| 21/8/2008 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 60 |
Decided on 10 September, 1965 |
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Deductibility Of Interest Payable. Discretion Vested In The Commissioner. Definition Of 'Payable'.
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The taxpayer had borrowed a large sum of money to construct a factory. His normal activity was in the retail business. The factory was not successful and had to be closed down. In later years, the interests due on the borrowed money were claimed as a deduction against other income. The amounts claimed were essentially the interests due but not paid in past years. The Board of Special Commissioners agreed with the Revenue that no deduction was due: not only on the basis of the Court's decision in case no 31 that in principle there had to be a link between income and expenses, but also because the relative part of the I.T.A. required that interest to be deductible had to be 'payable on capital employed in acquiring the income'. Taxpayer in the year in question had no income from the factory. The Board also pointed out that the law only admitted the transfer of expenses from one source to another in the case of trading losses.
The Court of Appeal agreed, and approved a definition provided by U.K. case law to the effect that 'payable' connotes 'a liability to pay which has become fixed and ascertained'. The Court also stated that the Commissioner of Inland Revenue could have refused the deduction on the basis of his discretionary powers regarding the deduction of interest.
The case was complicated by the fact that in his notice of refusal the Commissioner had promised to review the situation in the future, subject to certain conditions. But the taxpayer had refused to accept this lifeline and persisted with his appeal. In the circumstances he had lost any chance of making a claim afresh in the future.
The Court also made it clear that the law did not allow interest to form part of trade losses, so that the amount claimed could not be dealt with as a carry forward of losses from the past. (To note that the law now allows interest to form part of trade losses). In any case, the amounts being claimed as a deduction did not appear to have been incurred in the year immediately preceding the year of assessment in question.
BSC Case No: 15/63
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