BREWER'S TAXES

New Zealand Times, Volume XLVII, Issue 10962, 26 July 1921, Page 7

BREWER'S TAXES

LICENSE POLL EXPENSES COURT RULES ON QUESTION OF DEDUCTION. i APPEAL TO PRIVY COUNCIL. The judgment of the Court of Appeal was delivered yesterday, in the case m which Messrs Ward and Co., Ltd-, brewers, Christchurch, appealed against the ; assessment of the Commissioner of Taxes, who decided that the sum of d 62123 3s lid, expended by the appellant company in connection with the special licensing poll taken on April 30th, 1919, under the Licensing Amendment Act, 1918, was not a permissible deduction from the assessable income, of the company. Mr A. W. Blair and Mr P. B. Cooke appeared for the appellants, the SolicitorGeneral (Mr W. C. MacGregor, K.C.), appearing for the Commissioner of Taxes. "A LEGITIMATE INFLUENCE/' It was of vital importance to the company, said the judgment, that, in order to preserve its business from extinction, the determination of the poll should be in favour of National Continuance, and that every legitimate effort should be made to .influence the electors to vote accordingly. "From a business point of view, we do not think it could reasonably be contended that this expenditure was not 'prudent and proper, the Justification tor it (if any were needed) being clearly indicated by the fact that, at the poll, National Prohibition was only defeated by a very narrow majority. If, therefore, vve were at liberty to determine the question submitted to us upon a consideration of whether, in making out a balancesheet of yearly profits upon ordinary commercial principles, this expenditure could properly be shown ag a debit against such profits, we should have no hesitation in saying that it could. "It is, however, clear that the Land and Income Tax Act prohibits mstny deductions, which, on sound commercial principles, might quite properly be made for the purpose of arriving at the annual profits of a business concern, for the purpose of the owner of the concern/' REGULATION OF DEDUCTIONS. The Court quoted from the judgment of Lord Justice Warrington, who held that "a firm or company, carrying on business, may, within certain; limits, treat as a deduction from profits such sum a® it pleases, but for the purposes of income tax, the deductions whioh may be allowed from the gross profits are strictly regulated by the Income,. Tax Acts. These observations, in the opinion of the court, were precisely applicable to the present case. Was the expenditure exclusively incurred in the production of the assessable income? This question, the court mußt, it thought, answer in the negative, a® it was incurred for the purpose of .preventing the extinction of the business. "It may appear illogical that while legitimate expenses incurred in the production of the income are deducible, similar ex-* penses* incurred for the inuch more important purpose of keeping the profitmaking business alive* are not deducible. It may also appear to be inequitable that the Legislature should, on the one hand, force a certain class of traders into a struggle for their verv existence, and, on the other hand, treat the reasonable expenses incurred in connection with snch struggle as part of the profits assessable to income tax.

"GROUND FOR MODIFYING LAW/' "These aspects of the matter are dearly and forcibly set out in the contentions of the company,' as embodied In the correspondence with the Commissioner contained in the case, and might reasonably be submitted to the Legislature as a ground the modification of the law. This cdiirt, however, cannot be influenced by such considerations, being oonoemed only with the interpretation and application of the law as it 1 stands/'

"The words of the English Act w©Te more liberal and comprehensive than the language of the New Zealand Aot, 'in the production of the assessable income,' and would probably permit of the deduction of such expenditure as that with which we are now dealipg, and also, as shown by the decided cases, of many other deductions which would be excluded by the narrower limits of the New Zealand Act." For the reasons given, the oourt/ held that the expenditure in question was not a permissible deduction. Mr Cooke applied for leave to appeal to the Privy Council, whioh was granted, subject to security being found, within a fortnight,"for costs, amounting to «9500.