INTERESTING TAX APPEAL.

Hokitika Guardian, 23 October 1924, Page 4

INTERESTING TAX APPEAL.

STANDING TIMBER, STOCK OR ASSET?

WELLINGTON, October 21. Objection to tlie assessment of income tax was made before the Appeal Court to-day. The appellant was the Kauri Timber Company (in liquidation: represented by Mr Skerrolt, K.C., and Mr Tuck. The respondent, the Commissioner of Taxes, was represented by Mr Myers, K.C., and Mr Fair. The ease as stated by the Commissioner, was that appellant was assessed for income tax in respect to ait amount of Cl 15,78-1, alleged to lie profit on the sale of timber made by appellant to n new company of the same name, which

was formed under the scheme of reconstruction. Tho old company was incorporated in Victoria in 1888, the original capital being C 1,200,000. Between 1888 and 1920 the old company acquired in standing kauri timber 1,528,102,157 superficial feet of this 1,100,000,000 was felled, leaving an estimated quantity standing in August 1921, of 115,78-1,000 superficial feet. In that mouth the new company er.ii’o into operation with a capital of .C750,-

000; shareholders and directors in the old and new companies were identical, fn making the apportionment of the purchase price the new company apportioned in respect to the 1155,784,1100 ft of standing timber, the amount exceeding the amount at which it was entered in the hooks of the old company by 2s per 100 ft, or a total increase of .£'115,784. In the amended assessment for the year ending March, 1920, the sum of £115,784 was added hv the Commissioner to the l income returned by the old company as “ profit on the sale of timber from the did comp any to the new company.” The total tax assessed was increased by £43,418 15s. The question for the Court was whether the old company was liable to pay this sum or any portion of it. The company’s objections were as follow:—(1) That the company sold its business and with certain specified exceptions the whole of its assets as a going concern for a comprehensive consideration not distributed between d fferent classes of assets, and that no part of sndi consideration is assessable to income tax as profit made on the

sale of standing timber. (.-) iuat any gain made l».v the company on the sale of standing timber is a gain made on the realisation of a capital asset, and is not in law, assessable for taxation as income. Mr Skerrett said the question was whether standing timber was a capital asset or stock-in-trade; they held that it was capital. After hearing legal argument judgment was reservecj.