| 6/1/2009 |
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| Board of Special Commissioners - Cases |
| Case No. 19b/61 |
Decided: 19 February, 1964 |
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Compensation received by way of damages is a trading receipt chargeable to tax - article 10, now 14, Income Tax Act
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Appellant company was not furnished with packing material for its products and had to purchase them from another supplier at a higher cost. The company had reached an agreement with the original contractor and was paid an agreed sum in compensation. The company appealed against the Commissioner's decision to bring the compensation to charge, arguing that the value of the packaging was included in the selling price of the product.
The Board rejected the appeal. It was held that the compensation had been paid in lieu of execution of the order, the contract being thereby determined. The cost of the packaging was deducted by way of an expense incurred in the production of income and the compensation counter-balanced the extra expense incurred. If the compensation were not accounted for as an income, it would necessitate that an extra expense (which was actually not incurred in part or in full) to be deducted.
In Burmah Steamship Co Ltd vs I.R. it had been held that "damages paid by contractors for delay in repairing a vessel intended to be used by a shipping company in its trade, are trading receipts of the company."
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