W.Inc. v The Board of Inland Revenue
| Jurisdiction | Trinidad & Tobago |
| Judge | Barnes, J.,Burke, J.,Dean-Maharaj, J. |
| Judgment Date | 12 July 1990 |
| Court | Tax Appeal Board (Trinidad and Tobago) |
| Docket Number | Nos. I 8 - I 11 of 1986 |
| Date | 12 July 1990 |
Tax Appeal Board
Barnes, J.; Burke, J.; Dean-Maharaj, J.
Nos. I 8 - I 11 of 1986
Mr. W. D. Clarke for appellant
Mrs. M.A. Robinson-Walters for respondent
Revenue law - Corporation tax and unemployment levy — Appellant was originally assessed to corporation tax and unemployment levy on the basis of returns submitted on chargeable income of $249,730.00 — Respondent made additional assessments — Appellant appealed — Respondent disallowed $136,358.00 in respect of professional research and development expenses — Disallowance of a wear and tear claim in the sum of $67,682.00 — Appellant appealed — Whether the assessment was arbitrary and not supported by facts — Finding that the appellant failed to discharge the statutory onus of proving that the assessments were excessive or wrong — Section 8(2) of the Tax Appeal Board Act, chap. 4:50.
: These are appeals against additional assessments to corporation tax and unemployment levy for years of income 1978 and 1979, and were consolidated by order of this court.
The appellant is the Trinidad and Tobago branch of a non-resident company, W INC — of the U.S.N. (the U.S. Company) and during the years of income 1978 and 1979, it carried on business in the rental of equipment and sale of oilfield supplies.
The appellant was originally assessed to corporation tax and unemployment levy pursuant to Chap. 75:02 and Chap. 75:03 (formerly Chap. 33 a No.1nd Act No. 16 of 1970) on the basis of returns submitted on or about 16 th October, 1979 for 1978 and 3rd July, 1980 for 1979 on charge of $246,057 and $249,730 respectively.
Following a tax audit commenced in January 1984, the respondent made additional assessments for both years consequent on increased chargeable income, as under–
| Original Assessment | Revised Assessment | Increase | |
| 1978 | 246,057 | 382,415 | 136,358 |
| 1979 | 249,730 | 417,212 | 167,482 |
The increases shown above resulted from the disallowance of certain expenses and claims of the appellant as set out at paragraph 7 of the Statement of Case of 9th November, 1989 as under–
“7. As a result of the audit the respondent took the following action –
(1) It limited the claim of $152,460 to 1% of the allowable expenses excluding wear and tear allowance and management charges under the provision of S.10 (1)(b) of the Income Tax Act. As a result an amount of $136,358 was disallowed.
(2) It capitalised the sum of $43,578 and granted wear and tear allowance of $14,526 thereon.
(3) It reduced the wear and tear claim on plant and machinery by $67,682 allowing 33 1/3% in lieu of 60 2/3% c1ai med.
(4) It made other adjustments to the chargeable income which are not the subject of these appeals.”
The respective years of income are– 1978 for item (l), and 1979 for items (2) and (3).
The consequential steps have been referred to at paragraphs 10-12 of the statement of case, as follows —
“10. By letter dated 21st December, 1984 the appellant's accountants objected to the assessments and in later correspondence dated 18th January, 1985 set out reasons why the assessments should be varied.
11. The respondent having considered the explanations and arguments of the appellant's accountants refused to vary the assessments by letters dated 18th December, 1985 and informed the appellant of its decision.
12. By Notices of Appeal dated and filed on 14th January, 1986 xxx xxx the appellant appealed against the decision of the respondent.”
The appellant's grounds of appeal and the contentions of the respondent are set out in the Statement of Case at paragraphs 13 and 14 as under –
“13. Its grounds of appeal are identical for the two years and are as follows-
(a) Statement of allegations of fact
(1) Professional Research and Development Expenses treated by B.I.R, as management expense subject to sec. 10(1) b and 10(2). This is capital and entitled to a Wear & Tear claim of 33 1/3%.
(2) Wear & Tear claim for plant and equipment re client's unique business not properly considered by B.I.R. B.I.R. rate of 33 1/3% does not compensate for extreme corrosion and technological redundancy in this particular business.
(b) Statement of the reasons to be advanced in support of appeal
The assessment is arbitrary and not supported by facts and indeed never mutually discussed with taxpayer.
“14. The respondent will contend
(a) that the appellant failed to file and serve the correct return as required by the Income Tax Act Chap. 75:01.
