| 17/5/2012 |
HOME
FSS
Downloads
|
| Board of Special Commissioners - Cases |
| Case No. 19/59 |
Decided: 20 June, 1962 |
   |
|
Pre-trading expenses - whether capital or revenue in nature - articles 10 and 11, now articles 14 and 26, Income Tax Act
|
Appellants acquired a piece of land subject to ground rent, on which they intended and did in fact construct an edifice to be opened to the public as a place of entertainment. One of the appellants took out a bank loan to acquire a share of the enterprise. Appellants claimed that ground rent and bank interest paid during the period in which the building was under construction and being furbished, are deductible expenses in terms of the Income Tax Act.
This was refused by both Revenue and the Board. There must be a clear distinction between expenses directly or indirectly forming an integral part of the outlay necessary to put the business in a position to earn profits and those expenses which are actually incurred wholly and exclusively in the production of income. The former are of a capital nature; the latter are of an income nature, a number of which are deductible from income.
The Act does allow certain deductions of expenses, including ground rent and bank interest, incurred in the production of income. These expenses may be deducted exclusively from such income and cannot be deducted from income earned from other sources as is the case with trade losses. Once at that particular point in time the business was not in existence the expenses could not have conceivably been incurred in the production of income; neither can they be considered as trade losses because no trade had as yet been carried out.
|
|
|
|
|