Southern Pacific Insurance Company (Fiji) Ltd v Commissioner of Inland Revenue [1986] FijiLawRp 26; [1986] 32 FLR 50 (24 February 1986)

[1986] 32 FLR 50

SOUTHERN PACIFIC INSURANCE COMPANY (FIJI) LIMITED

v

THE COMMISSIONER OF INLAND REVENUE

Present at the Hearing:
Lord Templeman
Lord Ackner
Lord Oliver of Aylmerton
Lord Goff of Chieveley
Sir John Stephenson

Delivered by Lord Templeman (24 February 1986)

Income Tax — Insurance Company carrying on third party motor insurance — no claims in year of income for accidents occurred hut not reported — value of such claims can be estimated — valid estimation allowing for anticipated unsuccessful claims a deduction from income — being part of "current cost of working". Findings of fact not to be disturbed.

Southern Pacific Insurance Company (Fiji) Limited (appellant) incorporated in Fiji and engaging in Insurance business including compulsory third party insurance appealed against a decision of the Fiji Court of Appeal which had set aside a decision of the Supreme Court which had upheld an appeal by the appellant taxpayer from the Court of Review.

In its tax return for the year ended 30 June 1979 the appellant taxpayer had included as a deduction a sum for third party motor insurance claims for accidents incurred but not reported (IRNR).

Evidence by a Chartered Accountant and appellant's insurance manager established that since 1974 it had been found that 50% of claims were unreported at the end of the relevant financial year in which the accident happened. Experience indicated that IBNR claims over a four year period amounted to 45% of known claims outstanding. From these figures and from detailed calculation made in the light of claims experienced during the four year period the witnesses deposed that by 30 June 1979 the IBNR provision was necessary and that past experience provided a satisfactory basis for the calculation of the required provision. The amount of $85.000 claimed as a deduction was supported by written calculations and analyses produced by the witnesses. Their Lordships referred to a threefold criticism of the appellant's evidence which they discussed and rejected. It is not necessary to recite those criticisms and their Lordships' treatment of them here. They noted that the Court of Review and Supreme Court accepted the evidence of the Company's witnesses, the reliability of their calculations and their forecasts. $85,000 was accepted as IBNR for the year ended June 1979 subject to deduction of 17.94% to allow for expected unsuccessful claims.

The respondent also relied on s.19 of the Income Tax for which read —

"In determining total income. no deductions shall he allowed in respect of —
.....
(g) income carried to any reserve fund or capitalised in any way:-

Held: The findings of fact could not be disturbed unless such that no reasonable tribunal properly instructed as to the law could have reached Edwards v Bairstow (1956) AC 14.