| 17/5/2012 |
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| Board of Special Commissioners - Cases |
| Case No. 26/61 |
Decided: 7 July, 1962 |
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No deduction allowed in respect of ground rent paid during the development of a commercial property as the expense was not incurred in the production of the income - articles 5 and 10, now 4 and 14, Income Tax Act
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Appellant had acquired a plot of land that he meant to develop for commercial purposes. The land was subject to annual ground rent that had been paid while the site was being developed. Appellant claimed that the Commissioner should have considered such ground rent as a deductible expense even though no income had been earned during the period except for a lesser sum by way of compensation for loss of rent. He argued that what was really relevant was the fact that although no income had been earned, the expense was incurred with the motive of earning income.
The Board observed that this issue had been decided upon in previous cases and its findings confirmed by the Court of Appeal in its in case no. 31. The Court had ruled that the enterprise may have been intended to produce income in the future but it was not even in existence yet, so the expenses could not have been incurred "in the production of the income" as was explicitly required by the provisions of article 5 of the Act.
Apart from the fact that the compensation for loss of rent mentioned by appellant was incidental, because the site had not been purchased for leasing purposes, the Court of Appeal had ruled that a loss from a source could not be set off against other income.
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