| 9/9/2010 |
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| Court of Appeal - Decisions in Income Tax Cases |
| Case No: 23 |
Decided on 2 December 1959 |
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Whether The Maintenance And Repair Of Premises Rules Had Been Issued Ultra Vires. Distinction Between Repair And Improvement
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The Maintenance and Repair of Premises Rules had originally been made by a notice in the Government Gazette in 1950 under the powers given to the Governor-in-Council by the ITA as enacted. Doubts had later arisen whether the law gave powers regarding the making of rules containing standard rates, and the Act was therefore amended with retrospective effect to its date of commencement:-
(a) to enable the making of rules comprising standard rates; and
(b) to provide that the Rules made in 1950 were to be deemed to have been made under the law as amended.
The Court held that the amendments had given proper retroactive effect to the Rules and therefore dismissed this point of appeal.
The Court however disagreed with the Board of Special Commissioners which had considered the replacement of a roof to be capital in nature. While agreeing that this was an "extraordinary" item as against an "ordinary" expense, the Court held that this did not necessarily render the expense capital in nature and hence disallowable. The real test was: "has a new asset been created resulting in an increase in the income earning capacity or does the work undertaken merely represent the cost of restoring the asset to a state in which it will continue to earn income as before?".
Since in this case there had been no improvement, but merely a restoration to the original state of the asset, the Court held that in principle, a deduction was due. Once, however, the Maintenance and Repair Rules had been found to be "intra vires" as above, the allowance had to be restricted to the standard rates therein set out.
The Court also held that the deduction rules made no distinction between "ordinary" and "extraordinary" repairs: if the onus on the taxpayer to meet expenses related only to capital items, nothing was deductible in their respect, if not restricted to capital, a deduction as set out in the rules was allowable.
BSC Case No: 16/58
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