"TALKIE" PLANTS

Evening Post, Volume CXII, Issue 95, 19 October 1931, Page 8

"TALKIE" PLANTS

THE TERMS OF HIRING

PICTURE MAN'S INCOME

DEDUCTIONS REFUSED

Terms imposed by the Western Electric Company (N.Z.), Ltd., in connection with the installation of talking picture machines and equipment were set out in a case stated by the Commissioner of Taxes for the opinion of the Court of Appeal to-day. It is an appeal by Willi.vm Robert Komball, -ji Wellington, from tho Commissioner's assossment of his income for the year ended 31st March, 1930. The case raises a neat point of law. In assessing Mr. Kemball for his income the Commissioner disallowed sums of £3892 11s lid and £3743 19s lOd, paid by the appellant to the Western Electric Company for talking machines, and claimed by the appellant as deductions from his income on the ground that tho sums were expenditure exclusively incurred in tho production of his assessable income. The question the Court has to consider is whether the Commissioner's assessment was correct, and, if not, what is the correct assessment. The Chief Justice (Sir Michael Myers) is presiding. Also on the Bench are Mr. Justice Eeed, Mr. Justice Adams, and Mr. Justice Ostler. Mr. A. Gray, K.C., with Mr. J. S. Hanna, is appearing for the appellant, and the Solicitor-General (Mr. A. Fair, K.C.), with Mr. Adams, for the Commissioner of Taxes. TERMS OF HIRING. According to the stated case, Mr. Kemball during the year ended 31sfc March, 1930, inter alia, was carrying on business in Wellington and elsewhere in New Zeauand as a picture theatre proprietor, and was the lessee of the De Luxe Theatre, the Paramount Theatre, and the King's Theatre, Wellington. On 17th May, 1929, the Western Electric Co. (N.Z.), Ltd., agreed with Mr. Kemball to install in the De Luxe Theatre, a "talkie" machine, and to let the machine and equipment on hire to Mr. Kemball for ten years at a rent or hiring fee of £.3195, of which 10 per cent, was to be paid upon the appellant signing the formal contract, and the balance to be paid upon the completion of the installation of the machine and equipment, and at a further rent or hiring charge throughout the term of £7 a week. It was also agreed that the appellant 6hould pay to the Western Electric Company an amount equivalent'to the Customs duty paid by tho company on the machine and equipment, and should also pay to the company the cost of certain additional equipment, namely, an extra horn and a transformer, and that the appellant should execute an instrument of agreement and lease embodying tho arrangement and certain other terms aud conditions. Pursuant to the arrangement, the appellant and tho Western Electric Company on 17th May, 1929, executed an agreement and lease, and the appellant paid the company £319 10s, being 10 per cent, of the hiring fee, and tho Western Electric Company proceeded to install the machine and equipment in the De Luxe Theatre. Tho work of installation was completed about 17th July, 1929, and the following day the appellant, upon demand of tho company, paid £3418 2s 4d, being £2874 for the balance of tho hiring fee, £405 8s 2d on account of duty and charges, £68 15s 3d cost of extra horu, and £69 8s lid cost of transformer. On 9th August, 1929, the appellant paid the company an additional sum of £9 5s for the balance of duty and charges. The appellant also expended iii connection with." the installation of tho machine and equipment the sum of £145 14s 7d. PARAMOUNT THEATRE MACHINE. On 17th June, 1929, tho Western Electric Co. agreed to install in the Paramount Theatre or (at the option of the appellant) in the King's Theatre, a machine and equipment similar in all respects to the machine and oquipment (but without an additional horn) installed in the De Luxe Theatre and upon the same terms aud conditions. An agreement and lease was executed. The appellant paid to the company £319 10s, and the machine and equipment were installed ia tho Paramount Theatre. Tho installation work was completed about 6th August, 1929, and on that date the appellant upon demand paid to the company the sum of £3370 Is 4d. In connection with the installation of the machine tho appellant also expended £54 8s 6d. The mechanical life of the machines and equipment with proper care is estimated to bo about forty years. It was stated that the period within which they would become commercially useless was impossible to estimate, being largely dependent upon future mechanical or other developments, inventions, or discoveries in relation to tho reproduction of sound in connection with the exhibition of moving pictures. KEMBALL THEATRES, LTD. In July, 1930, a company named Kemball Theatres, - Ltd., was incorporated, and Mr. Kemball, with the consent of the Western Electric Co., agreed to sell $he benefit of the two hiring agreements to the new company in consideration of the sum of £3348, to be paid to him in respect of each of the agreements. The two hiring agreements were cancelled, and in substitution1, two new hiring agreements were oxecuted by the Western Electric Co., Ltd., ana". Kemb.aU Theatres, Ltd. The machines and equipment are still in use by Komball Theatres, Ltd., in the Da Luxe, and Paramount Theatres. The weekly xant or.hire of £7 payable by the. appellant. under each of the two hiring agreements was duly paid by him until 18th October, 1929, when the rent or hire was reduced to £6 a week, which was paid by the appellant until 3rd July, 1930, since which date it has been regularly paid by Kemball Theatres, Ltd. COMMISSIONER'S ASSESSMENT. The Commissioner of Taxes, in assessing the appellant for his income for the year ended 31st March, 1930, disallowed the Bums of £3892 11s lid and £3743 19s lOd paid by the appellant to tho Western Electric Co., and claimed by the appellant in his return of income as deductions from his income. The appellant contends that the expenditure by him of the sums of £3892 118 lia and £3743 19s 10d wag expenditure exclusively incurred in the production of the assessable income for the year in question, and was wrongly disallowed by the Commissioner of Taxes. The Commissioner of Taxes contends: (a) That the expenditure is in the nature of capital expenditure and its deduction is prohibited by the provisions of Section 80, sub-section lb, of the Land and Income Tax Act, 1923, or, alternatively—(b) the deduction of the expenditure is prohibited by Section 80, sub-section 2, of the-Act; (c) in any case, the assessment is correct and should be sustained. Legal argument is proceeding.