Trinfinance Ltd v Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Barnes, J.,Burke, J.,Knights, J. |
| Judgment Date | 11 May 1987 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | Nos. I 39 & I 40 of 1983 |
| Date | 11 May 1987 |
Tax Appeal Board
Barnes, J.; Burke, J.; Knights, J.
Nos. I 39 & I 40 of 1983
Dr. C. Denbow for appellant
Mr. V. Prashad for respondent
Revenue law - Income tax — Assessment — Appeal against assessment to corporation tax and unemployment levy and amount granted for wear and tear allowance — Whether appellant was entitled to capital allowances.
these are appeals against assessments to corporation tax and unemployment levy for the year of income 1975 made under the Income Tax Ordinance Ch. 33 No.1 (hereinafter referred to as Ordinance).
For that year, the appellant had filed a corporation tax return, in which it declared a loss of $265,112. It had carried on business of long term financing as well as purchasing and subsequent leasing of machinery and plants.
The original return was accepted by the respondent, but after a tax audit undertaken by the respondent in 1981, a revised assessment was made on the chargeable income of $235,672.
The findings of the tax auditor, as stated in paragraph 6 of the statement of case of 13th May, 1982 (on record) were as under
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(a) the appellant had claimed a wear and tear allowance ($706,194.00) for a period of ten (10) months on certain fixed assets.
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(b) these fixed assets were acquired by the appellant at various and different dated during the said year of income and were in use for periods less than ten (10) months.
As a result of these findings the respondent had granted the appellant a wear and tear allowance for the actual period during which such asset was in use by the appellant and accordingly granted the appellant a wear and tear allowance of $204,410.00 and disallowed the excess of $501,784.00.
By letter dated 29th December, 1981, the appellant had objected to the assessment and by letter of 30th December 1982, the respondent conveyed its refusal to amend the assessments as desired by the appellant.
By Notice of Appeal dated 28th January 1983 the appellant appealed to the Appeal Board against the said decision. The grounds of appeal in respect of both assessments are as follows –
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“1. The appellant is a company incorporated under the laws of Trinidad and Tobago and has since the date of its inception been engaged in the expenditure of capital sums in the purchase of machinery and plant for use for the purpose of trade.
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2. On the first day of October 1976 the appellant duly filed a return in respect of the year of income 1975 wherein it showed no chargeable income. The appellant claimed in its said return a wear and tear allowance on all fixed assets for the whole period in accordance with good accountancy principles and practice and in keeping with what was then the practice obtaining and accepted by the respondent.
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3. By a Notice of Assessment dated the 16 December 1981 the respondent included in the appellant's chargeable income certain items of wear and tear claimed by the appellant on the ground that the same were not properly allowable under s.11 (1)(b) of the ordinance and assessed the appellant to additional unemployment levy in the sum of $11,833.60 and additional Corporation Tax in the sum of $106,502.40.
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4. By letter dated 29th December, 1981 the appellant objected to the said assessment and to the same being made under the Ordinance and not under the finance Act 1966 and in particular under s. 50(1) and 50(2) thereof and claimed wear and tear allowances under Part II of that Act and in accordance with the provisions of S. 46(1) of the Ordinance, also claimed initial allowances on the plant and machinery it purchased in the year of income 1975.
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5. By letter dated 30th December, 1982 and received by the appellant on or about 12th January, 1983 the respondent refused to amend the said assessment as desired by the appellant or at all.
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6. Respondent is not justified in law in making the assessment ‘the basis aforesaid.”
The respondent's contentions stated in para 23 of its Statement of Case are as under –
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“(i) Sections 50 (2) and (50 (2) of the Finance Act, 1966 are not applicable in computing the appellant's chargeable profits. The appellant is therefore not entitled to claim a wear and tear allowance or initial allowances under the Income Tax (In Aid of Industry) Ordinance Ch. 33 No. 2.
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(ii) In any event the appellant did not make a claim for initial allowances in its Corporation Tax Return and cannot make such additional claim under section 46(2) of the Income Tax Ordinance.
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(iii) Section 11 (1)(b) of the Income Tax Ordinance Ch. 33 No. 2 was properly applied in computing the corporation tax liability of the appellant because –
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(a) by virtue of s. 47 and s. 58 of the Finance Act 1966 the said section 11 (1) b is specifically made applicable to corporation tax.
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(b) The appellant was therefore not entitled to claim a wear and tear allowance on the relevant fixed assets for a period of ten (10) months since the assets were not employed or used in the trade of the appellant for a period of ten months.
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The respondent was accordingly justified in only allowing the appellant a wear and tear allowance calculated as from the date on which each asset was acquired and brought into use in the appellant's trade.
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(iv) The assessment is justifiable in law and in fact.”
The principal issue we are to determine is the appropriate law to be applied to the appellant's claim for capital or wear and tear allowances, and in the light of that, to fix the correct basis for ascertaining the quantum of allowance for the year of income 1975. The facts are not really in dispute so that the issues relate to points of law.
For the appellant, Gerald Phillip, its Manager, testified. He gave a brief account of the history, operations and shareholdings of the appellant. The fact that is relevant to the issue was that the appellant commenced operations on 1st February, 1975 and owned assets which it used in its business of others. In cross examination, the witness expressed his view that the leases would not have been entitled to a wear and tear allowance, but under the terms of the leases were required to maintain and keep in good repair and leased plant and machinery. He also stated that at the end of a period of lease, one of three courses of action could be taken:–
- The leased item could be returned to the appellant. 2. The lessee could negotiate to purchase the item from the appellant. 3. The parties could negotiate a new rental at a reduced figure.
Gwen Nurse (Mrs.) an employee of the respondent, who had been associated with the audit which resulted in the disputed assessments testified. She explained that from the appellant's records, she had ascertained the dates of the various assets leased to clients. She had noted that the appellant had claimed wear and tear allowances in all cases on the basis of the full period of ten (10) months it had been operating in 1975. In view of her findings of the period of usage in individual cases, she had disallowed portions of the wear and tear allowances using the periods from dates of purchase to year end as her basis in liew of the full ten months period used by the appellant.
In the course of cross examination, Nurse said that the appellant's accord accounting records revealed that depreciation was being calculated according to periods of use i.e. in accordance with the method she had employed.
In his address, Dr. Denbow submitted that it was clear on the evidence that the appellant had carried on the business of leasing of equipment during the year of income 1975 and had purchased equipment for use in that business.
He asked the court to find that the central issue was to determine the extent and quantum of the capital allowances claimable by the appellant. He contended that these should be granted under the provisions of sec. 50 of the Finance Act or referred to as “the Act”) read in conjunction with section 15 and 16 of the in Aid to Industry Ordinance Ch. 33 No.2 (hereinafter referred to rather than under section 11(1) (b) of the Ordinance. These read–
“50. (1) In computing for purposes of corporation tax a company profits for any year of income there shall be made in accordance with this section all such deductions and additions as are required to give effect to the provisions of the Income Tax (In Aid of Industry) Ordinance which relate to deductions and allowances and charges in respect Capital expenditure, as those provisions are applied by this Part.”
“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.”
“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.”
“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 –
(a) xx xx xx
(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...
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