Federal Board of Inland Revenue v. S. O. Adenubi (1963)
LawGlobal-Hub Lead Judgment Report
ADEMOLA, C.J.F.
The appellants have appealed against the judgment of the Chief Justice, High Court, Lagos, in an Income Tax matter arising out of assessment made upon the respondent for the year of assessment 1959-60.
The respondent, who was dissatisfied with the assessment made upon him, appealed to the Appeal Commissioners who allowed his appeal. The present appellants (Federal Board of Inland Revenue) in turn appealed to the High Court, Lagos, against the decision. The appeal was dismissed, and this is an appeal against that judgment.
The facts are not in dispute. The respondent (Adenubi) is by profession a schoolmaster; he owns property and he also trades in iles. He was assessed in respect of his profession, for his rentals and also for his income in the ile trade. There was also assessment in respect of his wife’s income from trading as well as those from her rentals.
The point which led to the present dispute is in respect of the respondent’s income from his ile trade. The decision of the Appeal Commissioners complained against is as follows:-
“We therefore order that the audited accounts for the year to 31st March, 1959, submitted to the respondent and marked Exhibit 5 be accepted and adjusted loss arising there from computed and if necessary application be made by the appellant (Mr Adenubi), the adjusted loss so computed be set against appellant’s other income for 1958-59 basis year, that is 1959-60 year of assessment.”
In other words, it would appear that in 1958-59 the respondent sustained a loss in his ile trade. He has therefore urged that the amount of this loss be taken into account in the assessment for 1959-60, and a deduction allowed in respect of it.
Section 18 (1) of the Income Tax Act, which it would appear both sides rely upon, provides that the income of a person for each year of assessment from each source of his income is the full amount of the income of the year immediately preceding the year of assessment from each such source. Whilst the present respondent maintained that a loss sustained under a particular source of income in the year immediately preceding the year of assessment should be deducted, the appellants maintained that for the purpose of ascertainment of total income, no deduction is allowable in law. In support of this view the appellants sought the aid of proviso (ii) to Section 20 (2) (b) of the Income Tax Act. Section 20 (2) (b) reads:-
“There shall be deducted:-
(b) the amount of a loss which the Board is satisfied has been incurred by him in any such trade, business, profession or vocation during any year preceding the year of assessment which has not been allowed against his assessable income of a preceding year: Provided that-”
and proviso (ii) reads:-
“a deduction under this paragraph for any year of assessment shall not exceed the amount, if any, of the assessable income, included in the total income for that year of assessment, from the trade, business, profession or vocation in which the loss was incurred and shall be made as far as possible from such amount of such assessable income of the first year of assessment after that in which the loss was incurred, and, so far as it cannot be so made, then from such amount of such assessable income of the next year of assessment, and so on :”
It appears to me that the proviso to subsection 20 (2) (b) was not considered at all by the learned Chief Justice in his judgment. If he had done so, he might have arrived at a different conclusion in his judgment. He applied paragraph (a) of section 20 (2) interpreting “a loss incurred by him (the taxpayer) during the year of assessment” as “the loss incurred during the year preceding the year of assessment in cases in which section 18 (1) applies” contrary to the language of paragraph (a).
It seems to me that the case is governed, not by subsection (a), but by subsection (b), and the correct application of paragraph (b) of the subsection is that in the year of assessment, a deduction for loss in trade or business in the preceding year shall not exceed the amount of the assessable income in respect of the trade or business in which the loss had been incurred. Thus, if the amount of assessable income of the trade included in the gross income is NIL, no deduction will be made, and the amount of loss will be carried forward until profits are shown in the particular trade or business.
The respondent in the present appeal therefore in the year 1959- BOARD OF INLAND REVENUE v. ADENUBI
The decision of the Appeal Commissioners as well as the judgement of the learned Judge of appeal are, in my view, clearly wrong and are hereby set aside. The appeal is allowed accordingly.
F.S.C.442/1961
