The Hawaiian star. [volume] (Honolulu [Oahu]) 1893-1912, 1908-01-13

The Eva Plantation income tax case,
about the most important appeal
which has been taken from the pres
ent tax appeal court. was decided this
morning by Che Supreme Court ln an
opinion by Associate Justice BaiiOu.
The matter i5 one involving a system
of calculating depreciatiOns. in which
most plantations are Interested, and
will probably Doe taken To the Supreme
Court Of the United States The ayl-
labus and decision are a8 follows.
Taxation deductions under income
tax law
Under the income tax law Of Hawaii
corporation Is not entitled to deduct
from its gross income the estimated
depreciation OF it8 plant, either as an
amount expended I'm the production Of
movable property under Sec. 1880 nor
as an expense or loss actually sustain
ed or incurred under Sec. 1891
Id.-NOtice Of waiver
Of objection.
Under Sec. 1887, by reference to Sec.
1913 as amended, the tax assessor rs
required TO give notice on or before
April I Of an assessment Of income In
excess Of the return. but a taxpayer
who has taken his appeal cannot OBJ
ject TO lack Of notice for the first time
iD the supreme court.
Id.-EVidence Of expenses admissible
under circumstances.
A taxpayer having made his return
under an understanding with the
treasurer Of the Territory that depre-
citation would be allowed, Is entitled,
upon offer TO the tax appeal court, TO
show expenses actually incurred In
case Of the disallowance Of the eBtl-
mated depreciation.
OPINION OF THE COURT BY BAL
LOU, j.
Hwa Plantation Company returned
It's gross income for the year 1906 at
81, ,9O7 928 n derived almost entirely
from sales Of sugar. Against this II
claimed a deduction OF 81 ,290. .109.7f
under the heading "AmountB expended
in the purchase or production Of NOV
able property mentioned I'm Schedule
A." This with other DEDUCTIONS which
are not In issue brought it's net in
come, aB returned, to S577 929 Sc, on
which the tax at two per cent amount
cd 20 81 $3.50. Included I'm the de-
duction OF 81 200, 100 .7G, as shown by
amount Of sS5 .3O4.3G written off as de-
probation of It's property against the
crop Of 1906. This item was disputed
by the assessor, who subtracted II
from the deduction claimed and assess
ed the net income at 1868 ,233.92 and
the tax at $t3 3,2G4G5. The plantation
appealed from the total assessment
and was held 10 be entitled to a GER
tlhcate Of appeal Eva Plantation co
Y. Holt, 18 Haw. 3G2 The only con
troversy before the tax appeal cour
was upon the item ~ $S5, ,304.3G upon
which the tax amCi nts 10 Sl706.O9
The tax appeal court sustained Tho
contention Of the plantation that Il
was entitled to the deduction claimed
from which decision the assessor aD
peals 10 this court.
The Item Of depreciation was cal
culated upon system adopted by the
plantation in 1903, and is admitted!
fair as TO amount, provided deprecia
tiOn OF property can be allowed eithel
as an amount expended in the produc
tion Of movable property within Il. j.
Sec. 1890 or as an expense or a losi
actually sustained or actually incurred
within X. J.. Sec. 1881 In arriving a
the amount, Inc property OF the plan
tation was divided into four classes
with reference TO the fact that tn,
plantation is being conducted upon
leasehold, OF which thirty-four year
Of the term remained at the time o
the calculation.
Glass A comprises an estimated lis
of properties which will revert TO th'
lessor and will have no residual value
AZ the end OF the lease. 1t includes
such items as mill buildings, road
and bridges, storm bitches, reservoirs
and portions Of the mill, railroad ant
pump machinery. Upon these item
the book value Of the property at tn
beginning OF each year Is divided D,
the remaining years OF the lease AM
the quotient Is the depreciation for tn
year. Glass B. comprises an estimat
ed list OF properties which will reyer
TO the lessor and will have no resldua
Value but whose life Is estimated a
less than the unexpired term OF tn
lease. This class includes, among oth
er items, pump buildings, pipe linei
wells, boilers and portions OF IN
mill pump machinery and railroads ]
this class the depreciation Is estimat
ed by dividing the book value by IN
estimated life OF the article, whlc
ranges from twenty seven years Il
the first three Items enumerated dow
TO four years for certain leasehol
improvements. Glass @ comprises a
estimated list Of properties which wi
not revert to the lessor at the end G
the lease but will have a residual va
ne and whose life under the preser
system is estimated to be longer tina
the unexpired term of the lease. Th
principal items In this class are steaI
plows and rolling stock and the dc
probation 10 computed only on th
difference between the cost and I'll