Aviation and Shipping Company v Murray
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PEARCE,LORD JUSTICE UPJOHN,LORD JUSTICE DONOVAN |
| Judgment Date | 09 May 1961 |
| Judgment citation (vLex) | [1961] EWCA Civ J0509-1 |
| Date | 09 May 1961 |
| Court | Court of Appeal |
[1961] EWCA Civ J0509-1
In The Supreme Court of Judicature
Court of Appeal
Lord Justice Pearce,
Lord Justice Upjohn, and
Lord Justice Donovan.
MR H. MAGNUS, Q.C. and MR A. ORR (instructed by The Solicitor of Inland Revenue) appeared as Counsel for the Appellant Inspector of Taxes.
MR F. N. BUCHBR, Q.C. and MR P.M.B. ROWLAND (instructed by Clifford - Turner & Co.) appeared as Counsel for the Respondent Company.
I will ask Lord Justice Upjohn to deliver the first Judgment.
This Appeal from a Judgment of Mr Justice Danclowerts, as he then was, involves a very short point, as to whether the sale of a ship on 14th March, 1955, leads to the conclusion that by reason of such sale the trade or business was, for the purposes of the Income Tax Acts, discontinued on that day.
We are not, in this case, concerned with any detailed question of construction of the Income Tax Acts, but to make the point intelligible it is necessary to state briefly the relevant income tax provisions.
This is a problem arising under an assessment of income tax under Case I of Schedule D in respect of profits earned by the Respondent Company, Aviation & Shipping Company, Ltd., to which I will refer as "Aviation", carrying on its trade of shipowners. The normal rule is, of course, that income tax is charged on the actual profits or gains of the year preceding the year of assessment: see section 127 of the Income Tax Act, 1952; but there are special provisions which deal with the setting up of a new trade and the permanent discontinuance of an old one. When a new trade is set up the trader is normally assessed on the profits or gains of his first year for the first three years of his trade. In the case of a permanent discontinuance he is assessed, not on the profits of his penultimate year but on his last year, and the Crown has the right to re open the accounts for the penultimate year.
While it is a basic rule of Income Tax Law that it is the trade rather than the trader which is taxed, nevertheless if in any year of assessment there is a change in the persons engaged in carrying on the trade a special rule is introduced, that is to say, tax is charged on the person transferring the trade as though he had permanently discontinued it at the date of change, and upon the person taking over the trade as though a now trade had been set up and commenced by him: see section 19 of the Finance Act, 1953.
This rule is subject to the exception contained in section 17 of the Finance Act, 1954. That section provides that, in the case of interrelated companies satisfying the conditions laid down in the section, if one takes over the business of another then the trade is not treated for the purposes of the Income Tax Acts as a permanent discontinuance and a new trade but the realities are observed, that is to say, the trade is treated as continuing, and so the conventional assessment is made upon the profits of the preceding year, and by virtue of the Third Schedule to that Act the tax is apportioned between the transferor and transferee companies.
That section is admittedly applicable to the questions with which we are concerned in the present case.
With those preliminaries I proceed to the facts, which are stated very fully in the Case Stated, and I shall, therefore, deal with them very shortly.
Aviation has for many years carried on the business of shipowners. It had a fleet of three deep-sea tramp ships and, as is usual with shipowning companies, those ships were managed by managers, in this case the Purvis Shipping Company, Ltd., which I will call "Purvis". These ships were habitually, at all material times, employed on extended time charter to the British Iron and Steel Company (Ore) Limited, to which I will refer as "B.I.S.C.O.".
In 1947 Aviation Acquired the whole issued capital of the company now known as the Ascot Shipping Company Limited, to which I will refer as "Ascot". The reason for that was that Aviation required further ships, of which there was, at the end of the war, of course, a great shortage, and Ascot had on option to purchase two ships which could conveniently be run together with the existing three ships belonging to Aviation. Ascot therefore exercised the option and acquired these two extra ships.
I mention these details because Mr Bucher, on behalf of the taxpayer, laid great emphasis on this historical event, although for myself I con ascribe no importance to it.
Purvis managed those ships on behalf of Ascot, and those ships were, like the other three ships, habitually employed on extended time charter to B.I.C.C.O. In truth the fleet of five ships was treated as one fleet and managed as such by Purvis, and they were always employed on time charter to B.I.S.C.O. In law, however, it is not in doubt that each company was carrying on a separate trade as shipowners. Each company employed its own officers and men, and each had separate agreements with Purvis. The Board of Directors of each company was, I believe, idontical; and, in accordance with the provisions of the Companies Act, 1948, as Ascot was a wholly owned subsidiary of Aviation consolidated accounts were put before the shareholders of Aviation.
In 1954 it appeared to the Board of Directors that the continued existence of Ascot as a separate company served no useful purpose Accordingly as from 30th December, 1954, Aviation took over all the assets of Ascot at their written down book value in Ascot's books; Ascot declared a large dividend, which was received by Aviation; and the shares in Ascot, which by this time had become a more shell, were disposed of.
The reality of this was plain for all to sec. Ascot ceased to carry on business from 31st December, 1954, and Aviation carried on one trade as shipowners owning five ships.
On the occasion of this transfer, by agreement with B.I.S.C.O. the time charters in respect of Ascot's two ships, named respectively "Avisvale" and "Avismeat", ware transferred to Aviation and all the officers and man on these ships, formerly employed by Ascot, were employed thereafter by Aviation.
Before the Special Commissioners the first issue en these facts was whether there was a transfer of the trade from Ascot to Aviation on 30th December, 1954, or whether, in view of the finding of the Commissioners that there was no goodwill in the owning of a tramp ship, there was no transfer of Ascot's trade to the company but only of its assets. This was vital to the application of section 17(1) of the Finance Act, 1954. Had the company succeeded in their argument the tax position would have fallen to be determined under section 17, subsection 3, of that Act.
I do not believe that it would have made the slightest difference to the determination of the particular question we have to determine, namely, whether there was a permanent discontinuance in March, 1955, had the matter fallen to be dealt with under subsection 3 rather than subsection 1.
However, the Commissioners decided that there was a transfer of Ascot's whole trade to Aviation on 30th December, 1954. The Company appealed, but abandoned its appeal before Hr Justice Danekworts, and that is not in issue before us.
It follows that as section 17, subsection 1, applies upon that succession, in order to ascertain the tax position arising as a result of the succession from 31st December, 1954, Aviation must be treated as continuing its trade with three ships and it must be treated as carrying on a second trade, formerly Ascot's, with two ships; in other words it is, after the succession, for income tax purposes only, to be treated as carrying on two trades, and there must be en apportionment of tax in regard to Ascot's trade between Ascot and Aviation as of 30th December, 1954.
All this is really a matter of history, although it is essential to have it in mind when we consider the problem which we have to determine. That problem depends on those facts. They arc set out in paragraph 7 of the Case Stated, and again I recapitulate them only in the briefest form. Aviation sold "Avisvale" to a foreign shipping company on 15th February, 1955, and "Avismoat" to another foreign shipping company on 14th March of the same year, Aviation also sold one of its own ships at the some time to another company. The reason for...
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