Wakilii

East African Bata Shoe Co. Limited v Commissioner of Income Tax (Civil Appeal No. 8 of 1969)

East African Court of Appeal · [1969] EACA 4 · 1969 Appeal Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Appeal from High Court of Kenya confirming income tax assessment
Decision
Appeal dismissed; High Court decision confirming income tax assessment upheld

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Court of Appeal dismissed the taxpayer's appeal, holding that the qualifying phrase in paragraph 5(3) of the Second Schedule to the East African Income Tax (Management) Act, 1958 applies to dwelling-houses constructed for employee occupation, not only to welfare buildings. The court further held that 'little or no value' must be construed in its ordinary monetary sense by a business person using common sense, and that dwelling-houses worth £35,000 cannot be said to have little or no value. The taxpayer was therefore not entitled to the claimed deduction for capital expenditure on employee housing.

Outcome

Appeal dismissed; High Court decision confirming income tax assessment upheld

Facts

East African Bata Shoe Co. Limited operated an industrial factory at Limuru and over several years including 1963 incurred capital expenditure erecting dwelling houses for its staff. Some dwelling houses qualified as prescribed dwelling-houses under paragraph 5 of the Second Schedule to the East African Income Tax (Management) Act, 1958 as amended in 1962, and deductions were allowed for those. Other dwelling houses did not fall within that definition. Up to and including 1962, Bata had been allowed annual deductions for such expenditure. The amount expended on the non-prescribed dwelling houses was £80,269. The replacement value was approximately £160,000. On 31 December 1963, the notional value of the dwelling houses if Bata ceased carrying on its undertaking would have been £35,000 if there was no purchaser of the undertaking, or £50,000 if there was a purchaser who also wanted to acquire the dwelling houses. The Commissioner of Income Tax and the High Court held that Bata was not entitled to the deduction for the non-prescribed dwelling houses.

Issues

  1. Whether the qualifying phrase 'if the building would have little or no value to such person if he ceased to carry on such trade or undertaking' applies only to welfare buildings or also to dwelling-houses constructed for occupation by employees.
  2. Whether dwelling-houses with a notional value of £35,000 to £50,000 had 'little or no value' to the taxpayer for purposes of claiming a deduction under paragraph 5(3) of the Second Schedule.

Orders

  • Appeal dismissed.
  • Costs awarded to the respondent.

Rules and key headnotes

Tax Law — Income Tax — Capital Allowances — Industrial Buildings — Dwelling-Houses for Employees
The qualifying phrase in paragraph 5(3) of the Second Schedule to the East African Income Tax (Management) Act, 1958 requiring that a building 'would have little or no value to such person if he ceased to carry on such trade or undertaking' applies to dwelling-houses constructed for the occupation of persons employed in the undertaking, not only to buildings constructed for the welfare of such persons.
Statutory Interpretation — Grammatical Construction — Qualifying Phrases — Comma Usage
Where a qualifying phrase is grammatically capable of referring to multiple antecedents, the court must consider the object of the legislation as disclosed by its provisions to determine the true construction, rather than relying solely on grammatical structure or punctuation.
Tax Law — Income Tax — Capital Allowances — Legislative Object — Encouragement of Industrial Development
The object of allowing deductions for capital expenditure on industrial buildings is to encourage industrial development where there is a danger of the undertaker being deterred by the possibility of loss of capital, but there is not such strong reason for allowing deductions where the asset created would have a value of its own even if the undertaking ceased to be carried on.
Tax Law — Income Tax — Interpretation of 'Little or No Value' — Monetary Worth
In income tax legislation dealing with expenditure qualifying for deduction, the word 'value' should be construed in its normal meaning of monetary worth, not as synonymous with 'use', particularly where the word 'use' appears elsewhere in the same provision in a different context.
Tax Law — Income Tax — 'Little or No Value' — Common Sense Construction — Absolute versus Comparative Standard
The phrase 'little or no value' should be construed as an ordinary business person would construe it in a common sense manner. While a comparative standard may be appropriate for small values, there comes a stage when the phrase must be understood in an absolute rather than comparative sense. An asset worth £35,000 has long passed the comparative stage and no business person using common sense would say it has little or no value.

Legislation cited (4)

  • East African Income Tax (Management) Act, 1958 Part I of the Second Schedule
  • East African Income Tax (Management) Act, 1958 paragraph 5 of the Second Schedule
  • East African Income Tax (Management) Act, 1958 paragraph 5(1) of the Second Schedule
  • East African Income Tax (Management) Act, 1958 paragraph 5(3) of the Second Schedule

Full judgment

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The original judgment as reported. Read the original PDF before relying on any passage.

East African Bata Shoe Co. Limited v Commissioner of Income Tax (Civil Appeal No. 8 of 1969) [1969] EACA 4 (6 August 1969)
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