ICTA88/S817 deals with deductions that are not allowed in
computing profits or gains for tax purposes generally (not only for
Case I and II purposes).
Subsection (1) (a) states that:
‘( 1) In arriving at the amount of profits or gains for tax purposes-
(a) no other deductions shall be made other than such as are expressly enumerated in the Tax Acts’;'
The Tax Acts do not list many `express' deductions. In addition,
subsection (1)(a) when applied to Cases I and II seems at first
sight to cut across the principle that commercial trade etc
deductions shall be set against trade etc receipts in computing tax
profits. However, the courts have interpreted the legislation to
mean that if an item is a proper deduction according to the
ordinary rules of accountancy it should be allowed unless it is
expressly prohibited by the Taxes Acts. In other words the courts
have felt able to treat the concept of ‘profits or gains' as
containing within itself the need to make such deductions as normal
accounting practice would require for the purpose of computing
profits or gains. See Usher's Wiltshire Brewery Ltd v Bruce [1914]
6TC399 at page 429, Atherton v British Insulated and Helsby Cables
Ltd [1925] 10TC155 at page 191, and Morley v Lawford [1928] 14TC229
at page 239.
ICTA88/S817 (1)(b) provides that no deduction shall be
allowed for any annuity or other annual payment (not being
interest) which is paid out of such profits or gains if income tax
can be deducted at source.
Section 817 (2) provides that:
`( 2) In arriving at the amount of profits or gains from any property described in the Tax Acts, ... no deduction shall be made on account of diminution of capital employed, or of loss sustained, in any trade... profession ... or vocation’.'
This, when applied to Cases I and II, is authority for the disallowance of capital depreciation.
