Aviation & Shipping Company, Ltd v Murray (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 09 May 1961 |
| Date | 09 May 1961 |
| Court | Court of Appeal |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income Tax, Schedule D - Succession - Sale of ships - Whether permanent discontinuance - Finance Act, 1954 (2 & 3 Eliz. II c.44), Section 17.
The Appellant Company carried on the trade of ship-owners. On 30th December, 1954, it acquired, subject to their existing time charters due to expire on 31st December, 1956, two ships from its wholly-owned subsidiary A. They were A's only ships and had been, and continued to be, managed by P, a management company, which managed the Company's fleet. The ships were subsequently sold on 15th February and 14th March, 1955, and replaced by two diesel ships which were hired to the same charterers.
On appeal to the Special Commissioners against an assessment to Income Tax under Case I of Schedule D for the year 1956-57 the Company contended that the trade of A was permanently discontinued on 30th December, 1954, that the Company carried on the activities of A's trade after that date, that such activities accordingly fell to be treated as a separate trade by virtue of Section 17(3), Finance Act, 1954, and that such separate trade was discontinued on 14th March, 1955; alternatively, that if there was a change on 30th December, 1954, in the persons carrying on the former trade of A within the meaning of Section 17(1), Finance Act, 1954, then such trade was permanently discontinued on 14th March, 1955, after the sale of the second ship. The Special Commissioners, dismissing the appeal, held that the trade of A was transferred to the Appellant Company on 30th December, 1954, and merged with that Company's trade, and that there was no permanent discontinuance on 14th March, 1955, following the sale of the second ship.
Held, that the Commissioners' decision was correct.
Stated under the Income Tax Act, 1952, Section 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 11th and 12 December, 1958, Aviation & Shipping Co., Ltd. (hereinafter called "the Company"), appealed against an assessment to Income Tax for the year 1956-57 made under Case I of Schedule D in the sum of £205,000 in respect of its profits as ship-owners.
On 30th December, 1954, the Company acquired from its wholly-owned subsidiary, Ascot Shipping Co., Ltd. (hereinafter called "Ascot"), Ascot's two
ships the "Avisvale" and the "Avismoat". Ascot had no other ships at the time and acquired none subsequently. On 19th January, 1955, the Company agreed to sell the "Avisvale" and completed the sale on 15th February, 1955. The Company sold the "Avismoat" on 14th March, 1955.The questions to be determined arose in connection with Section 17 of the Finance Act, 1954, and were as follows:
(i) whether the trade of Ascot was permanently discontinued on 30th December, 1954;
(ii) if not, whether the Company succeeded on that date to the trade until then carried on by Ascot;
(iii) if the Company did so succeed, whether that trade was permanently discontinued when the last of Ascot's ships were sold out of the group on 14th March, 1955;
(iv) if the trade was permanently discontinued on 30th December, 1954, whether the activities of this trade, or part of them, were carried on and fell to be treated as a separate trade by virtue of Section 17 (3); and, if so, whether such separate trade was permanently discontinued on 14th March, 1955.
It was common ground between the parties that the condition of "consanguinity" required by Section 17, Finance Act, 1954, applied as between the Company and Ascot.
2. At the hearing of the appeal evidence was given by Mr. Noel Wilfred Purvis, who had been managing director of the Company since 1942, and was also the chairman and managing director of Ascot at all material times. Evidence was also given by Mr. Benjamin Jewell, chartered accountant, who acted as consultant advisor on Income Tax matters to the Company, Ascot and the Purvis Shipping Co., Ltd. (hereinafter called "Purvis Shipping"), at all material times. The facts found by us are set out in paragraphs 3 to 9 below.
3. The Company was incorporated on 6th January, 1922, and carried on the trade of ship-owners with a fleet of deep-sea tramps which at all material times were all on charter to the British Iron and Steel Co. (Ore), Ltd. (hereinafter called "B.I.S.C.O."). The Company's share capital was £450,000, and its shares were quoted on the London Stock Exchange. A copy of the Company's memorandum and articles of association is attached hereto, marked "A", and forms part of this Case (1). Mr. Purvis had been the chairman of the Company since 1942. Purvis Shipping acted as managers of all the Company's ships under an agreement made on 2nd September, 1947. A copy of this agreement is attached hereto, marked "B", and forms part of this Case (1). Mr. Purvis was the chairman and managing director of, and owned substantially all the share capital of, Purvis Shipping.
