The Hawaiian star. [volume] (Honolulu [Oahu]) 1893-1912, 1908-01-13
IMPORTANT RULING
As TO INCOME TAX


80 NANN
Continued from Page OneJ
carded for a more modern invention
before the end Of the period Replace
monts might accumulate in a given
year to the extent of wiping out in
come and showing a loss, for which
no corresponding rebate could be
claimed from the government. In the
case of a business contemplating a de-
finite termination the difference would
be still greater This is sharply ac-
centuated by the case at bar, where
the plantation is on a leasehold, but
would seem to be applicable to all cor
poratons organized as required by
statute, with a definite term In the
present case it is claimed that one
thtrty-fOurth Of the value OF the mill
buildings, roads and bridges. storm
bitches and reservoirs was expended"
in the production of the crop, not be-
cause their use had lessened their ac-
tual value by this amount. but be-
cause at the end of thirty-four years
they would revert to the lessor. De
probation" on this class of items is
merely in the nature of a sinking fund
to recoup their cost, a deduction emil
nently proper between the corporation
and it's stockholders, but not within
the deductions allowed by the statute.
Moreover, most of the items of this
class are permanent Improvements,
not expected to be replaced within the
life of the plantation, and are there
| fore within the positive prohibition of
! the third paragraph of Sec. 1891. for
| bidding deductions for new buildings
permanent improvements or better
ments. Under this section, for exam
tple, the cost of a new reservoir could
not be deducted from gross income
| and manifestly the same result would
be accomplished by the system of de-
Quoting one-thirty-fourth of it's cost
each year until the expiration of the
! lease. Another item is stated as the
! depreciation on wharf" but was
shown by the evidence to be the pro-
portionate part of a sum expended in
| 1905 to assist in the dredging of the
channel of Pearl Harbor.
Enough has been said to show that
the deduction as claimed by the plan
tation should not have been allowed
but we are further satisfied that in the
case of more perishable articles, whose
replacement would be properly charg.
ed to running expenses. the statute
cOntemplates the deduction of cash &C.
! tually expended at the time the eX.
lpenditure is made, and not a deduction
based upon estimated depreciation
! Were there no system prescribed fOl
computing the net profit or income
above actual operating and business
expenses" taxed by Sec 1879 there
would be much force in the argument
that the net profit should be comput
led only after the careful provision fOl
the future which a conservative cor
poration makes in dealing with tn
I question of dividends, although tn
! question is by no means free from
doubt. In spite of the definitions o
net profits given by standard authori
ties on accounting, the United State
Isupreme court has said: The pub
lie. when referring to the profits o
: the business of a merchant, rarely ev
er take into account the depreciation
of the buildings in which the business
is carried on, Notwithstanding the,
may have been erected out of the CAPT
tai invested. Popularity speaking tn
met receipts Of business are its pro
! lfitS," and construed a statute relatin
e to the profits of the Centennial accord
/ iingly EySter V. Centennial Board c
Finance, 81 L. s. 500. In our statute
however, Sec 1881 (as amended S. |
, 1905, Act 81, makes specific prov
sions regarding deductions, the POI
. lions now material being as follows
Section 1891 Income, How Con
. Iputed. The net profits or income of Il
corporations shall include the amount
paid or payable to, or distributed {
distributable among shareholders frol
any fund, or used for construction, Ell
e. Ilargement of plant, or any other e!
r. Denditure or investment, paid FRO
]. the net profits made or acquired !
}. said corporation during the taXapC
9 period next preceding. whether tn
/ period be the first taxation period
= any succeeding period.
y In computing incomes the nece
u sary expenses actually incurred in ca
Irying on any business, trade, pfoie
sion or occupation, or in managing al
property shall be deducted and also
'e interest paid by such person or co
l. poration on existing indebtedness. Al
N Ian government taxes, and license fec
=, paid within the taxation period ne
preceding whether that period be &
/ first taxation period or any succee
u ing taxation period shall be deduct
4 from the gains. profits or income
is the person who, or the corporate
a which. has actually paid the san
ST whether such person or corporation
"a owner. tenant or mOrtgagor; ALSO
losses actually sustained during
u taxation period next preceding, whet
Us err that period be the first taXatl
Id period or any succeeding taxation pr
OF Iiod. incurred in trade, or arising fro
C. losses by fire not covered by inst
ance, or losses otherwise actually
- Cured
provided, that no deduction sh
Ibe made for any amounts paid out
new buildings, permanent impro'
ments or betteTments, made to
N. crease the value Of any property or
tate"
The expressions necessary eXpe
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