The Commissioner of Income Tax v Round Hill Development Company Ltd


Revenue Court

Marsh, J.

M.170 of 1967

The Commissioner of Income Tax
Round Hill Development Co. Ltd.

A. Hudson-Phillips for appellant.

R. Mahfood Q.C. for the respondent.

Revenue Law - Income Tax — Appeals — Chargeable Income

Marsh, J.

This is an Appeal against a decision of the Income Tax Appeal Board the 1st November, 1967 allowing an appeal by the respondent against a decision of the appellant dated the 27th day of July, 1966, which had fixed the chargeable income of the respondent for the Year of Assessment 1965 in the sum of £5,864. The summons in connection with this Appeal was originally filed in the Supreme Court of Judicature in November 1967, and subsequently transferred to this Court pursuant to the provisions of Section 11, of the Judicature (Revenue Court) Act 1971.


The facts are not in dispute and so no evidence was led before me, the parties being agreed that this appeal raises a question of law only.


The Notice of Appeal states that the issue before the Appeal Board was whether, in the absence of any direction in Section 8 of the Income Tax Law 1954, the respondent was entitled in the Year of Assessment 1963 to set off a loss brought forward from the Year of Assessment 1958, against its profit for 1963, before setting off capital allowances for that year.


The Board, allowing the Appeal, held that to prevent the respondent from setting off the loss brought forward from the Year of Assessment 1963, before setting off the capital allowances for that year, i.e. 1963, would be to deprive it of a statutory right to deduct its losses for six years.


The appellant, the Commissioner, now appeals. Only one ground of appeal has been argued before me, namely–

“That the Income Tax Appeal Board erred in law in holding that the respondent was entitled to deduct its previous year losses before its current year capital allowances, thus giving to Section 8 of the Income Tax Law 1954, a construction which it cannot reasonably bear”.


Although the, appeal is in respect of the Year of Assessment 1965, the dispute between the parties really turns on the method to be used in computing the respondent's “loss” for the Year of Assessment 1963. The matter comes before the Court on an appeal in respect of the Year of Assessment 1965, because that was the first year, subsequent to 1963, in which the respondent made a profit, and in which therefore, any question arise about setting off a loss sustained in 1963.


Both of the parties are agreed that some amount is to be set off in respect of the 1963 loss; they differ, however, as to the quantum thereof.


The respondent contends that in computing its loss for 1963 it is entitled to set off a previous loss brought forward from 1958, before setting off capital allowances granted in respect of the Year of Assessment 1963, and that those capital allowances, having been set off subsequently to the 1958 loss, can in turn be use to create a statutory loss of £7,785 which could then be carried forward into subsequent years, as for example 1965, and in due course set off against profits earned in that year.


The appellant on the other hand says that the proper method to be applied to the computation for 1963 is to set off the allowance for previous losses under paragraph (h) of the section, subsequently to all the other allowances provided by the section, including the capital allowances in respect of that year. If this method is adopted the amount of loss carried forward from 1963 to the year 1965 would be £1,859. That figure would have established by a set off of the capital allowances prior to the previous loss for 1958, and would consequently preclude any further set off in future years of that loss, as it would then be outside of the statutory period of six years, imposed by the section in respect of the carry forward of losses.


The matter is best explained by a reference to the figures of the respective computations for 1963. Those are–

  • (1) Appellant's Computation:

    (a) Net Profit before Capital Allowances

    - £5,926

    (b) Set off of Cap al Allowances for 1963

    - £7,785

    (c) New loss for 1963

    - £1,859

  • (2) Respondent's Computation:

    (a) Net profit before Capital Allowances

    - £5,926

    (b) Set off of 1958 lbs (in part)

    - £5,926

    (c) Set off of Capital Allowances for 1963

    - £7,785

    (d) New loss for 1963

    - £7,785


In essence therefore, the dispute arose because the respondent is contending that on its computation it would have a greater loss to carry forward, in respect of 1963, namely £7,785, than that derived from he appellant's computation, namely £1,859. It is necessary to point out however that neither the figure contended for by the appellant nor that contended for by the respondent, represents an actual commercial loss sustained by the respondent in its business during the year 1963. Both figures represent a loss purportedly computed under the statutory provisions of section 8.


It is convenient to sot out at this stage the relevant portions of Section 8 of the Income Tax Law 1954, upon which the dispute turns. They 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)… (ii) Where the income arises from any source, other than emoluments, during such time as is provided for in section 6, and such disbursements and expenses may include–

  • (e) Any allowances made in accordance with the provisions of the Second Schedule;

  • (h) The amount of any loss sustained in a trade profession or business carried on in the Island or in the ownership or occupation of any land situate in the Island

    • (1) Which, if it had been profit, would have been assessable under this Act;

    • ...

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