Fitzgerald v Revenue Commissioners

JurisdictionIreland
CourtSupreme Court (Irish Free State)
Judgment Date02 Dec 1926

Supreme Court.

FitzGerald v. Commrs of Inland Revenue.
MARTIN FITZGERALD
Appellant
and
THE COMMISSIONERS OF INLAND REVENUE, Respondents (1)

Revenue - Excess profits duty - Balance of profits and gains - Deductions allowable - Distinction between capital and income - Sum employed as capital - Money not exclusively expended for purposes of trade - Business premises burned down - Covenant to repair and to yield up in repair - Cost of repairs - Expenses of fitting up temporary premises - Income Tax Act, 1842 (5 & 6 Vict. c. 35), sect. 1006 Vict. c. 35), sect. 100, Sch. D, First Case, Rules 1 and 3, Rules applying to both First and Second Cases, Rule 1 - Finance Act (No. 2), 1915 (5 & 6 Geo. 5, c. 89), sects. 38 and 40.

Case Stated under the Finance (No. 2) Act, 1915, sect. 45, sub-sect. 5, and the Taxes Management Act, 1880, sect. 59, by the Commissioners for the special purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice in Southern Ireland. The case stated was as follows:—

"At a meeting of the Commissioners for the special purposes of the Income Tax Acts, held on 20th October, 1921, for the purpose of hearing appeals, Mr. Martin Fitzgerald, of 91, 92, and 93 Middle Abbey Street, Dublin (hereinafter called the appellant), appealed against assessments to excess profits duty made upon him for accounting periods of one year each ended 30th June, 1916, and 30th June, 1917, in the net amounts of £459 18s. and £1,927 2s. respectively, under the provisions of the Finance (No. 2) Act, 1915, and subsequent enactments.

The following facts were proved or admitted:—

The appellant carried on his business as a tea, wine, and spirit merchant in premises at 91, 92, and 93 Middle Abbey Street, Dublin.

The said premises were held by the appellant under a lease dated 18th April, 1894, which was acquired for the purpose of the business. Under the provisions of the said lease, which was for a term of 50 years, and at a yearly rent of £255, the appellant was bound as lessee to keep the said premises in good condition and complete repair, and at the expiration or sooner determination of the said term to yield up the same, reasonable wear and tear excepted, unto the lessors, their successors, and assigns. A copy of the lease is annexed to and forms part of this case.

During the week commencing 24th April, 1916, the premises were burnt out during the rebellion in circumstances which precluded appellant from recovering the value of the property destroyed under any insurance policy or under the Criminal Injuries Acts.

Pending the restoration of the premises which had been destroyed, it was not possible for the appellant to continue to carry on his business at 91, 92, and 93 Middle Abbey Street, but he acquired temporary premises at 94 and 95 Thomas Street under a lease dated 3rd July, 1916, for a term of five years from 8th May, 1916, at a yearly rent of £220 (with a right on the expiration of the term to renewal for a further term of five years). The appellant also found it necessary for the purpose of his business to take additional premises for use as temporary stores, at yearly rents amounting to £10, for the period to 30th June, 1916, and £32 for the period to 30th June, 1917, plus in each case rates and taxes.

For the purpose of adapting the said temporary premises and stores to the purposes of his business, the appellant expended certain sums, amounting to £300 in the year ended 30th June, 1916, and £1,436 12s. 5d. in the year ended 30th June, 1917.

During the accounting periods in question the premises in Middle Abbey Street were not, and could not, be occupied for the purposes of the appellant's trade; but, without any avoidable delay on his part, steps were taken for the restoration and rebuilding of the premises. Under the plans made for the rebuilding, the new premises when completed will be more commodious and better than the old premises which were destroyed.

For the purpose of this case it is agreed that an expenditure of not less than £18,713 would have been necessary in order to rebuild and restore the old premises to the state required by the covenants in the lease of 18th April, 1894.

The appellant has in years subsequent to the accounting periods expended a sum approximating to £30,000 upon the new premises, and he has received from the Government an ex gratia payment of £8,500 in respect of the premises which were destroyed.

