Rhodesia Railways Ltd v Collector of Income Tax, Bechuanaland Protectorate
| Jurisdiction | UK Non-devolved |
| Judgment Date | 1933 |
| Year | 1933 |
| Court | Privy Council |
Bechuanaland Protectorate - Income Tax - Deductions - Railway - Renewal of Track - “Repairs” - Capital or Income Charge -
The words “repairs” and “renewal” are not expressive of a clear contrast. The fact that the wear of the rails and sleepers of a railway line although continuous is not made good annually does not render the work of renewal, when it comes to be effected, necessarily a capital charge. Expenditure may be a permissible deduction in assessing to income tax, although the benefit derived from it extends beyond the year of assessment.
Upon assessment of the appellants to income tax under the Bechuanaland Protectorate Income Tax Proclamation, 1922, in respect of profits from 394 miles of their railway line in the Protectorate, they clammed to debit 252,174 l., which they had expended in the year of assessment in renewing 74 miles of the railway track. The work, which was part of a general scheme of renewal, included the supply of new rails, sleepers, and fastenings, where necessary; steel sleepers were used in place of wooden sleepers for about half the line renewed. The renewal brought back the worn track to normal condition; as renewed it was not capable of giving more service than the original line.
Held, that the appellants were entitled to the deductions claimed, because the sum expended was an outgoing “not of a capital nature” within s. 15, sub-s. 1 (a), of the Proclamation, and was “expended for repairs of property occupied for the purpose of trade or in respect of which income is receivable” within s. 15, sub-s. 1 (b).
APPEAL (No. 79 of 1932) from a judgment of the Special Court of the Bechuanaland Protectorate (June 22, 1922).
The appeal related to an assessment for the year to June 30, 1932, upon the appellants under the Bechuanaland Protectorate Income Tax Proclamation, 1922, in respect of income derived from 394 miles of their railway line situate in the Protectorate. The appellants sought to debit against the profits a larger sum — namely, 252,174 l., which they had expended in the year of assessment in renewing the track of 74 miles of the line. The deduction was disallowed by the Collector, and the Special Court dismissed an appeal from his decision. The learned judges of that Court held that the claim was not in respect of an outgoing within s. 15, sub-s. 1 (a), of the Proclamation, because it was of a capital nature, nor was it allowable under s. 15, sub-s. 1 (c), as a sum expended for repairs of property, because the work was so substantial in amount that it was a reconstruction, not repairs. Alternative claims under s. 15, sub-s. 1 (a) and (f), were rejected on the ground that a railway line is a work of a permanent nature and the rails and sleepers were not machinery.
The facts of the case, and the material provisions of the Proclamation, appear from the judgment of the Judicial Committee.
1933. Jan. 16. Latter K.C. and Cyril King for the appellants. The expenditure in question was an outgoing not of a capital nature, and therefore a permissible deduction under s. 15, sub-s. 1 (a), of the Proclamation; also it was for repairs to property and therefore within s. 15, sub-s. 1 (b). Those provisions overlap. The appellants' property for the purpose of s. 15, sub-s. 1 (b), was their whole physical undertaking in the Protectorate, the rails, sleepers and fastenings being merely items of it. Periodical renewal of those items is necessary, and their renewal, without an improvement on the originals, was a proper revenue charge. It is not material that the renewal was not carried out solely for the purpose of earning profit in the year of assessment: Vallambrosa Rubber Co. v. Inland RevenueF1; Ward & Co. v. Commissioner of TaxesF2; nor that a large amount of the work was carried out in the particular year: Ounsworth v. Vickers, Ld.F3
Repairs include the renewal of subsidiary parts of property: Lurcott v. Wakely & WheelerF4; Anstruther-Gough-Calthorpe v. McOscarF5; provided, no doubt, that the old material has not become so worn as to have ceased to exist: Inglis v. Buttery & Co.F6 In this case no improvement in the original line was effected; Highland Ry. Co. v. Special Commissioners of Income TaxF7 is therefore distinguishable.
Sir Thomas Inskip A.-G. and R. P. Hills for the respondent. The appellants were allowed a deduction of 41,223 l. in respect of maintenance of ways and works; they are not entitled to debit also the large sum now claimed. Although s. 15, sub-s. 1 (b), does not in terms exclude expenditure of a capital nature as s. 15, sub-s. 1 (a), does, it must be so limited. Whether the deduction was permissible was a question of fact, the onus being upon the appellants under s. 40 of the Proclamation. The conclusion of the Special Court was right. The work was described by the appellants themselves as “a complete renewal.” The total original cost of the line was about three...
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