TAXATION APPEAL

Greymouth Evening Star, 12 July 1930, Page 2

TAXATION APPEAL

, DIRECTORS’ FEES QUESTIONED

[PER PRESS ASSOCIATION.]

WELLINGTON, July 11

At the Court of Appeal, in the case Aspro Ltd. v. the Commissioner of Taxes, Mr Gray. K.C., for the appellant company, said that this case was one of a kind that came before the Courts, in which the right, of the Commissioner to decide what was fair renumeration for the Directors of a private company was involved. As the result of the first year’s working, a profit was shown by the appellant company, and the substantial directors’ fees fixed. In the succeeding vears profits increased, and the- directors’ fees were enlarged to big sums. The question was really whether the Commissioner had the power to interfere with the affairs of what was practically a private partnership. The Commissioner had contended that the money voted as remuneration was really a distribution of profits, and that it. should be assessed accordingly. In the appellant company there were only two shareholders who were also the only directors. They found the money and the brains to push the business, and, in the circumstances, the Commissioner had no right to say what was a fair remuneration for their services if they, as shareholders. choose to- pay themselves as directors, sums which they considered they were entitled to. If .they were a firm instead of a company comprised of two gentlemen holding an equal number of shares, they would divide the profits and pay income on that basis individually. Mr Fair, for the Commissioner of Taxes, said that two questions arose: (1) Whether the statement by a taxpayer that a payment was made for a certain purpose was conclusive against the Commissioner that such payment was made for that purpose; and (2) whether, on the facts proved in the court below, the appellant had not discharged the onus of proving that the expenditure was incurred in the production of the assessible income. The Commissioner of - Taxes had the power to enquire into the services for which directors’ fees were paid. The test was whether’ the expenditure was reasonable. If the construction contended for by the Commissioner was not accepted by the Court, the door would be left open to an evasion of income tax. The directors’ fees in the ’case before the court were not paid for the remuneration of services; but constituted a distribution of profits for the purpose of reducing the rates of income tax. The decision of the court was reserved.