Capital Expenditure v. Expense

Amounts that were collected by investors from the taxpayer by way of garnishment order as a result of a court finding that the taxpayer and his brother had fraudulently misled the investors and were required to repay a portion of the funds invested by the investors for the acquisition of a farm property, represented payments on account of capital and, therefore, were non-deductible.

In order to obtain an immediate release of construction holdbacks from the customers of its construction business, the taxpayer deposited securities with them, which were then released after the construction work which it had performed was certified.

Jackett C.J. held (p. 5516) that because this arrangement "was one of the transactions of its construction business and ... was carried out in the process of earning the profit of the business," the taxpayer was entitled to deduct the value of the securities paid by it to the customer.