INCOME TAX. VALUE OF STANDING TIMBER.

Evening Post, Volume LXXXIII, Issue 78, 1 April 1912, Page 8

INCOME TAX. VALUE OF STANDING TIMBER.

KAFRI AND TAUPO TOTARA > COMPANY'S APPLICATIONS. A delicate point in income taz law came before the Court of Appeal % today in the form of an application fey an order under the Declaratory Judgments Act, intei-preting sections 71, 7U. and 87 of the Land and Income AfcseaSment Act- and deteimining the following question in relation thereto :—"ln: —"In what cases (if at all) and to what extent (if at all) is a company which, in the manner set forth in the statement of faefs, carries oil (inter alia) the business of cutting, milling, and selling the standing timber owned by plaintiff company, entitled in its assessment for income tax to deduct from the gross proceeds of its business tho value of tho standing "Limber so cut, by it?" The parties were the Taupo Totara Timber Company, Ltd., and the Kauri Timber Company, Ltd., plaintiffs, and the Commissioner of Taxes, defendant. The Bench was occupied by the Chief Justice (Sir Robert Stout) and Justices Denniston, Edwards, and Chapman. Sir John Findlay. K.C., with him Mr. J. Logan Stout, appeared for tho Taupo Tctara Company, Mr. T. Cotter, K.C., with him Mr. C. J. Schnauer, for tho Kauri Company, and Mr. J. W. Salmend (Solicitor-General) for the Commissioner of Taxes. -■ In the statement of admitted facts, it was set out that the Kauri Timber Company acquired a large number ot bush properties in "New Zealand, ejthciby purchase outright of the lease itseli with the standing bush on it or by purchasing the timber with the right to cut it at any lime within v- stated period. In inoci cases the company paid a lump Bum for the timbar and rights acquired, but in some isolated casesi the company paid a royalty. During the year ended Slst August, 1906, the company used in the production of its income timber worth, immediately before cutting, £29,768; 1907, £36,224; 1908, £28.874; and 1909, £37,463. During no part of any of its financial periods did the company pay to or divide among its shareholders any part of the amounts shown by its accounts to be the value of the timier immediately before or at the time of being cut, but such amounts had) been and were being treated as part of tho capital of the company, and used in the purchase of other timber or land or other objects of the company. In assessing plaintiff company for income tax for the years ending 31st August, 1906, 1907, 1908, and 1909, the Commissioner of Taxes refused to allow ths company to deduct from the gross proceeds of ite business the value of the standing timber so cut and used during those years on the ground -that in his opinion such a deduction was prohibited by section 87 of the Land and Income Assessment Act. A similar set of circumstances was set out in connection with tihe Taupo Totara Company. The Taupo Totara Company's timbei was partly on freehold and partly ou leasehold lands, held for a term of years. The average quantity of timber cut annually was 7,000,000 superficial feet, and there was sufficient timber left for fifteen years. The value of the freeholds and leaseholds at 30th April, 1911, exclusive of the company's railway, was shown in the company's books as £113,282, representing the actual cost of acquiring the properties (less depreciation in respect of timber cut), and not representing the present value of the properties. (Proceeding.)