At the hearing of the appeal the appellant contended:—

(1) That the sums of £300 and £1,436 12s. 5d. expended by him in the accounting periods in fitting up temporary premises were admissible deductions under the principles of the Income Tax Act in calculating his liability to excess profits duty.

(2) That the sum of £10,213, being the difference between the agreed estimated cost of replacing the old buildings, namely, £18,713, and the sum received from the Government, namely, £8,500, was also a proper deduction under the same principles.

The Inspector of Taxes, on behalf of the Commissioners of Inland Revenue, opposed these contentions, and claimed that the sums of £300, £1,436 12s. 5d., and £10,213 were all of them expenditure of a capital nature not admissible as deductions under the principles of the Income Tax Acts.

We, the Commissioners who heard the appeal, upheld the contentions of the Inspector, and confirmed the assessments.

The appellant, immediately upon the determination of the appeal, expressed to us his dissatisfaction therewith as being erroneous in point of law, and in due course required us to state a case for the opinion of the High Court, pursuant to the Finance (No. 2) Act, 1915, sect. 45, sub-sect. 5, and the Taxes Management Act, 1880, sect. 59, which case we have stated and do sign accordingly, the question for the decision of the Court being whether or not the above-mentioned sums of £300, £1,436 12s. 5d., and £10,213 are admissible as deductions in arriving at the proper assessments upon the appellant in respect of excess profits duty for the said accounting period." The case stated was dated 13th April, 1923.

The covenant for repair in the lease of 18th April, 1894, was as follows:—"And will keep the said premises in good condition and complete repair, and, at the expiration or sooner determination of the said term, so yield up the same, reasonable wear and tear excepted, unto the lessors, their successors, and assigns."

From this judgment the appellant, Martin Fitzgerald, appealed to the Supreme Court (1).

Appellant's business premises were burnt down in circumstances which precluded him from recovering the value of the property under any insurance policy or under the Criminal Injuries (Ir.) Acts. He held the premises under a lease containing a covenant by him, as lessee, to keep the premises in repair and yield them up in repair. It would have cost £18,713 to restore the premises to the condition required by the covenant in the lease. The Government made him a grant, ex gratia, of £8,500 in respect of the premises. Pending restoration, he acquired temporary premises, and to adapt these to the purposes of his business he expended £1,436 12s. 5d. in one year; he had expended £300 during the previous year in clearing the site of the destroyed premises, this being done for the purpose of recovering the books, papers, and safes of his business. Having been assessed to excess profits duty, he appealed:

Held by the Supreme Court (affirming Hanna J.), that the sum of £10,213, which was the difference between the cost of restoring the destroyed buildings (£18,713) and the Government grant of £8,500, was not admissible as a deduction in calculating the appellant's liability to excess profits duty, as it was expenditure of a capital nature; nor was the sum of £300 spent in clearing the site, nor the sum of £1,436 12s. 5d. spent in fitting up the temporary premises, deductible either, being also expenditure of a capital nature.

Cur. adv. vult.

Hanna J.:—

This case raises a point under the Income Tax Acts as applied to excess profits duty, viz., whether certain sums expended by the taxpayer in rebuilding premises that had been destroyed in 1916 can be taken into consideration by the Commissioners as deductions under the principles of the Income Tax Acts. The following facts were proved or admitted before the Commissioners:—It appears that the taxpayer, Mr. Martin Fitzgerald, carried on business as tea, wine, and spirit merchant in the premises, 91, 92, and 93 Middle Abbey Street, Dublin. The premises were held by him under lease, dated 18th April, 1894, and the Commissioners add in the note, that they were acquired for the purpose of his business. Under the provisions of the lease, which was for a term of 50 years and at a yearly rent of £255, the taxpayer was bound as lessee to keep the said premises in good condition and complete repair, and at the expiration or sooner determination of the term to yield up the same, reasonable wear or tear excepted, to the lessor, his successors, and assigns. During the week commencing 24th April, 1916, the premises were completely burned out in circumstances which precluded the appellant (that is, the taxpayer, as I refer to him in this case) from...

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