The company sought to deduct from its trading profits a sum expended paying damages for personal injuries to a visitor to the taxpayer’s Inn. The claim had been rejected.
Held: The company’s appeal failed. Lord Davey said: ‘I think that the payment of these damages was not money expended `for the purposes of the trade’. These words are used in other rules, and appear to me to mean for the purpose of enabling a person to carry on and earn profits in the trade etc. I think the disbursements permitted are such as are made for that purpose. It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade, or is made out of the profits of the trade. It must be made for the purpose of earning the profits.’ and
‘for the purposes of the trade’ means ‘for the purposes of enabling a person to carry on and earn profits in the trade’: ‘These words are used in other rules and appear to me to mean for the purpose of enabling a person to carry on and earn profits in the trade, etc. I think the disbursements permitted are such as are made for that purpose. It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade, or is made out of the profits of the trade. It must be made for the purpose of earning the profits.’
Judges:
Lord Loreburn, The Lord Chancellor, Lords Macnaghten, Davey, James and Robertson
Citations:
[1906] AC 448
Statutes:
Jurisdiction:
England and Wales
Citing:
Appeal from – Strong and Co of Romsey Ltd v Woodifield CA 26-Jun-1905
The compamy operated public houses. It became liable to pay damages for injuries paid to a visitor, and sought to set the cost off against income tax.
Held: The Commissioners had been correct to refuse to allow the company to set the sums off . .
Cited by:
Adopted – Morgan v Tate and Lyle Ltd HL 1955
The words ‘for the purposes of the trade’ in the statute mean ‘for the purposes of enabling a person to carry on and earn profits in the trade’. Money spent for the purpose of preserving the trade from destruction can properly be treated as wholly . .
Cited – David Robson v Eric Mitchell (HM Inspector of Taxes) ChD 8-Jul-2004
The taxpayer sought capital gains tax relief of a loan to a business.
Held: To succeed in his claim the taxpayer had to establish that the indebtedness created was to be used entirely to serve the borrower’s business. . .
Cited – David McKnight (Inspector of Taxes) v Sheppard CA 7-May-1997
Legal expenses incurred by a professional in defending disciplinary proceedings are deductible from taxable profits. . .
Cited – Robson v Mitchell (HM Inspector of Taxes) CA 18-May-2005
The company had taken out a loan to finance works on the farm. The loan was guaranted by the taxpayer. Years later when the farm was sold, part of the money was used to repay the loan, and the taxpayer sought to set it off against his liability for . .
Cited – Forthright (Wales) Limited v A L Davies (HM Inspector of Taxes) ChD 18-Mar-2004
The inspector disallowed a claim for enterprise investment relief, saying that not all the funds raised were to be used for a qualifying purpose.
Held: The proceeds of a share issue had been used in part to pay a dividend. The issue did not . .
Cited – Commissioner of Inland Revenue v Cosmotron Manufacturing Company Limited PC 28-Jul-1997
(Hong Kong) The taxpayer company was winding down its business. As it closed it made substantial redundancy payments to its employees. The Commissioners rejected a suggestion that such payments could be set off against income, saying that the . .
Cited – Carney v Inspector of Taxes SCIT 1-Nov-2002
CHILD CARE EXPENSES of a self-employed person – whether deductible – no – whether Human Rights Act 1998 applies to a tax year before coming into force where the act of disallowance took place afterwards – no – whether the point is covered by primary . .
Cited – Forthright (Wales) Ltd v Hm Inspector of Taxes SCIT 29-Sep-2003
. .
Cited – Mallalieu v Drummond HL 27-Jul-1983
The taxpayer was a barrister. To comply with Bar guidance on court dress, she wore, in court and in and to and from chambers black dresses, suits and shoes and white blouses. The clothing were perfectly ordinary articles suitable for everyday wear. . .
Lists of cited by and citing cases may be incomplete.
Income Tax
Updated: 30 April 2022; Ref: scu.199762