Finance Act, 1973

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Restriction of balancing allowances on sale of industrial buildings and structures.

40.—(1) This section shall have effect where—

(a) the relevant interest in a building or structure is sold subject to an inferior interest; and

(b) by virtue of the sale a balancing allowance under section 265 of the Income Tax Act, 1967 , would, apart from this section, fall to be made to or for the benefit of the person (in this section referred to as the relevant person) who was entitled to the relevant interest immediately before the sale; and

(c) either—

(i) the relevant person, the person to whom the relevant interest is sold and the grantee of the inferior interest, or any two of them, are connected with each other within the meaning of subsection (6), or

(ii) it appears with respect to the sale or the grant of the inferior interest, or with respect to transactions including the sale or grant, that the sole or main benefit which, but for this section, might have been expected to accrue to the parties or any of them was the obtaining of an allowance or deduction under Chapter I of Part XVI of the Income Tax Act, 1967 .

(2) For the purposes of the said section 265 the net proceeds to the relevant person of the sale—

(a) shall be taken to be increased by an amount equal to any premium receivable by him for the grant of the inferior interest; and

(b) shall, where no rent, or no commercial rent, is payable in respect of the inferior interest, be taken to be the sum of—

(i) what those proceeds would have been if a commercial rent had been payable and the relevant interest had been sold in the open market, and

(ii) any amount to be added under paragraph (a);

but the net proceeds of the sale shall not, by virtue of this subsection, be taken to be greater than such amount as will secure that no balancing allowance falls to be made.

(3) Where subsection (2) operates, in relation to a sale, to deny or reduce a balancing allowance in respect of any expenditure, the residue of that expenditure immediately after the sale shall be calculated for the purposes of the said Chapter I as if that balancing allowance had been made or, as the case may be, had not been reduced.

(4) Where the terms on which an inferior interest is granted are varied before the sale of the relevant interest, any capital consideration for the variation shall be treated, for the purposes of this section, as a premium for the grant of the interest, and the question whether any and, if so, what rent is payable in respect of the interest shall be determined by reference to the terms as in force immediately before the sale.

(5) In this section—

“inferior interest” means any interest in or right over the building or structure in question, whether granted by the relevant person or by someone else;

“premium” includes any capital consideration except so much of any sum as corresponds to any amount of rent or profits falling to be computed by reference to that sum under section 83 of the Income Tax Act, 1967 ;

“capital consideration” means consideration which consists of a capital sum or would be a capital sum if it had taken the form of a money payment;

“rent” includes any consideration which is not capital consideration;

“commercial rent” means such rent as might reasonably be expected to have been required in respect of the inferior interest in question, having regard to any premium payable for the grant of the interest, if the transaction had been at arm's length.

(6) For the purposes of this section, persons shall be regarded as connected with each other if they would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 .

(7) This section shall be construed as if it were contained in Chapter I of Part XVI of the Income Tax Act, 1967 , and shall apply in any case where the relevant interest is sold on or after the 3rd day of July, 1973.