Finance Act, 1960

Carrying back of losses in certain cases.

4.—(1) Where a trade, profession or vocation is permanently discontinued, and any person carrying it on, either solely or in partnership, immediately before the time of the discontinuance, has sustained therein a loss to which this section applies (hereafter in this section referred to as a terminal loss), then, subject to the provisions of this section, he may claim that the amount of the terminal loss shall, as far as may be, be deducted from or set-off against the amount of profits or gains on which he has been charged to income tax under Schedule D in respect of the trade, profession or vocation for the three years of assessment last preceding that in which the discontinuance occurs, and there shall be made all such amendments of assessments or repayments of tax as may be necessary to give effect to the claim:

Provided that relief shall not be given in respect of the same matter both under this section and under some other provision of the Income Tax Acts.

(2) Any relief under this section shall be given as far as possible from the assessment for a later rather than an earlier year.

(3) The question whether a person has sustained any, and if so what, terminal loss in a trade, profession or vocation shall for the purposes of this section be determined by taking the amounts, if any, of the following (in so far as they have not been otherwise taken into account so as to reduce or relieve any charge to tax), that is to say:

(a) the loss sustained by him in the trade, profession or vocation in the year of assessment in which it is permanently discontinued;

(b) the relevant capital allowances for that year of assessment;

(c) the loss sustained by him in the trade, profession or vocation in the part of the preceding year of assessment beginning twelve months before the date of the discontinuance;

(d) the same fraction of the relevant capital allowances for that preceding year of assessment as the part beginning as aforesaid is of a year.

(4) In the last foregoing subsection “the relevant capital allowances” means, in relation to any year of assessment, the capital allowances falling to be made in charging the profits or gains of the trade, profession or vocation for that year excluding amounts carried forward from an earlier year, and, for the purposes of paragraphs (a) and (c) of that subsection, the amount of a loss shall be computed in like manner as profits or gains are computed under the provisions of the Income Tax Acts applicable to Cases I and II of Schedule D.

(5) Subject to subsection (7) of this section, the amount of the profits or gains on which a person has been charged to income tax for any year of assessment in respect of the profits or gains of a trade, profession or vocation shall, for the purposes of relief under this section from the assessment for that year, be taken to be the full amount of the profits or gains on which he was assessable for that year reduced by—

(a) a sum equal to the total amount of the deductions, if any, in respect of capital allowances made in charging the profits or gains, and

(b) a sum equal to the total amount of the deductions, if any, in respect of payments made or losses sustained, which fell to be made from the profits or gains in computing for income tax purposes the person's total income for the year, or would have fallen to be so made if the person were an individual, and

(c) in the case of a body of persons, a sum equal to so much of the profits or gains as was applied in payment of dividends:

Provided that where any deduction such as is mentioned in paragraph (b) may be treated in whole or in part either as having been made from the profits or gains or as having been made from other income, the deduction shall, as far as may be, be treated for the purposes of this subsection as made from the other income.

(6) Where, under paragraph (b) of subsection (5) of this section, the amount of the profits or gains on which a person was assessable for any year is reduced by reference to a payment made by him, a like reduction shall be made in the amount of the terminal loss for which relief may be given under this section for earlier years unless the payment was made wholly and exclusively for the purposes of the trade, profession or vocation.

(7) Where a person claiming relief under this section on a discontinuance has, since the beginning of the third year of assessment preceding that in which the discontinuance occurs, carried on the trade, profession or vocation in partnership,—

(a) the full amount of the profits or gains on which he was assessable for any year, or part of a year, for which the partnership was assessed in respect of the trade, profession or vocation, shall, for the purposes of subsection (5) of this section, be taken to be the amount of his share, computed in accordance with the Income Tax Acts, of the profits or gains on which the partnership has been charged to tax and the amount of the profits or gains on which the partnership has been so charged shall, for this purpose, be computed as it would be computed under the said subsection (5) if that subsection applied to a partnership as it applies to a person, and

(b) if he was carrying on the trade, profession or vocation in partnership immediately before the discontinuance, the amounts to be included in his terminal loss by virtue of paragraph (b) or (d) of subsection (3) of this section shall be such part only of the amounts therein mentioned (in so far as they have not been otherwise taken into account so as to reduce or relieve any charge to tax) as would fall to his share on a division made according to the shares in which the partners were then entitled to the profits of the trade, profession or vocation.

(8) For all the purposes of this section a trade, profession or vocation shall be treated as permanently discontinued and a new trade, profession or vocation set up or commenced, when it is so treated for the purposes of Rule 11 of the Rules applicable to Cases I and II of Schedule D, but—

(a) a person who continues to be engaged in carrying it on immediately after such a discontinuance shall not be entitled to relief in respect of any terminal loss on that discontinuance, and

(b) on any discontinuance, a person not continuing to be so engaged may be given relief in respect of a terminal loss against profits or gains on which he was charged in respect of the same trade, profession or vocation for a period before a previous discontinuance, if he has been continuously engaged in carrying it on between the two discontinuances, and, in his case, if the previous discontinuance occurred within twelve months before the other, it shall be disregarded for the purposes of subsection (3) of this section.

(9) In this section “capital allowances” means allowances, other than allowances falling to be made in computing profits or gains, under Rule 6 of the Rules applicable to Cases I and II of Schedule D, section 5 or section 6 of the Finance Act, 1946 , Part V of the Finance Act, 1956 , Part IV of the Finance (Miscellaneous Provisions) Act, 1956, Part V of the Finance Act, 1957 , or Part V or section 74 of the Finance Act, 1959.

(10) Any claim under subsection (1) of this section shall be made to and determined by the inspector of taxes, but any person aggrieved by any decision of the inspector of taxes on any such claim may, on giving notice in writing to the said inspector within twenty-one days after the notification to him of the decision, appeal to the Special Commissioners.

(11) The Special Commissioners shall hear and determine an appeal to them under subsection (10) of this section as if it were an appeal against an assessment to income tax, and the provisions of the Income Tax Acts relating to the rehearing of an appeal and the statement of a case for the opinion of the High Court on a point of law shall, with the necessary modifications, apply accordingly.

(12) This section shall apply where a trade, profession or vocation is permanently discontinued in the year 1960-61 or in any subsequent year of assessment.