Caribbean Sales Ltd v The Commissioner of Income Tax
| Jurisdiction | Jamaica |
| Judge | Marsh, J. |
| Judgment Date | 04 March 1976 |
| Court | Revenue Court (Jamaica) |
| Docket Number | 8 of 1973 |
| Date | 04 March 1976 |
Revenue Court
Marsh, J.
8 of 1973
Mr. E. Grant for the appellant.
Mrs. A.C. Hudson-Phillips for the respondent.
Revenue Law - Income Tax — Appeals — Chargeable Income
This is an appeal by the appellant Company, Caribbean Sales Limited, against a decision of the respondent made on the 25th June 1973 in respect of the Years of Assessment 1965 and 1966.
There is no dispute as to the facts, which are briefly, as follows –
The appellant Company was incorporated on the 24th December 1964 and commenced trading as commission agents on, or about, the 2nd January 1965. During 1965 it incurred bad debts amounting to approximately $693. It also incurred expenditure of approximately $720, by way of advances to commission agents, which proved unrecoverable. The Appellant sought to deduct both sums in the computation of its chargeable income for the relevant years of assessment, but these were disallowed by the respondent; and the appellant has appealed to this court to have that decision set aside, or varied.
Counsel on both sides agree that the issue raised in the case turns on the proper application of Sections 6 and 8 of the Income Tax Act, 1954, to the computation of tax liability during the initial years of a new business. Sections 6 and 8 were amended subsequently to the Year of Assessment with which this appeal is concerned and the case must therefore be considered in the light of these provisions as they stood at the relevant time.
Section 6 is a rather long section but the relevant portion was contained in subsection (2) which provided as follows:
“(2) The statutory income of any person from any trade, profession or business for the year of assessment in which he commenced to carry on or exercise such trade, profession or business and for the two following years of assessment (which years are in this subsection respectively referred to as “the first year”, “the second year”, and “the third year”) shall be ascertained in accordance with the following provisions –
(a) For the first year the statutory income shall be the amount of the income for that year;
(b) For the second year the statutory income shall, unless such notice as hereinafter mentioned is given, be the amount of income for the period of twelve months from the date of the commencement of the trade, profession or business;
(c) For the third year the statutory income shall unless such notice its is hereinafter mentioned be given, be computed in accordance with the pro-visions of subsection (1) of this section;
(d) The person carrying on or exercising the trade, profession or business shall be entitled on giving notice in writing to the Commissioner within two years after the end of the second year to require that the statutory income both for the second and the third year (but not for one or other only of those years) shall be the income of the respective years of assessment:
Provided that he may, by notice in writing given to the Commissioner within twelve months after the end of the third year, revoke the notice, and in such case the statutory income both for the second year and the third year shall be computed as if the first notice had never been given;
(e) Where such a notice as aforesaid has been given or revoked, such additional assessment, or, on a claim being made for the purpose, such reductions of assessment or repayments of tax, shall be made as may be necessary to give effect to paragraph (d) of this subsection,”
As will be seen from the foregoing, the subsection provided a special formula for the ascertainment of statutory income where a trade or business was being set up for the first time; and it was part of a package, the other half of which consisted of sub-section 3, which also provided a special formula for the ascertainment of statutory income where a trade or business had ceased. Together they were known as the “commencement and cessation provisions” and constituted a statutory variation to meet some of the problems, which arose under the now abandoned previous year basis of assessment.
The relevant portions of section 8 as it stood at the material time, are as follows –
“8. 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 –
(i) Where the income arises from emoluments specified in paragraph (c) of section 5 of this Law, during the year of assessment; and
(ii) Where the income arises from any other source, during such time as is provided for in section 6 of this Law, and such disbursements and expenses nay include-”
The section then proceeds to list, in separate paragraphs, various items of expenditure as falling, within those opening words, including paragraph (d) with which this appeal is concerned. Paragraph (d) reads as follows –
“(d) Bad debts incurred in any trade, profession or business, proved to the satisfaction of the Commissioner to have become bad during the year immediately preceding the year of assessment, and doubtful debts to the extent that they are respectively estimated to the satisfaction of the Commissioner to have become bad during the said year notwithstanding that such bad or doubtful debts were due and payable prior to the commencement of the said year:
Provided that all sums recovered during the said year on account of amounts previously written off or allowed in respect of bad or doubtful debts shall for the purposes of this Law be treated as receipts of the trade, profession or business for that year.”
It would seem from the wording of paragraph (d) that the Act as it then stood, did not allow a deduction of all bad debts incurred in a trade, but only such debts as had been “proved to the satisfaction of the Commissioner to have become bad during the year immediately preceding the year of assessment”. Since therefore, the bad debts here in question were incurred in the Year of Assessment 1965, rather than the year which immediately preceded it, the appellant's case would on this point appear to be in ruins even before it can get off the ground. Nevertheless, counsel for the appellant contended that on a proper interpretation of sections 6 and 8 aforesaid, the amount claimed was properly allowable in the computation of chargeable income of the appellant for the Year of Assessment 1965.
The argument in support of that contention was put this way. Section 8 is to be read subject to section 6, in that the former section provides that the qualifying period for the expenditure, is to be — “during such time as is provided for in section 6”. Consequently, all one need do is go to section 6 and see what is the appropriate period there provided for taxpayers in the circumstances of the appellant. Basing himself, therefore, on that view of the matter, counsel submitted that although as a matter of historical record, the bad debts were not sustained during the year immediately preceding 1965, and could never have been since 1965 was its first year in business, the appellant was nevertheless entitled to have them set off in 1965, because section 6(2) prescribed that the statutory income for year of assessment 1965 was deemed to be the income for that year, and not that of the preceding year, as would ordinarily have been the case with an established or continuing business.
This is a deceptively simple argument, since it is, to a certain extent, quite correct to say that the appellant's assessment for 1965 must be approached in that manner, even though section 6 relates to “statutory income” while section 8 relates to “chargeable income”, and the two concepts are not the same. Indeed when dealing with such disbursements as salaries, rents, and so on, the respondent is obliged to compute the assessment on that basis. The difficulty in the instant case lies in the fact that paragraph (d) appears to be saying quite specifically, that the bad debts to which it relates are those incurred during the year immediately preceding the year of charge, and so acceptance of the appellant's contention would involve ignoring clear the words in the statute.
As I have had occasion to mention before, section 8 is something of an enigma in that some of its provisions are not readily reconcilable the one with the other. For example, although the opening words of the section repeat the well known common law concept of revenue expenditure being limited to — “disbursements and expenses wholly and exclusively incurred in acquiring the income” — the section, somewhat inexplicably, then goes on to provide that such disbursements and expenses may include certain items of “expenditure”, which do not fall within the...
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