Commentary on Sections Part 10: General provisions Overview Section 867: Business entertainment and gifts: non-trades and non-property businesses
3268.This section is based on section 577 of ICTA. That section denies a deduction for certain expenses “in computing profits chargeable to tax under Schedule D”. Profits chargeable to tax under Schedule D include profits of a business which is neither a trade, profession or vocation nor a property business. And section 577(7)(b) of ICTA indicates that references to a trade, for the purposes of the section, include references to a business.
3269.Although in theory the section is applicable to all profits or other income charged to income tax, other than profits charged in Parts 2 and 3 of this Act, some of which are not charged under Schedule D in the source legislation, the application of the section is qualified. Subsection (1) restricts its scope to profits or other income “which arise from the carrying on of a business” . In effect, this puts the scope of the rule in line with that of the source legislation.
3270.This section applies the same rules regarding business entertainment and gifts as are in sections 45 to 47 in Part 2 of this Act. For further detail, see the commentary for those sections.
3271.Subsection (5) contains a number of exceptions, using sections 46 to 47 for this purpose. Section 47(5) makes an exception for gifts to charities and named bodies. The source legislation, section 577(9) of ICTA, limits this exception to the computation of profits under Schedule D Cases I and II, that is, to income calculated under rules rewritten in Part 2 of this Act. It was not intended that the exception be applied narrowly to the disadvantage of a business other than a trade or property business. This subsection extends the exception to such businesses. See Change 146 in Annex 1.