The Pacific commercial advertiser. [volume] (Honolulu, Hawaiian Islands) 1885-1921, 1904-03-24

A decision covering six tax appeals
written by Chief Justice Frear, was
unanimously rendered by the Supreme
Court yesterday. The taxpayers whose
assessments were in question were the
following named: First American
Savings and Trust Company OF Hawaii,
First National Bank of Hawaii, c.
Brewer & Co., E o. Hall & Son,
Western and Hawaiian Investment Co.
and Castle & Cooke.
Robertson & Wilder appeared for the
tax assessor; w. A. Whiting and c.
F. Clemens for the taxpayers in the
first three cases, and Castle & Withing-
ton for the taxpayers in the last three
cases. The decisions of the Tax Appeal
| Court are sustained except as to an
item of $3.50 in the case OF c. Brewer
& Co., Ltd, as to which the decision OF
that court is reversed.
AS the law given and the reasoning
therefor are likely to be of interest to
the business community, the syllabus
and opinion are here quoted in full.
LAW OF THE CASE.
Mere depreciation in the value of
bonds cannot be deducted under the
income tax law of 1901.
Under the provision allowing deduc-
tons of AL losses actually sustained
during the year incurred in trade or
by insurance, or losses otherwise actual
ly incurred" losses of capital used in
business may be deducted, if they occur
during the tax year, as, for example,
bank loans lost during the year though
made prior thereto, notes given in pay
ment for merchandise but which become
valueless during the year, etc.
CASES IN GENERAL.
These are appeals under the income
tax law In the case of the First Ma
tional Bank, in which both sides ap-
peal, the appeal of the taxpayer is from
a decision of the Tax Appeal Court
sustaining the assessor in disallowing
deduction of $1,000 for depreciation in
the market value of certain United
States bonds. We are of the opinion
that that decision was correct See
Haw. Coz, 6o6
The assessor appeals in all these cases
from decisions of the Tax Appeal Court
allowing certain deductions-mostly of
bad debts. He contends that only losses
OF income as distinguished from losses
of capital may be deducted and only
such losses as have occurred during the
year in question, and that in these cases
the losses were in general losses of
capital and occurred before the year
The statute is somewhat involved and
not altogether clear. 1t is somewhat
arbitrary in its provisions. Statutes III
England, Canada and the United States
have differed considerably from our
statute, and the decisions under them
have been comparatively few and more
or less contradictory. 1t would be diff
fcult and unsafe to attempt to lay down
general propositions applicable to all
cases or to state what may or may not
be deducted under varying circum-
stances. In general it may be said that,
in our opinion, losses of capital, at least
working capital used in a business, as
distinguished from ordinary invest
ments, may be deducted under certain
circumstances, but that only such losses
may be deducted as have occurred with
in the year in question. The latter
proposition seems to be clear The other
proposition is not as clear as it might
be, but 1t receives more or less support
in decisions elsewhere under statutes
that do not go as far as ours in this
direction. Our statute is extremely broad
as compared with most other statutes,
even including the Federal statute of
1894, which ours most resembles, but
nh fC6 1a1i /,
the result that we have not the benefit of
decisions constituting it. Ours allows de-
auctions, among other things, of "all
losses actually sustained during the year
incurred in trade or arising from losses
by fire not covered by insurance, or
losses otherwise actually incurred.
Laws of 1901, Act 20, Sec. 4 That
losses of capital may be deducted under
certain circumstances seems to be as
sumed in Haw. Com. & Sug. Co. vs.
Assessor, supra. See also the decision
on the motion for rehearing, II Haw.
6S7; also Little Miami & Column &
Zenia r. Co. VS.. Z. s., IoS u. S. 2z7;
u. s. VS.. Mayer, Deadly 10y; Lawless VS.
Sullivan, l. R. App. Cas-. 373: Reds
Brewery Co. VS.. Male, (I8oI) 2 a. c.
I. AS to whether particular losses have
occurred in particular year or in some
other year 1t IS sometimes difficult to
say. More or less latitude should be al
lowed as to when debts, for instance,
have become worthless. Probably a
worthless debt could not be held to be
written off in whole or in part in subse-
quent years for the purpose of evading
the income tax law.
FIRST AMERICAN SAVINGS AND
TRUST co.
In the cases of the First American
Savings & Trust Co. and the First
National Bark the losses were of $I3,-
oSI.47 and SIo,275.oo respectively on a
note of NJ. w. McChesney & Sons. This
was a demand note given in 1000. 1t
was for $4,000. divided into $4,000 and !
10000 between the two appellants in |
respect of ownership. The loan was
made by them in the usual course of |
barking business. Interest was paid up /
to January 81. 1902. In July. 1902, de |