| 6/1/2009 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 90 |
Decided: 28 June. 1974 |
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Compensation Received For Giving Up Tenancy Rights
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The taxpayer had acquired a lease of immovable property by paying a lump sum to the former tenant to vacate the premises, and then arranging with the owner to be recognized as the new tenant. Subsequently, he transferred his tenancy rights, as he was able to do under his agreement with the owner, to a third party. The compensation received was called a "premium" in the relative contract, which the Revenue brought to charge under the provisions taxing "rents, royalties, premiums and any other profits arising from property". No deduction was allowed for the premium paid on the original acquisition of the premises since deduction could only be granted for the cost of acquisition in the case of trade. The Revenue accepted that the transaction was not in the nature of trade.
The Board of Special Commissioners and the Court of Appeal both agreed with the Revenue that the relative transaction was not in trade, so that, that part of the law charging "gains or profits from a trade, business... etc" was not applicable. Both tribunals, however, concluded that not every premium was chargeable under the provisions above referred to. The premium had first of all to be "revenue" in character and not "capital". The right of tenancy was clearly a capital asset, and compensation received for giving it up could not be brought to charge to tax. It made no difference that the consideration received a compensation was called a "premium" in the relative instrument of transfer.
Moreover, the sum received could not be brought to charge to tax as "... any other profits arising from property." In case no. 79, the Court of Appeal had held that this provision brought to charge receipts which were received by a taxpayer in his capacity of landlord, without alienating the property which remained in his ownership. The Court had, in that case, excluded the taxability (in the then absence of Capital Gains Tax) of a receipt which created a "hole" in the capital assets of the taxpayer. In the present case, however, the cession of the tenancy rights had created such a "hole".
BSC Case No: 44/69
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