TAX ASSESSMENT

Dominion, Volume 26, Issue 250, 18 July 1933, Page 10

TAX ASSESSMENT

Company’s Appeal to Cour

is Dismissed A QUESTION OF INTEREST Income tax assessed on interest paid by’a company on overseas commitments postponed in anticipation of a fall in the exchange rate was the subject of an action heard and decided by Mr. Justice MacGregor in the Supreme Court yesterday. The case was one in which Bryant and May, Bell and Co., Ltd., match manufacturers, Wellington, appealed to the court against an assessment by the Commissioner of Taxes bn a sum of £1173/16/10, interest on money paid by the company to its parent company in England. His Honour held that the commissioners assessment was a correct one, dismissing the appeal, with £l5/15/- costs and disbursements.

Mr. E. F. Hadfield, with him Mr. H. J. V. James, appeared for appellant company, and Mr. A. Fair, K.C., with

him Mr. H. D. Adams, for the Commissioner of Taxes. . <

The case, as stated, set out that during the year ended December 31, 1930, appellant company purchased from Bryant and May, Ltd., London, certain goods at a total-cost of £55,509/12/11, while during the same year, there became due and payable to the parent company, in respect of dividends due on preference and ordinary shares, £24,764/16/-. . During the year ended December 31, 1930, appellant company, by special arrangement made with Bryant and May, Ltd., postponed payment for goods purchased during the year. The arrangement was. not a usual one, no’r was it an ordinary method adopted in the carrying on of the company’s business. A Special Arrangement. It was a special arrangement, because at the time appellant company believed that the then rate of exchange would drop, and desired to conserve moneys held by it in New Zealand, and invest them in interest-bearing securities. It was not made because appellant company required credit to enable it to pay for the goods or for the expansion of its business. The whole of the goods supplied during tlie year ended December 31, 1930, to appellant company, were paid for before tlie end of July, 1931 by remittances made at the higher rate of exchange. In its return of income for the year ended Marell 31, 1931, representing the company's fiscal year ended • December 31. 1931, appellant company claimed to deduct from its assessable income, £1173/16/10, in respect of interest credited to Bryant and May, Ltd., London, on the amounts owing to it. Mr. Hadfield, after outlining the facts as stated, said the appellant company claimed that the interest was simply part of the purchase price of the goods. It asserted by so doing it had received more income than it would have done otherwise, and consequently paid more taxation than It would have done if it had sent the purchase money to England. On the other hand, the Commissioner of Taxes contended that the company was not entitled to deduct that interest, So that notwithstanding that the company had received more income and paid more taxation, it had been mulcted further by the commissioner by his refusal to allow tax deduction in respect to the interest paid in England. Judgment of the Court.

Iu delivering judgment, his Honour said the amount involved was admittedly interest. That being so, tlie matter fell to be dealt with under section 80 of the Land and Income Tax Act, subsection 1, paragraph h, which stated: “In calculating assessable income derived by any person from any source, no deduction shall be made in respect to interest, except so far as the commissioner is satisfied that it is payable on capital employed in the production of assessable income.” “The commissioner has gone into tlie matter, apparently exhaustively, and is. satisfied that this interest was not interest paid on capital employed in tlie production of assessable income,” his Honour said. “That is, so far as lam able to judge, conclusive. So long as he is acting in good faith, there is no appeal from his decision. That seems to me to conclude the case against the appellant. “It seems to me, looking at the relevant section of the Act, tlyit this sum which is claimed as a deduction by way of interest is not claimable by way of reduction, the reason being that the commissioner Is satisfied from his investigation that it is not capital employed In the production of the assessable income. 1, am of the opinion that the commissioner is quite right iu the conclusion he has come to.” The appeal was dismissed, with costs £l5/15/-, and disbursements.