Commissioner Of Income Tax V. P.K.N.

1935   Present  :  Dalton S.P.J. and Maartensz J.

COMMISSIONER OF INCOME TAX v. P. K. N.

 27-(Inty.) Income Tax.

Income tax-Firm carrying on import business in rice-Assessment of profits-Deduction of expenses-Freight on rice, carried in firm's sailing vessels-Income Tax Ordinance, No. 2 of 1932, s. 9.

The assessees are a firm carrying on business in Jaffna as importers of rice from India. The firm owned sailing vessels in which they carried their own cargo as well as cargo for other merchants. The shipping business was a separate business controlled from their office in India and carried on independently of the business of importing and selling rice in Ceylon.

The assessees deducted from the profits made on their business as dealers in rice the freight they would have charged other merchants for carrying their goods to Ceylon.

Held, that the assessees were entitled to charge only the actual cost of carriage to themselves and not the full amount of the freight they would have charged others.

THIS was a case stated under the Income Tax Ordinance by the Board of Review upon the application of the Commissioner of Income Tax.

The question of law stated is as follows :-" The question which arises is whether, in law, the respondents are entitled to deduct, as the cost of carriage of the rice imported to Ceylon for sale in Ceylon, the full sum with which they have charged themselves as the cost of carriage (such sum being calculated at the rate at which they would have charged any other person had such rice been shipped to Ceylon by such other person) or whether they can only deduct the actual cost of carriage".

M. W. H. de Silva, Acting S.-G. (with him Basnayake, C.C.), for appellant.-The assessee carries on the business of a rice merchant in Ceylon. He has a fleet of vessels in which he imports his rice and he also carries goods for others to and from Ceylon. Although he debits his rice business with the full freight he would have charged an outsider if he carried rice for him, he is not entitled to claim the full freight as an " expense" or outgoing of the rice business. He is entitled to charge what it costs him to bring the rice to Ceylon and is not entitled to make a profit out of himself by subdividing his various activities. Section 9

permits the deduction of outgoings and expenses incurred. An " outgoing" means something that has gone out, an expense which someone has been at [43 L. J., p. 144 at p. 146]. "Expenses incurred" means money actually paid out (118 E. R. p. 737.) Mayor of West Ham v. Grant [1 (1889) 58 Ch. p. 123.] Commissioner of Income Tax v. Antell[2 (1902) A. C. 422.].

Although the accounts of the rice business and the shipping activities are separately kept, the position is not altered. The taxing authority is not bound by the way in which an assessee keeps his accounts.

H. V. Perera (with him N. Nadarajah and Aiyar), for respondent.-The shipping business and the rice business are separate activities and the shipping business, not being a business carried on in Ceylon, is not taxable as the assessee is a non-resident person. If the assessee is not allowed to deduct the full freight on the rice from the profits of the rice business it will amount to an indirect taxation of the profits of the shipping business which cannot be taxed in Ceylon.

Commissioner of Income Tax v. Antell (supra) cited by the Acting Solicitor-General is not applicable to this case.

Counsel cited passages from the Income Tax Manual and referred to the following cases: Commissioners of Inland Revenue v. William Ramson & Son[3 (1918) L. R. 2 K. B. 709.], Commissioners of Inland Revenue v. Maxse[4 (1919) 1 K. B. 64,7, 12 T. C. 41, 11 T. C. 524. 2 I. T. C. 17 Hal. p. 149, (1926) 11 T. C. 508. at pp. 520 and 521, Konstam (4th ed.) p. 143.], Commissioner of Income Tax v. Steel Bros. & Co., Ltd.[5 (1925) income Tax Cases (Indian) vol. II., p.

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