Commissioner Of Inland Revenue V. Davith Appuhamy.A.W

[IN THE PRIVY COUNCIL]

1962 Present: Viscount Radcliffe, Lord Evershed, Lord Jenkins,
Lord Devlin, and Mr. L. M. D. de Silva

COMMISSIONER OF INLAND REVENUE, Appellant,
 and A. W. DAVITH APPUHAMY, Respondent

Privy Council Appeal No. 21 of 1962

S. C. 10 of 1960-Case Stated, BRA /283

    Income tax-Profits of a trade or business-Rules for assessing income therefrom Permissible deductions-Litigation expenses-Chargeability against profits Income Tax Ordinance (Cap. 188), ss. 9, 10.

When assessing, for the purpose of income tax, income consisting of the profits of a trade or business, the business must be treated as a distinct " source "of income. Even though there is only a single individual who is the owner or proprietor of the business, the profit emerging is nothing but the figure of ' balance that results from setting the expenditure and other charges against
the receipts.

Accordingly, expenses incurred by the proprietor of a business over litigation with other persons as to their respective rights to share in the ownership of the business cannot be charged against the profits of the business itself.

APPEAL from a judgment of the Supreme Court.

Sir John Senter, Q. C., with R. K. Handoo, for the appellant. No appearance for the respondent.

Cur. adv. vult.

November 12, 1962. [Delivered by VISCOUNT RADCLIFFE]-

In this appeal the Commissioner of Inland Revenue challenges a judgment and decree of the Supreme Court of Ceylon dated the 10th July, 1961, which allowed to the respondent the deduction of certain expenses in the computation of his income for assessment under the Income Tax Ordinance (c.188).

The respondent was not represented at the hearing before the Board. The point at issue is a short one, and after hearing the argument presented on behalf of the appellant their Lordships are satisfied that the decision of the Supreme Court cannot be sustained,

The facts of the case are very simple and they are found in the case stated by the Board of Review dated the 17th November, 1960, upon which the opinion of the Supreme Court was required. Since the year 1945 the respondent had been interested in a business called The Kandy Ice Co. He seems to have been the owner of it since that year, but at any rate on the 16th August, 1949, a deed of transfer was executed by a Mr. Robert Wilson under which he sold and assigned to the respondent the assets and goodwill of the business.

The business was and remained unincorporated, but after the respondent's purchase some proposal was made as between him and certain other persons to form it into a limited company. The proposal fell through, but litigation followed in which the respondent was sued by some of his associates, their claim being that he had acted in the purchase as agent for a syndicate and that, as members of the syndicate, they were entitled to participate in the profits of the business. This claim was successfully repelled by the respondent, and the litigation ended on the 27th September, 1955, with agreed terms of settlement, under which the respondent was acknowledged to have been as from October. 1-945, sole owner of " all the assets movable and immovable, including the goodwill of the business which was and is called and known as ' The Kandy Ice Company', which forms the subject matter of this action ", and the plaintiffs withdrew any claim to any right to or interest in the assets or goodwill of that business. The respondent undertook to pay to the plaintiffs a sum of Rs. 76,500, and it was agreed that each party should bear his own costs to date of the litigation.

Under the Income Tax Ordinance the respondent was assessable to tax upon the profits derived by him from his business, The Kandy Ice Co. In the computation of those profits for the three years ending 31st March, 1953, 31st March, 1954 and 31st March, 1955, he claimed to bring in as admissible expend

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