| 4/2/2012 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 43 |
Decided on 24 March 1962 |
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Losses Suffered By A Limited Liability Company Cannot Be Set Off Against The Personal Income Of The Shareholders
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Both the Board of Special Commissioners and the Court of Appeal rejected the taxpayer's claim for a deduction against his personal income in respect of losses suffered by a limited liability company in which he was the majority shareholder.
The tribunals made reference to the basic decision in this regards, Solomon v Solomon & Co (1897) where it was held that "The company at law is a different person altogether from the subscriber to a memorandum of association". The Income Tax Act allowed deductions against a taxpayer's other income in respect of losses suffered in a trade or business, but the trade or business had clearly to be his own not of a company in which he had shares. Vis-a-vis the company, the shareholder is a mere investor. The loss had been incurred by an entity which had its own separate juridical personality and the loss could not, therefore, be deducted against his personal income.
The Court made it clear that the same principle would apply even as between a parent company and its subsidiaries, as well as where a company was owned totally by a single shareholder.
BSC Case No: 24/60
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