Seemungal v The Board of Inland Revenue

JurisdictionTrinidad & Tobago
JudgeBarnes, S.C.
Judgment Date15 December 1994
CourtTax Appeal Board (Trinidad and Tobago)
Docket NumberNos. I 253 - I 255 of 1989
Date15 December 1994

Tax Appeal Board

Barnes, S.C.; Burke, Mem.; Dean-Maharaj, Mem.

Nos. I 253 - I 255 of 1989

The Board of Inland Revenue

Mr. S. Seemungal for the appellant.

Mrs. E. Bridgeman-Volney for the respondent.

Revenue law - Income tax — By audit reports the respondent sought to disallow claims for expenditure in amounts of $40,024.00 and $6,329.00 for the income years 1984 and 1985 respectively — Appellant submitted that the respondent was not justified in disallowing bona fide expenses for the year in respect of maintenance and repairs of owner — occupied property — Whether the respondent had properly disallowed the expenses on the grounds that they were of a capital nature — Held that the respondent failed to establish a prima facie case of expenditure on additions, improvements or capital work of any kind in the relevant years — Appeals allowed.

Barnes, S.C.

By notices of appeal of 28th July, 1989, the appellant disputed assessments to income tax and unemployment levy for the income years 1984 and 1985, during which he was employed as an Accountant. For those years, he had filed returns showing chargeable income of $19,849.48 for 1984 and $10,947.82 for 1985.


By audit reports dated 7th July, 1987 folio 20 in I 252 1989 and 9th July, 1987 – folio 34 in I 254 of 1989 the respondent sought to disallow claims for expenditure in amounts of $40,024.00 and $6,329.00 for the income years 1984 and 1985 respectively, thereby increasing the respective chargeable incomes to $55,671.00 and $16,643.00.


The explanation of adjustments in the audit report for 1984 regarding the disallowance of $40,024.00 as expenses reads:–

“Your assessment has been revised and expenses to owner-occupied property disallowed as they are of a capital nature.”


For 1985 the amount disallowed, again relating to expenses of owner-occupied property was $6,329.00 and the explanation of adjustments stated in the audit report for that income year:

“Your assessment has been revised and 25% of expense claimed for electrical and plumbing disallowed for improvements and additions.”


In his letter of objection dated 15th September, 1987– folio 24 in I 253 of 1989 – in respect of the income years 1984 and 1985 regarding disallowances the appellant had stated inter alia as under:–

–“Income year 1984 – My assessment on owner occupied property was disallowed as they have been deemed to be of a capital nature. This, I reject outright. These expenses are bonafide and supported by bonafide invoices and receipts.”

“Income year 1985 – My assessment was revised and 25% of expenses claimed for electrical and plumbing disallowed for improvements and additions. Again, I reject this absurd assessment — There were no improvements/additions since I was unable to afford it.”


The appellant's objection to the assessments for the two years was determined by the respondent by letter of 23rd June, 1989 – folio 26 of the record in I 253 of 1989. The reason given for refusal to amend the assessments was:


“You have failed to produce satisfactory evidence to show that the assessments are excessive or incorrect.”


Both notices of appeal state the reasons advanced in support of the appeals as “This assessment is arbitrary, excessive and unreasonable and cannot be supported having regard to the evidence submitted. The respondent was not justified in law nor on facts in disallowing bonafide expenses for the year which were incurred by the appellant in respect of maintenance and repairs of owner-occupied property.”


The simple issue in this case concerns the nature of the work in respect of which the appellant has claimed expenditure on repairs to owner-occupied property. We are to adjudicate on whether the respondent has properly disallowed the expenses on the grounds that they were of a capital nature.


Section 12 of the Income Tax Act, Chap. 75:01 sets out those items that are disallowed in ascertaining chargeable income of any person. Subsections 12(c) and 12(d) are of particular reference and read:–

“12. In ascertaining the chargeable income of any person for any year of income, no deduction shall be allowed from the income in respect of –

xxxx xxxx xxxx xxxx xxxx

(c) any capital withdrawn or any sum employed or intended to be employed as capital;

(d) any capital employed in improvements;

xxxx xxxx xxxx xxxx “


Other subsections under section 12 frequently encountered are 12(a) and 12(b). The former relates to expenses not wholly and exclusively expended for the purpose of producing income, a the latter to domestic or private expenses.


