| 4/2/2012 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 30 |
Decided 2nd December 1959 |
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Ordinary And Extraordinary Repairs Of Premises. Deductibility Under The Maintenance And Repair Of Premises Rules
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According to a lease agreement of immovable property: "The tenants are to effect all outside and inside repairs, and all improvements of whatever nature of the buildings are to remain for the benefit of the owners."
The Maintenance and Repair Rules allowed deductions at standard rates on the rent due. The Revenue were inclined to argue that the allowance was due to the person who met the expenditure, not the landlord. This was rejected by the Board of Special Commissioners which said that the income on which standard rates were applied was clearly the rental income accruing to the landlord. The Board also rejected the Revenue's assertion that the standard deductions were only due in years in which expenses had effectively been incurred. Standard allowances were held to be due year in year out, irrespective of actual expenditure during any year.
The Board however stated that in terms of the lease contract, no ordinary repairs could be incurred by the landlord. It was true that extraordinary repairs were not mentioned by the contract, but in the Board's view extraordinary repairs were capital in character and hence not deductible even if the landlord eventually had to incur such expenses. Since the landlord could not actually be liable to meet ordinary repairs, and since extraordinary repairs were not deductible, the Board refused to allow the standard rate deductions.
The Court agreed that standard rate allowances were due year in year out irrespective of actual expenditure. The Court also agreed that if in terms of a lease agreement there was no possibility of expenditure having to be incurred by the landlord, no allowance was due.
The Court however disagreed with the view expressed by the Board that all extraordinary repairs had to be disallowed because these were capital in nature. No such generalization could be made: neither in terms of the Income Tax Act nor in terms of the Civil Code. In principle, therefore, extraordinary expenses could be allowable as a deduction: always limited to the standard rates under the Maintenance and Repair of Premises Rules. The taxpayer's appeal was therefore allowed once in theory he could incur expenses which were not a priori ruled out either by the normal principles of the I.T.A. or by the aforesaid Rules.
Note: The Maintenance & Repair of Premises Rules have been repeatedly changed over the years, but the general principles enunciated in this case have remained applicable.
BSC Case No: 39/58.
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