| 17/5/2012 |
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| Board of Special Commissioners - Cases |
| Case No. 1/78 |
Decided: 16 April, 1980 |
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Deductibility of bad debts "incurred" in the production of the income and proved "to the satisfaction of the Commissioner" - article 10(1)(e), now 14(1)(e), Income Tax Act
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Appellant company used to do servicing and repair jobs on yachts in two sheds. The sheds belonged to other persons and, although there existed no rental agreements between the parties, yet the renting parties always included the rents among their income and had taken judicial action to recover unpaid rents and the appellant company had always claimed the relative expense.
The Commissioner, seeing that for some of the years in question a part of these rents had not been paid, considered such expense to be a mere "provision" and, therefore, not deductible.
The Board considered whether the said expense had been actually incurred in the sense of article 10(1)(d) and concluded that the word "incurred" did not include "provisions" for payments that were not certain and liquid. Since appellant company itself had admitted that there had been no rental agreement regarding the sheds, that part of the expense which referred to bad debt provisions could not be considered to have been "incurred". On the other hand, that part which referred to rents paid by appellant company was considered to have been incurred in the production of the income and therefore deductible.
Regarding the bad debts provision claimed by the company, and quoting from Court decision number 42, the Board reiterated that bad debts were to be proved "to the satisfaction of the Commissioner". This meant that any tribunal's review was restricted to an assessment of whether the Commissioner's discretion had been, in substance and form, exercised legally and according to the rules of natural justice or within the limits of the Commissioner's jurisdiction, whether the required procedure had been followed and whether such discretion had been exercised in a fair and honest way. In the Board's view, in this case, the exercise of discretion had been properly exercised.
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