(b) that it was of the view that the Appellant had been assessed at a lesser amount than it ought to have been charged and had accordingly assessed the appellant to such additional amount as to the best of its judgment ought to have been, charged.
(c) that the professional, research and development expense disallowed in 1978 were management charges which were properly restricted to 1% of the appellant's allowable expenses in accordance with S. 10(1)(b) of the Income Tax Act chap. 75:01.
(d) that the amount of $43,578 was a capital expense and properly been so treated accordance with income tax law and practice.
(e) that the appellant failed to satisfy the respondent the amount of wear and tear granted at the rate of 33 1/3% was inadequate having regard to the client's business the Board's practice with respect thereto.
(f) that the assessments are valid and should be upheld.”
From the appellant's Notice of Appeal, it is clear that some of the adjustments made for year of income 1979 are not disputed. The issues on which we are to adjudicate relate to the disallowance of $136,358 in respect of professional research and development expenses for 197$ and disallowance of a wear & tear claim in the sum of $67,682 for 1979.
The principal statutory provisions which we shall have to consider are the following sections of the Income Tax Act, Chap. rendered applicable to the Corporation Tax Act, Chap. 75:02 action 19 thereof, as under–
“10. (1) In computing the income of any person for a year of income from any source specified in section 5 for the purpose of ascertaining the chargeable income of a person for that year, there shall be allowed to that person all outgoings and expenses wholly and exclusively incurred during the year of income by that person in the production of the income from that source, so however that –
xxx xxx xxx xxx xxx
(b) in the case of outgoings and expenses in respect of management charges paid to or for the benefit of a person not resident in Trinidad and Tobago and to every nonresident company (such person or company not being engaged in a trade or business in Trinidad and Tobago giving rise to such management charges) the expenses allowable shall, subject to subsection (2), be the amount of the management charges or one percent of the outgoings and expenses (exclusive of such management charges) allowed under this section and section ll(1), other than paragraph (a) or (b) thereof, which ever is the lesser;”
The definition of “management charges” in section 2(1) of Chap. 75:01 is as follows–
“management charges” means charges made for the provision of management services and include charges made for the provision of personal and technical and managerial skills;”
“11. (1) For the purpose of ascertaining the income of any person for any year of income from business, profession or vocation, there shall be
(b) a reasonable amount for the exhaustion tear of any plant and machinery, and used exclusively for housing such plan owned by him arising out of the use such plant or machinery in the trade, business profession or vocation during that year:”
“(2) Where deductions have been allowed under subsections (1)(b) to any person in ascertaining his chargeable for a year of income from any trade, business profession or vocation, and that person ceases to have any interest in plant and machinery and buildings in respect of which the deductions have been allowed, a balancing allowance or a balancing charge shall be made, and for the purposes of ascertaining such allowance or charge, section 4 and section 17, of the Income as the case may be, of the Income Tax (In Aid to Industry) Act shall apply.”
12. In ascertaining the chargeable income for any person for any year of income, no deduction shall the income in respect of –
xxx xxx xxx
(c) any capital withdrawn or any sum, intended to be employed as capital:
(d) any capital employed in improvements.”
The following persons testified
| For the appellant | - AJ |
| Manager of the Trinidad and Tobago Branch of. the U.S. Company. | |
| For the respondent | - ND |
| Field Auditor III in the Board of Inland Revenue | |
| - SE | |
| Senior divisional Drilling Engineer, Trinidad & Tobago Oil Company Ltd. Point a Pierre. |
In addition to the oral evidence, the court will have to consider certain documents on record as under –
Folio 39 - Letter dated 25.5.76 from Drilling Inc. to the U.S. Company Texas, US May 25, 1976
W. INC
Gentlemen:
As per our conversation, this letter is to acknowledge that we agree to a retainer fee of $5,250.00 per month to provide your Trinidad branch office with the following services:
Control Accounting of Equipment Cost, sales, service and rental 12-month year-end efficiency study.
Study of Inventory value U.S. Sales and rate of parts consumption by category.
Evaluate new equipment for oilfield rental in Trinidad.
Supervise laboratory studies of new drilling and work over fluids, introduced on the international market for possible sales in Trinidad.
Meet with your directors at least twice per year for presentation of the above.
We look forward to a fine relationship and feel confident that our service will result in higher profits margins realized by your Trinidad branch.
Very truly yours,
Drilling Inc.
Folio 40 - Letter dated 30.5.77 from...
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