| 6/1/2009 |
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| Board of Special Commissioners - Cases |
| Case No. 7/60 |
Decided: 27 May, 1960 |
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Deductibility of legal expenses - articles 10 and 11, now 14 and 26, Income Tax Act
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Appellant was a long established company that formerly traded in goods that had internationally known brand names. During the war the company's trade in Malta was wound up but it still received royalties from branches that traded in the same goods in Africa. Appellant incurred legal expenses in endeavouring to resist the registration of its brand name by a rival firm.
The Commissioner refused to allow a deduction, claiming that the expenses were capital in nature and were not incurred in the production of income; the company was not trading locally so expenses were not even incurred in conserving an asset or with a view to increasing its earning capacity. The Commissioner maintained also that the expenses were, in any case, to be apportioned over the years it took the Court to settle the case.
The Board observed that the expense was not incurred "with a view to bringing into existence an asset or an advantage for the enduring benefit of the trade" but "to resist a challenge to an already existing and presumably valid title". These expenses were not, therefore, of a capital nature but revenue ones and, therefore, deductible. The Commissioner was not correct in distinguishing between the income earned through royalties by the company's branch in Africa and the income that could have, but was not, earned in Malta. A company was a single entity and incorporated all its branches; its income from all sources were consolidated.
Regarding the Commissioner's subordinate plea, the Board ruled that initial Court expenses were only provisionally incurred by plaintiff but became actually due when the case was decided and the Court ruled which party was to bear the costs.
An appeal was entered before the Court from this decision (see case no. 36).
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