Burke v The Commissioner of Income Tax

 
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Revenue Court

Marsh, J.

16, 17, 18, and 19 of 1976

Burke
and
The Commissioner of Income Tax
Appearances:

Dr. L. Barnett instructed by Mr. R. Ashenheim of Milholland, Ashenheim & Stone.

Mr. H. Hamilton instructed by Crown Solicitor.

Revenue Law - Income Tax — Appeal — Depreciation Allowance

Marsh, J.
1

This is an appeal against Decisions of the respondent for the Years of Assessment 1967 to 1970 inclusive, in which claims by the appellant for Depreciation Allowances under Section 13(1)(n) of the Income Tax Act, in respect of each of those years, were refused.

2

The basic facts are not in dispute and are as follows:

  • (a) The appellant was at all material times an employee of the Jamaica Public Service Company Limited of Kingston.

  • (b) During the relevant years of assessment he earned income from his employment and his wife also earned income from rental of a house situated at No. 12 Violet Avenue, Mona in the parish of St. Andrew which had been let furnished.

  • (c) Before purchasing the house at Mona a site at St. Albans Lane in Franklin Town had been acquired by his wife from her mother sometime during the year 1959, upon which was built a tenement house of seven apartments, which were let to various tenants. However, problems arose with regard to the collection of rents and after employing a collector on a commission basis for some time without any significant improvement in that regard, the premises at St. Albans Lane were sold and those at 12 Violet Avenue in Mona, acquired in their stead. That was sometime in 1965.

  • (d) The Mona house has since been let furnished, to several tenants from time to time until 1971, when a lease arrangement was concluded with the University College Hospital and the house has since been used as a residence for doctors on the staff of that hospital.

  • (e) Over the period, the appellant and/or his wife, undertook repairs and were responsible generally for maintenance of the premises at Mona. They also collected the rent, and paid the necessary rates, taxes and insurance premiums. The wife also inspected the premises from time to time to view the state of the furniture and grounds and to effect repairs and additions to the premises and to see to the maintenance of the garden.

  • (f) The appellant in computing his chargeable income for the relevant years claimed an allowance in respect of wear and tear under Section 13(1)(n) of the Income Tax Act, in respect of the Mona house at the rate of 2.1–2 percent on the sum of $6,000 (the estimated cost of the house) and, at 11 1/4 percent on the sum of $2,000, the cost of the furniture; and on the basis that he and/or his wife had been carrying on a business of renting premises.

  • (g) The claim was rejected by the respondent on the ground that the appellant, and/or his wife, had merely been performing the ordinary functions of a landlord, in respect of the subject premises, which functions, as carried on by either or both of them, did not constitute the carrying on of a trade or business within the meaning of Section 13(1)(n) of the Act.

3

The respondent relied on the decision in Hendriks v. Assessment Committee (1941) 4 J.L.R. 60.

4

The appellant now appeals.

5

On those facts, it seems to me that the likelihood of the appellant succeeding in this appeal will depend largely upon the extent to which the reasoning in the old case of Hendriks v. The Assessment Committee (1941) 4 J.L.R. 60, which was relied on by the respondent, is still to be regarded as good law today, having regard to the decision in the later case of C.I.T. v. Hanover Agencies Ltd. (1964) 7 W.I.R. 300.

6

The head note for the Hendriks case at 4 J.L.R. 60 reads as follows:

“Section 9(3) of the Income Tax Law, Cap. 201, as amended by Section 5(c) of Law 55 of 1939 provides that a deduction in respect of income shall be allowed - “for a reasonable amount for exhaustion, wear and tear of any property … used by the owner thereof for the purpose of acquiring the income from a trade, business, profession or vocation carried on by him, (My underlining)

HELD, a person performing the ordinary functions of a. landlord in respect of premises owned by him is not carrying on a business in respect of those premises so as to be entitled to a deduction for wear and tear under Section 9(3) of Cap. 201 as amended by Section 5(c) of Law 55 of 1939, nor is he using those premises within the meaning of that section.”

7

Section 9(3) of Cap. 201 as amended by Section 5(c) of Law 55 of 1939, is the progenitor of the current Section 13(1)(n) of the Income Tax Act, and which in its modern wording provides as follows:

“13–(1) For the purpose of ascertaining the chargeable income of any person, there shall be deducted all disbursements and expenses wholly and exclusively incurred by such person in acquiring the income…

and such disbursements and expenses may include –

(n) A reasonable amount for exhaustion, wear and tear of any building or structure used by the owner thereof for the purpose of acquiring the income from a trade, business, or vocation carried on by him:

Provided that if at any time the building or structure is sold, or the building or structure is demolished or destroyed, or without being demolished or destroyed, ceases to be used, an allowance or charge shall be made to the owner, and the provisions contained in paragraph 3 of Part I of the Second Schedule to this Law shall mutatis mutandis apply:

Provided that if any allowance is made to an owner under this paragraph, no allowance under any other part of this Law in respect of exhaustion, wear and tear, shall be available to him;”

8

As will be seen from the head note to the report on the Hendriks case, just cited, the decision therein dealt with two separate aspects of section 13(1)(n). Firstly, that a person performing the ordinary functions of a landlord in respect of premises owned by him and let to tenants was not carrying on a trade or business within the meaning of the section; and, secondly, that even if he could be said to be carrying on such a, business, the premises so let were not being “used” by him in any such trade or business.

9

At page 64 of the report, the late Furness, C.J., dealt with the first point in the following manner:

“In what sense can the appellant be said to be carrying on a business? He inherited four properties...

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