| 21/8/2008 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 16 |
Decided 14 March 1957 |
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Deductibility As A Loss Of Defalcations Made By An Employee Of Managerial Status.
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The taxpayer's business was run by a manager who however put his hands in the till and absconded from Malta before legal proceedings could be taken against him. In the lack of proper records, the Revenue computed the taxpayer's income on the basis of increases in capital plus living expenses. The manager's defalcations were added back on the basis of U.K. case law concerning defalcations by a managing director.
Both the Board of Special Commissioners and the Court of Appeal, however, distinguished between the case of a "managing director" and that of a simple "manager". The latter, whatever his powers and his status, always remains an employee, and the same U.K. case law had made it clear that fraud committed by such persons are "...expenses connected with and arising out of the trade in the most complete sense of the word".
The Board seemed to be of the opinion and stressed that a managing director must always be one of the shareholders or partners of the company. The Court pointed out that this was not the case, but the point was irrelevant, as the real issue was that the risk of defalcations by employees was a necessary risk in business and such losses were pure commercial losses which were deductible for tax purposes.
BSC Case No: 8/56
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