| 21/11/2008 |
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| Board of Special Commissioners - Cases |
| Case No. 19a/61 |
Decided: 17 July, 1962 |
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Deduction in respect of capital allowances on conversion of a partnership into a limited liability company - article 10, now 14, Income Tax Act
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A long established partnership en nom collectif was converted into a limited liability company. The new company revalued the assets taken over from the partnership and requested capital allowances on the adjusted values. It also claimed initial allowances as the assets were being "first used" by it on conversion.
The Commissioner had accepted to grant only allowances based on the value indicated in the accounts of the partnership. He argued that the assets had not been actually transferred since the shareholders were the same individuals. It had all amounted to a paper transaction; no capital expenditure as such had been incurred by the new company. In terms of the provisions of article 10, the total of the allowances granted could not exceed the cost of the assets (that is, the actual cost and not the artificially revalued cost).
The Board disagreed with the contention of the Commissioner. It held that appellant was correct in claiming that the company had a distinct legal personality and the fact that the shareholders were the same individuals was irrelevant. Indeed stamp duty had to be paid on the transfer of the premises from the partnership to the new company. The duty was based on the revised value of the premises and the transaction could not, therefore, be considered to have been a mere paper transaction. Were the company to incur a loss, the shareholders would not have the right to deduct such loss from the income they had earned from the partnership. A capital expenditure was incurred even though money did not actually change hands.
An appeal was entered before the Court from this decision (see case no. 50).
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