds of appeal were —
“(a) Statement of allegations of fact, The appellant's 1977 Income Tax Return was submitted on 2nd June, 1978 showing a refund of Tax in the amount of $8,788.70. An assessment was raised in 1980 and a notice of assessment dated 10th December was issued showing tax payable of $20,749.35. By letter dated 18th December, 1980 formal notice of objection to the assessment was given to the respondent. On 25th March 1981 more detailed reasons for the objection were submitted after receipt of the relevant audit report which showed that claims totalling $57,000.00 for repairs were disallowed on the grounds that the nature and extent of the work carried out strongly suggested Let the property was not habitable at the time of acquisition and cost was therefore of a capital nature. The objection was overruled by the respondent and the assessment confirmed by letter dated 16th December, 1981.
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(b) Statement of the reasons to be advanced in support of appeal
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(i) The assessment is excessive, incorrect and not in accordance with the facts presented.
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(ii) The work undertaken on the appellant's property was not of a capital nature and the property was habitable at the time of acquisition.”
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In paragraph 15 of an amended Statement of Case filed by the respondent on June, 1985 its contentions were stated as under –
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“(1) That during the year of income 1977 the appellant/owner did not use his property at No. 9 St. Andrews Terrace, Maraval as a residence in accordance with Section 5(h) of the Income Tax Ordinance Chapter 33 No. 1.
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(2) Alternatively, even if the said property was used as a residence in accordance with S. 5(h) of the Ordinance the nature and extent of the works carried out on the said property constituted improvements and/or renovations, and were therefore of a capital nature and not allowable as a deduction.
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(3) Alternatively, even if the said property was used as a residence in accordance with Section 5(h) of the said Ordinance, the nature and extent of the works carried out upon acquisition of the said property were of a capital nature, and were therefore, not allowable.
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(4) That in accordance with Section 39(2)(b) of the Ordinance, the respondent was entitled to refuse to accept the return and to the best of its judgment, determine the amount of the chargeable income of the appellant and assess him accordingly in respect of the year of income 1977.
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(5) That although every opportunity was given to the appellant he failed to support his claim that the sum of $57,000.00 expended on the said property was not capital expenditure.”
At the hearing, Counsel for the respondent informed the Court that his submissions would be restricted to (3), (4) and (5) above. The respondent also maintained that the said assessment is justified both in law and in fact.
The issue for determination is whether the expenditure of $57,000.00 is to be treated as capital expenditure to be disallowed as a deduction in computing the chargeable income of the appellant for the year of income 1977.
The appellant testified on his own behalf and one other witness was called — David Hardy a Chartered Accountant and a senior partner in the firm of Pannell, Forster, Chartered Accountants. The respondent called no witness.
The appellant testified as under –
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(1) On 4th May, 1977 he had returned to Trinidad and Tobago to resume his residence after a tour of duty as this country's Ambassador to Brazil.
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(2) He took up residence in rented accommodation at No. 60 Ellerslie Park from the day of his arrival, and gave notice that he would vacate the said premises at the end of August, 1977 as he had arranged to purchase a residence.
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(3) Purchase of the property No. 9 St. Andrews Terrace Maraval, (hereinafter referred to as the property) was completed on 30th August, 1977 and he took up residence on 1st October, 1977, the former resident having vacated the previous day.
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(4) The house teas apparently ready and fit for occupation, and he had moved his personal belongings into it.
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(5) He considered that there was need for some touching up of the ceiling, and arranged for a painter to commence work on the day he moved in. The painter immediately observed that the celotex was in a bad state and came away from the beams when painting was attempted. Soon it became apparent that the beams and indeed the entire ceiling were rotted and affected by wood lice.
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(6) In these circumstances, he had had to undertake a comprehensive programme of work involving replacing the ceiling, roof covering and rafters as well as a complete rewiring of the property.
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(7) As a result of a decision that a major programme of work should be undertaken, he vacated the premises after one night and was successful in arranging to renew his tenancy at Ellerslie Park.
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(8) While effecting the works referred to earlier, it was found that the plumbing was in a state of disrepair and additional work had to be undertaken in that regard.
The appellant stressed that the expenditure on the work programme undertaken had not been anticipated. He had paid $350,000.00 for the property, for which the asking price had been $300,000.00 when he had made inquiries from the owner in April, 1977 about purchasing it. At that time, he had come to Trinidad from Brazil on official duty, had seen the property and considered it suitable for his residence. He expressed the view that he had paid more than the market price for the property.
Witness was subjected to cross examination by Mrs. Ramoo-Haynes, during which the following relevant testimony was adduced–
- The appellant's wife first saw the property in mid May, 1977 and had found it up to standard. Ultimate purchase depended on whether she liked it and agreed to its acquisition. 2. Around April to May, 1977, when the appellant had first viewed the property, he was impressed by its good location, its apparent sound condition and its suitability for immediate occupation. He had not enquired about the age of the property, but had estimated it to be about thirty years old. 3. Despite its age, the property did not appear to require other than minor work of a cosmetic nature.
During cross examination, the witness provided details of additional work which been undertaken, and which became apparent as the repair work progressed. This included plumbing, toilet pipe repair and replacing toilet bowls which were broken during the repair work. He stated that he had owned a house in San Fernando which had been 50% larger than the property and which he had sold for one third of the price paid for the property. That house had been in good condition (not just apparent good condition), and he had assumed that the property would be so, as in his view, it had been owned by a person whose social and financial standing was not dissimilar to his own.
The attention of the witness was called to a letter dated 24th November, 1981 from his firm of Accountants to the respondent (folio 11 of file) in which it had been stated inter alias that “Mr, Montano moved into the house about the first week of January, 1978 but work continued on the building until the end of March.” In this regard, the witness reiterated that he had first moved into the property on 1st October, 1977 and had left next morning. He added, that he could have stayed on throughout the period during which repair work was carried on, but would have been at tremendous inconvenience to him, his wife and his daughter.
The appellant having testified that in the past, he had engaged in having houses erected on lands owned by him; he was asked whether from his experience, he would agree that the completion of major repairs as had been done on the property, would have enhanced the value of it. He replied in the negative and added that an extension to a property would enhance its value but not repairs. The attention of the witness was called to the following from a letter dated 3rd ember, 19713 from his firm of Accountants to the respondent (folio 74 of file) –
“Our client purchased his new home early in 1977 and commenced certain minor repairs. The property, which is about thirty years old, had not been very well maintained by the previous owner and it soon became apparent, when carrying out the repairs, that fairly major repairs were necessary.”
In answer to a question as to whether he would have purchased the property had that information been available to him at the time of purchase, he replied, that he might have but that he would have sought a price reduction. On being asked what reduction he would have sought, his answer was “that is difficult to say, I may have offered 550,000.00 less.”
The other witness for the appellant was David Hardy. He testified that he had commenced his articles in the United Kingdom in 1954, had completed his finals in 1959 and was admitted as a Chartered Accountant of the Institute of England and Wales in 1960. Since 1969, he had been the partner in Pannell, Kerr, Forster in charge of the firm's tax practice. He had been responsible for the tax affairs of the appellant from that time and before (since 1967). He had worked on the appellant's tax return for 1977.
He testified as under –
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