LAW REPORTS.

Dominion, Volume 5, Issue 1404, 2 April 1912, Page 3

LAW REPORTS.

COURT OF APPEAL. TIMBER COMPANIES & INCOME TAX. AN IMPORTANT POINT. The Court of Appeal sittings were resumed yesterday, when their Honours wore linked lo decide the question us to whether two sawmilling companies were entitle;! to make certain deductions from I he gross proceeds of their business before bsing assuMii'd for income lax. On the Bench were the Chief Justice (Sir Robert htamv, Mr. Justice Donms'.on, Mr. Justice lid wards, and Mr. Justice Chapman. The cases originally came on in tne Supreme Court, but were removed by direction into the Court of Appeal. In one ciuc the plaintiit was the Kauri Timber Co., Lid., and in the other case the Tuuno T'otara Timber Co., I.ti. _ In uotli actions the. Commissioner of Taxes was defendant, and as similar points were involved in each, it was agreed that there should be joint argument. It was stated that the Kauri Timber Co., Ltd., was incorporated in Victoria in ISSS, and had continuously since then traded in New Zealand and elsewhere, and carried on the business of cutting, milling, selling, and exporting timber. 11l the statement of admitted facts, itwas set out that. Hie company had acquired a largo number of bush properties in New Zealand either by purchase outright of the land itself with tho timber 6i. it. or bv purchasing the limber with the right to cut it at any time within a stated'period. In most cases tho companv paid a lump sum for the timber and rights acquired, but in tome isolated cases a rovaiiv was paid. I'or the year ended August 31, 190/, the value of the standing timber belonging to the company was .6100,111, but in the following year, owing to a re-valuation, the timber was valued at MiX,i7>, and the company's freehold lands (exclusive of tho timber thereon) at' J£5.",079. It was the practice from veal- lo vein- lo write down the value'of the Amber, by the amount cut, so that, for the year ended August 31, 1839, the value was .C2Su,SU",, and for the vcar ended August 31, 1910, .£238,821!. During,the vear ended Augu.-t 31, 1906, tin company 'used in the production t-f its income for that year, timber worthy immediateh- before iw severance, X.9,<W. Similarly, during the year ended August 31, 1907,' timber 'worth -£3G*M was used bv' the company in the production ui its income, and for the same purpose in 190S timber valued at X 28,57- was ir-ed, and again, in the year. 1909. timber valued at .£37,193. During no part el these ihu'iieial i.eriods did the company pay to, or divide among, its shareho.dcrs, any part of the amounts shown by its accounts to be the value of the timber immediately before or at the time ol being out, but'such amounts had heeii treated as part of the capital of toe company, and were used in the purchase ot other timber or timber-bearing 'laud, or lor other obieets of the company s business. In iisWing the company for income ax during the several years mentioned, the Commissioner of Taxes refused to allow the company to deduct irom the gro-s proceeds of its business; the value ol tne standing timber so cut and used in those year- - on the ground that in his opinion such, a deduction was prohibited by .'section 87 of the Land and Income las Asscssint'iii Act. • . . , ,-, The edmitted facts.in respect oi the case lirought by the Taupo Totara limber Co. were something the same as tho«e mentioned above. The Tauuo Comnam- is a New Zealand company, incorporated in 1901. .Since 1905 it had carried on the business of cutting, milling, ami selling timbrr. Tho company s standing, timber, ait of which liiiil b;cn acquired prior to the ver.r ended April 30, I9oi. was lartlY on freehold a/id partly on' leasehold 'lauds held for a term of years, lie average qu.iutity of limber cut out by I ho comun-.v in each year was seven million feet, an'il there was naw suliieient timber left tj supply the wanLs of the. compaiiy I'm- at lea.-:: IS year-. At Aniil 30, 9H. Urn total value of freehold and leasehold 1-nids held by the company, including standing timber thereon, and excluding the company's, railway, apuoared in the company's books as .i 113,252. -.This repre«,cnlsd the actual cest ot acquiring the piaperties (los dcpitciatiou in respect ot timber cut), and did not represent the pre-ont value of tho properties. Ihe question for the Court was, in what ce-L-s (if at all), and to what extent fit' at all) were the companies entilled'(in their assessment of income tax) to deduct from the gross proceeds oi the bu-iness the value of the stunding timber cut and used in the manner mentioned? Sir John h'indlay, K.C., with him Mr. ,1. L. Stout, appeared for the laupo Totara Company, cud Mr. T. Cotter, k.C., of Auckland, with him Mr. C. J. Schiiaticr, of Auckland, for the Kauri I'imber Company. 'The Commissioner of Taxes was renrcsenled by the SsolicilorGeiicral '.Mr. "/. W. Salmonil). Sir John Findlav r.ddre-sed the Court at consiilerablc length, and Mr. Cotter followed. Tho latter had not concluded when the Court adjourned until 10.30 a.m. to-day.