www.ipsofactoJ.com/archive/index.htm  Part 2 Case 5 [PC]
| THE PRIVY COUNCIL
River Estates Sdn Bhd
- vs -
The Director General of Inland Revenue
CoramLORD SCARMAN LORD ROSKILL LORD BRIDGE OF HARWICH LORD BRIGHTMAN SIR DENYS BUCKLEY
| 5 DECEMBER 1983
(delivering the Judgment of the Board)
1. Ever since its incorporation in 1950 River Estates Sdn Bhd the appellant, has been engaged commercially in the extraction of timber and in plantation in north-east Borneo. On 15 December 1973 the Director-General of Inland Revenue (“the Revenue”) served upon the appellant notices of additional assessment to income tax for the years of assessment 1968–72. The assessments were:— 1968 .... .... .... ....
| $ 431,112
1969 .... .... .... ....
1970 .... .... .... ....
1971 .... .... .... ....
1972 .... .... .... ....
2. The appellant appealed against the assessments. The appeal was dismissed by the Special Commissioners of Income Tax, by the High Court, and by the Federal Court. The case now comes before your Lordships’ Board with the leave of the Federal Court. 3. The assessments arise from the refusal of the Revenue to accept that during the relevant period the appellant was entitled to set off capital allowances in respect of qualifying plantation expenditure against income derived from its timber operations. It is the Revenue’s submission that in the circumstances of this case the plantation allowances are available only against income derived from the appellant’s plantation operations. The case turns on whether during the relevant period (i.e. the basis periods of the years of assessment) the appellant carried on one single business of which timber extraction and plantation were integral parts, or whether it carried on more than one business. It was, and remains, the Revenue submission that the appellant during this period was engaged in two businesses, plantation (which would include timber extraction necessary to clear an estate for planting) and the separate business of timber extraction in forest areas where there was no planting. 4. The point arises under s 42 of the Income Tax Act 1967. The section defines “statutory income”, which is a stage in the statutory process of converting gross income arising from a taxpayer’s source or sources of income into the total taxable income from all his sources. So far as is material to the issue in this appeal, the section provides that:— ... statutory income (if any) of a person from a source for a year of assessment shall consist of — (a)
| the amount of his adjusted income (if any) from that source for the basis period for that year ...
| reduced by the amount of any allowance or the aggregate amount of the allowances falling to be made for that year under ... Sch  in relation to that source.
| 5. Schedule 3 sets out the expenditure which qualifies for allowance in reduction of income under s 42. Plantation expenditure on the works specified in para 7 of the schedule qualifies. Paragraphs 20 to 24 contain detailed provisions regulating plantation allowances. Paragraph 75 provides for the case where there is an insufficiency or absence of income of a person “... from a business of his ...” for the basis period for a year of assessment. If effect in full cannot be given to the allowance (or allowances) for that year, the unabsorbed amount of allowance may be carried forward to subsequent years of assessment “... for which there is ... income from that business...”. 6. The schedule does not authorise setting off allowances in respect of one business against income arising from another business. 7. Certain features of the law are clear. The law uses the concept of “source” in the determination of income: ss 4 and 5 of the Act. A business is, if it shows a profit, a source of income, and, if...
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