Allowed under paragraph 7 which is a depreciation allowance for wear and tear on machinery owned by TP and used by his business
In dealing with this deduction, courts are more liberal even in defining what machinery is.
Income Tax Commissioner vs. I A Ltd (1973) EA 572
The respondent bought furniture and installed them in its hotels, then sought to deduct costs of the worth of furniture installed in its hotels as machinery installed in an industrial building. The commissioner contested this arguing that the only object that could be attached and become part/structure/industrial building could be installable. Furniture was movable. It was HELD that the commissioners appeal be dismissed because it was not necessary for the plant to be connected with the cloth for it to be installable.
Paul’s Bakery & Confectionary Ltd vs. Commissioner of Income Tax
The appellant purchased machinery after obtaining a dollar denomination financing from a Kenyan bank. At the end of the year, the value of the Kenyan shilling had dropped against the dollar, which meant TP was to pay more in foreign exchange than what had earlier been the exchange rate. They computed increase in value of the loan after conversion of the currencies, which reflected an exchange loss, which they sought to deduct as a deduction under part of from the value of the machinery that had been purchased. (The approved rate is 12.5 %). The commissioner resisted this coz this was not a loss/expense on machinery but the local committee rejected the commissioner’s disallowance. An appeal was lodged by the commissioner to the High Court, which allowed the commissioners appeal.
It was held that the appeal be allowed coz rule 7 of the 2nd schedule a deduction in respect of machinery used during the year and coz the value to be put on the machinery at the end of the year so as to compute the deduction was to be in Ksh calculated on the basis of the prevailing rate of exchange at the end of the financial year. The deduction be allowed. The local committee’s decision was to be reinstated and confirmed
Paragraph 7 gives the various machineries and sets out the appropriate rates to be applied.