Che Ivanayagam v. Commissioner of Income Tax.
Present: Moseley A.C.J. and Soertsz S.P.J.
CHELVANAYAGAM v. COMMISSIONER OF INCOME TAX.
.Income tax—Advocate—Purchase of Law Reports—Deduction of cost notallowed'—Ordinance No. 2 of 1932, s. 9 (I) (a).
The cost of a set of Law Reports purchased by an Advocate is not apermissible deduction in assessing his income from the profession.
i HE assessee-appellant, who is an Advocate, claimed that a stun of
-L Rs. 354 expended by him in the purchase of a number of volumesof the Indian Appeal Law Reports should be deducted for the purposeof arriving at his taxable income. The claim was disallowed by theCommissioner and the Board of Review, and a case was stated for theopinion of the Supreme Court under section 74 of the Income TaxOrdinance.
H. V. Perera, K.C. (with him N. Nadar ajah, A. Muttukumaru, andC. C. Rasa Ratnarn), for the assessee-appellant.—The practice is to deductfrom the gross income the value of Enactments, current local reports, andof text books in the nature of replacements. A lawyer is handicappedif he does not possess the Indian reports. The Income Tax Departmenthas drawn an arbitrary distinction. A book used for the purpose# ofacquiring general knowledge, like one on jurisprudence, is different fromone necessary for the presentment of a case in Court. No person readsthese reports unless he is studying a case.
[Soertsz S.P.J.—Is there any case similar to this one decided underthe English Act?]"
There is the case of a medical man. There it was held that if thebooks were read to the patients, the value could be deducted, but notwhere the books were read to acquire a knowledge of the subject.
Section 10 of the Ordinance is rather difficult to apply. If books arebought for the purpose of acquiring knowledge, then it, is a capitalexpense, but it is not so, if they are bought for the purpose of havingthem at hand.
[SoebStsz S.P.J.—Suppose a man buys all the reports?]
Each case depends on its merits. The Commissioner must find whetherit is necessary for his practice. The position of a junior lawyer isdifferent from that of a senior. Expenditure incurred in preparingoneself for work is not allowable.
The word “ capital ” has been explained in several cases as the sourceof getting in the income Money spent in acquiring a business is alsocapital expense. See Commissioner for Inland Revenue v. George ForestTimber Co., Ltd.1, and the Dictionary ofy Income Tax and Surtax bySnellingBooks can never be included as plant as decided in Daphnev. Shaws; Simpson v. Tate * and Sir Hari S. Gourds case5 were also cited.
11924) A. D. 516.3 (1926) 11 Tax coxes.
1931 ed., p. 240.-* (1925) 2 K. B. 214.
S. C. 148 (Inty.)
440 MOSELEY A.C.J.—Chelvanayagam v. Commissioner of Income Tax.
S. J. C. Schokman, C.C., for the Commissioner of Income Tax.—Thepoint of law must he based on the facts stated. The point discussedbefore the Board of Review was that the brain was the capital and thebooks were mere implements. As long as the expense is of a capitalnature, it is immaterial whether it is spent in getting the business.
Simpson v. Tate1 wasvdecided under Schedule E to the Income TaxAct which deals with employments, whilst Schedule D deals withprofessions. Whether a professional man is in employment or in privatepractice, no deductions are allowed for obtaining literature because theexpense is of the nature of capital expenditure. See 5 S. A. Tax Cases256; 6 Tax Cases 671, at 677; and Ounsworth v. Vickers, Ltd.‘. The booksare there even after his retirement. They would form part of his estate.Further it is difficult to say whether the Advocate is just starting to get apractice or not.
H. V. Perera, in reply.—The South African case was decided by atribunal corresponding to the Board of Review in Ceylon. Hence thatcase is not binding. Further the reasoning in that case is not convincingand it is contrary to the practice of deducting money spent on currentreports. In Ounsworth v. Vickers, Ltd. (supra), the dredging of theharbour was not only for the use of the battleships but for the use ofother ships as well. Hence this case would not apply.
Cur. adv. vult.
March 30, 1939. Moseley A.C.J.—
The appellant, an Advocate of the Supreme Court, claimed that a sumof Rs. 354 expended by him in the purchase of a number of volumes ofthe Indian Appeal Law Reports should be deducted for the purpose ofarriving at his taxable income fpr Income Tax purposes. His claim wasdisallowed by the Commissioner of Income Tax and by the Board ofReview to whom he appealed. The question has now come before thisCourt by way of case stated.
The point is whether the expenditure referred to above is an “ outgoingand expense ” incurred by the appellant in the. production of his income.
It is apparently the practice of the Commissioner to allow deductionsin respect .of expenditure on the purchase of current reports, but not,as in the present case, in regard to other works of reference. Snelling'in the Dictionary of Income Tax and Surtax Practice (1931 ed.), at page240, says, “…. a lawyer may deduct sums paid for current reports,&c. A clergyman or minister of religion, however^ may not be allowedthe cost of purchasing books required for purposes of study. This rulewould apply to lawyers and business men in connection with any bookswhich may be said to equip them for their business rather than to be usedin the carrying on of their business.”
In Daphne v. Shaw3 the appellant, a Solicitor, claimed a deductionin respect Of wear and tear and obsolescence of books forming part of hislaw library. Rowlatt J. refused to believe that the books which a lawyerconsults on his shelves could be included in the expression “plant andmachinery ”, and upheld the finding of the Commissioners disallowingthe deduction.
(1925) 3 K. B. 214.J (1916) S K.B. 267.
21 Reports of Tar Cases 256.
Little’s Oriental Balm, Ltd. v. P. P. Saibo.
In Simpson v. Tatel, a medical officer of health sought to deduct from
his taxable income money paid as subscriptions to professional andscientific societies. Rowlatt J. in finding against the assess ee, said,"In my view the principle is that the holder of a public office is notentitled under this rule to deduct any expenses which he incurs for thepurpose of keeping himself fit for performing the duties of the office,such as subscriptions to professional societies, the cost of professionalliterature and other outgoings of that sort. If deductions of that kindwere allowed in that case . . . . , there would be no end to it.”
In my view the principle expounded by Rowlatt J. may well be appliedto the case of a deduction sought to be made in similar circumstancesunder the local enactment.
The appeal therefore fails. In view of the fact that the appellantwill lose the sum of Rs. 50 which he has deposited in accordance withsection 74 of the Ordinance, I do not propose to make any order as tocosts.
Soertsz S.P.J.—I agree.
CHELVANAYAGAM v. COMMISSIONER OF INCOME TAX