The legal principle based on accountancy practice is that capital expenditure is that which is incurred on acquisition or enhancement to the value of an asset. Outgoings incurred in the maintenance and upkeep of an asset are regarded as being of a revenue nature.


On an overall review, we must observe that the parties in this case have been somewhat at cross purposes. Counsel for the respondent has perceived the issue as being whether the onus of proof being on the appellant, he has satisfied the court that the quantum and type of material as per the bills presented with the appellant's returns have been satisfactorily established as having been used in the work carried out in the two years, whereas the appellant has adhered to the contention as stated in his letter of objection that the nature of the work in both years of a revenue nature with no element of improvement or additions.


The appellant's testimony as it rebates to the nature of the work carried out during.1984 for which year there had been a disallowance of $40, 024 was as follows:

  • (1) He had purchased the property at No. 6 Endeavour Road, Chaguanas, around 23–24th May, 1984.

  • (2) Before finalizing the purchase he had inspected it from the outside and considered that it appeared to be in a good condition and worth the amount agreed to be paid for it.

  • (3) The residence had been occupied at the time of purchase but he had been able to move in with his family almost immediately after purchase and within two to three weeks he had observed signs of termite infestation.

  • (4) On being called in, his carpenter reported that the rafters were indeed termite infested and the galvanize roof was in poor condition.

  • (5) The work that had to be done was to change one half of the roof, the entire wooden beam around the house under the rafters being also termite infested was replaced with concrete blocks involving the use of cement.


The appellant asserted that the use of blocks and cement instead of wood for the beam had resulted in a less expensive outlay.


Regarding the claim of $13,821.54 for 1985, he testified that :–

  • (1) On the advice of an electrician, he had had the house re-wired and had changed switch outlets in order to overcome a problem of low voltage. This work had commenced in 1984 and had been completed in 1985.

  • (2) As regards plumbing, he had replaced corroded galvanize pipe with P.V.C. which was cheaper. This had involved the making of openings in walls, replastering and painting.


The appellant asserted that the work undertaken both in regard to 1984 and 1985 did not involve any extensions, improvements or alteration of the structure of the house, which was twenty-four years old. He stated that at the request of a representative of the respondent he had produced bills and receipts. He stated that apart from a brief interview with a representative of the respondent at the audit stage there had been only one meeting at the objection stage.


In the course of his testimony the appellant testified that at the objection stage he had asked that a visit be made to view the premises and this invitation had been declined. He stated also that at the one interview held, he had obtained the impression that his explanations as to the work done had been accepted, thus he was surprised when the assessment had been conveyed.


Miss Yasmin Mohammed, the tax auditor responsible for the disputed assessment testified that she had been assigned to audit for years 1984 and 1985 and that she had thereupon spent a couple of minutes examining the documents on file preparatory to interviewing the appellant.


She had been informed by the appellant that in 1984 he had changed half of the roof and ceiling, had noted bills relating to 1250 hollow clay blocks and 80 bags of cement. She did not accept the appellant's explanation that the quantum of material had been used in filling a space under the roof and replacing a wooden beam.


Following discussions with her Supervisor she had disallowed the claim as being of a capital nature by reference to the material used. She added that she had thought that he may have had an extension done to the house but had not called on the appellant to account for the quantum of materials used.


Regarding the claim for work done in 1985, she had been told by the appellant that he had had to rewire the house on account of problems experienced from the time of purchase.


She had examined bills presented with the appellant's return. Among them she noted certain items of material which did not appear to be consistent with repair work. The total value of these, identified at the hearing, was not considerable. Examples of such items per the record in I 254 of 1989, are:


Folio 14

1 Tester


Folio 15

4 Bulbs


Folio 16

12 60 Watts Bulbs


Folio 17

1 100 Amp Breaker


1 50 Amp Breaker


6 30 Amp Breaker


4 15 Amp Breaker


Folio 19

2 – 50 and 30 Amp switch


Folio 20

2 Light Tube



In respect of the claim for plumbing expenses, Mohammed testified that she had paid attention specifically to bills for certain items such as gate valves, check valves and brass taps considered by...

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