TIMBER TAXES

New Zealand Times, Volume XXXVI, Issue 8103, 4 May 1912, Page 1

TIMBER TAXES

DEDUCTIONS NOT ALLOWABLE QUESTIONS OF CAPITAL, “Tho plaintiff company is not entitled in its assessment for-income, tax ,to,deduct from the gross 1 proceeds of its business the value of the standing .timber cut by it, as., set forth in -tho ‘special case'.'/This -was the Conclusion arrived at by the Court of Appeal in respect tp the cases brought by tho Kauri Timber Co., Ltd., and the Taupo'Totara Timber Co 1 ., Ltd., plaintiffs, ' against the Commissioner of .Taw*,, 1 defendant. ‘ . V .The Bench heayrftiß thetdhso comprised .the Chief' Justice (Sir Itobert Stout), Mr ■Justice Denhistoni' Mr- JU'stice. Edwards, and .31 r Justice Chapman.. . The, .judgment of the court ’was. delivered by his Honor Mr Justice. Edwards. _ ■ :-TThe admitted fapts in regard to the kauri timber .case • were as follow:—The Kauri Timber Company, ‘Ltd;, is a corn pany,• incorporated in; .Victoria, and carry . ing on business in (New Zealand as sawmillers and timber merchants. It'has acquired a large number jbf , bush pro perties in New Zealand either by outright purchase" of the timber-bearing land, or by purchasing the timber/rights over a certain period; generally paying a lump, sum for these rights, but in some isolated cages .paying a royalty. During none of any of'its‘financial periods has the company paid or divided amoflg, its shareholders any port 'of the amounts shown by its accounts as the value of the timber immediately, before or at the time of. being severed .from , the. land. Such amounts have always been treated as part of the capital of the company; to be used in the purchase of other tim-ber-bearing lands or other objects of the company. During . the year ending August 31st, 1906, the company' used in its business, timber worth, at the time of cutting, - £29,768, most of which timber was cut; from land acquired in 1888 when the company first started business, • and no part of which was cut from land acquired in 1906. In 1907 timber valued at .£36,221 was used; in 1906 worth .£28,874; in 1909 worth .£37,663. . No part of the timber, except a small portion cut in 1908, was cut from land acquired' in the same year and most of it was cut from land purchased when the company first commenced . business. In assessing the company for income tax for the years ending August 31st, 1906, 1907, 1908, 1909, the Commissioner of Taxes refused to allow the company to deduct from the gross proceeds of its business the value of the standing timber cut and used during,, those years, oh the ground that in his 'opinion such a deduction was prohibited by section 87 of .the Hand and Income Tax Assessment Act.

The facts in respect of the case brought by'the Taupo Totara Timber Company ■were of a similar nature.

Counsel for the. plaintiff company in each’case contended that ,in the assessment of the - income of snch companies they were entitled to a deduction of the cost to them of the timber trees, con verted into timber, and in that - shape disposed of by them. They '• contended that under paragraph (f) of section 79 they are liable only in respect of the “commercial profits" - derived • from the business carried on by , them, and that those, profits can be no more than the residue of their receipts after deduction therefrom of the amount which it has cost them to produce the manufactured article. .The timber trees were, they contended, the stock in trade of their business; and they were, they urged, entitled to the same deduction, from their gross _ receipts from Hhe sale of timber as might be made by a merchant of the cost to him of the commodities in which he deals. To this counsel for the Crown replied that, whatever might otherwise be thought upon this point, the deduction claimed was:expressly prohibited by the 87th section of the statute.

The history of the legislation, in the opinion of their Honors, did not advance the claim made by the plaintiffs. After referring to other legal, contentions the court answered the question submitted to it as stated above.

Sir John Findlay, K.C., with him Mr J. li. Stout, appeared for the Tauno Company; Mr T. Cotter, K'.C., with him Mr C. J. Schnaner, for the Kauri Company; and Mr J.. W. Salmohd,’ Solicitor-Gene-ral. for the Commissioner of Taxes.

Sir John Findlay applied for. and was granted, leave to appeal to the Privy Council in each case.