| 21/11/2008 |
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| Board of Special Commissioners - Cases |
| Case No. 27/58 |
Decided: 27 January, 1959 |
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An expense (in this case, ground rent paid during the development of property meant for re-sale) is deductible only against the particular income that it helped to produce - article 10, now 14, Income Tax Act
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Appellant had acquired two plots of land subject to an annual ground rent. He had informed the Commissioner that "this plot was destined to be the site of a block of flats and garages to be sold out in due course". The Commissioner refused to allow the deduction of ground rent and the expenses appellant had incurred on initial construction works that had to be pulled down when negotiations with the prospective buyer fell through.
Appellant maintained that the types of expenses that were listed in sub-article 10(1) of the Act were meant to serve as examples. The law did not specifically exclude the possibility of other expenses that could be deductible even though they were not incurred in the year preceding the year of assessment, and that income from that source need not necessarily have been earned so long as they had been spent in the "process of making the income". Besides, ground rent was not an expenditure of a capital nature once it was recurrent in nature; it was an expenditure consequential to the acquisition of an asset whose continued existence depended intrinsically on the payment of the related dues.
The Board held that that expenses paid prior to a sale are of a capital nature once the profit would be arrived at by deducting all the expenses incurred from the selling price.
In order to reach his goal of developing the plot into a block of flats and garages ready for sale, appellant had to incur expenses such as legal advice, notarial fees, land transfer taxes, architect's fees etc., including the groundrent paid in the meantime. All these expenses formed part of the capital outlay.
Appellant's contention that expenses might be deductible even though no income was earned from that specific source was not accepted: income from each source has to be computed separately and expenses can only be deducted against the income they help to produce.
An appeal was entered before the Court from this decision (see case no. 31).
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