| 21/8/2008 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 31 |
Decided on 17 March 1961 |
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Deduction Of Expenses Incurred Before The Relative Source Commences To Produce Income
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The taxpayer had acquired plots of land subject to an annual ground rent. At first he was attempting to build residences to be let to the British Services, but when these arrangements did not materialize, the land was to be developed by building "flats and garages to be sold out in due course".
During the years in question, there was no income arising from these sources, and taxpayer wanted to deduct the ground-rents paid from his other income. This was refused by both the Board and the Court. In so far as the land was to be developed and sold, the ground rent paid during the preparatory period would be considered for deduction from the selling price.
In so far as the land was to be utilized to construct buildings that would be leased:
(a) the enterprise which would produce income in due course was not even in existence, so that it was inconceivable that the expenses had been incurred in the production of the income, as required by the ITA;
(b) the relative expenses could not be considered to be trade losses which may set off against other income;
(c) although income from all sources is grouped together for tax purposes, income from each source has to be computed separately, and the law is clear that expenses can only be deducted against the income which they help to produce.
This last principle was extended by the Court to mean that "source" does not include various rents which are taxed under one heading in the ITA (and the taxpayer owned several other rented properties), but basically to every income yielding asset, considered as a separate source.
BSC Case No: 27/58
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