4. In 1947, when there was a great shortage of ships, the Company was offered the whole of the share capital of another ship-owning company, Neill & Pandelis, Ltd. This was a private company with a share capital of £1,000. Mr. Purvis knew that Neill & Pandelis, Ltd., had two ships on charter from the Ministry of Transport and Shipping, and also that this company had an option to purchase these ships. The Company purchased the share capital of Neill & Pandelis, Ltd., for £114,000, and subsequently changed that company's name to "Ascot". A copy of the memorandum and articles of association of Ascot is attached hereto, marked "C", and forms part of this Case (1). Ascot subsequently exercised the option and purchased the two ships, which were
then re-named "Avisvale" and "Avismoat". Ascot had no other ships. The management of these two ships was taken over by Purvis Shipping under an agreement dated 18th November, 1947, and the ships were chartered to B.I.S.C.O. A copy of this agreement of 18th November, 1947, is attached hereto, marked "D", and forms part of this Case (1).5. Up to the year 1954, separate accounts were maintained in respect of Ascot's fleet and the Company's fleet. Copies of the balance sheets and profit and loss accounts of the two companies for the years ended 30th June, 1952, 1953 and 1954 respectively, with a copy of Ascot's profit and loss account for the period from 1st July, 1954, to 14th March, 1955, are attached hereto, marked "E", and form part of this Case(1). In that year the Company decided that as all the ships were managed by Purvis Shipping and were all on charter to B.I.S.C.O., and there was no line of demarcation between the fleets, it was an unnecessary expense to maintain separate accounts. It was therefore decided that as at 31st December, 1954, the assets of Ascot should be transferred to the Company at the book values existing at that date. To this end, on 30th December, the two ships "Avisvale" and "Avismoat", which formed by far the greater part of Ascot's assets, were sold to the Company by bill of sale for £80,000 each (the written-down value at which each of the ships had appeared in Ascot's balance sheet at 30th June, 1954). The ships were taken over by the Company subject to their existing time charters, which B.I.S.C.O. agreed should be transferred to the Company. Neither of these charters was due to expire until 31st December, 1956. On the transfer of the ships to the Company, Purvis Shipping's management agreement with Ascot lapsed and thereafter the ships were managed under the agreement of 2nd September, 1947, between Purvis Shipping and the Company (exhibit B).
As appears from the balance sheet and accounts of Ascot for the six month period ended 31st December, 1954, a copy of which, marked "F", is attached hereto and forms part of this Case (1), following these transactions the sole asset of Ascot consisted of a sum of £144,624 owed to it by the Company. Ascot's only liabilities consisted of its paid-up share capital of £1,000 and a proposed interim dividend (payable to the Company) amounting to £143,624.
The Company, for its part, dealt with its investment in Ascot which, as appears from its balance sheet at 30th June, 1954, then had a written-down value of £101,000, in the following manner: £50,000 was transferred to the cost price of each of the two ships, "Avisvale" and "Avismoat", it had acquired; the balance of £1,000 represented Ascot's issued capital of that amount. The shares in Ascot were subsequently disposed of.
A copy of the Company's accounts for the year ended 30th June, 1955, following these transactions, marked "G", is attached hereto and forms part of this Case (1). The profit on trading (£163,763) shown in the profit and loss account includes Ascot's profit on trading (£27,851) for the six months ended 31st December shown on Exhibit "F".
6. On 31st December, 1954, with the acquisition of the "Avisvale" and "Avismoat", the Company's fleet consisted of the following ships:
S.S. "Avistone" |
… |
7542 tons |
M.V. "Avisbank" |
… |
7268 tons |
S.S. "Avismere" |
… |
7173 tons |
S.S. "Avisvale" |
… |
7183 tons |
S.S. "Avismoat" |
… |
7,172 tons |
Total |
… |
36,338 tons |
-of which 14,355 tons represented the two ships purchased from Ascot. All five ships were on time charter to B.I.S.C.O. at this date. "Avisvale", "Avismoat" and "Avismere" were all built in the United States of America during the war. They were coal-burning ships, not very fast, and were all rapidly becoming obsolete. "Avistone" was also a coal-burning ship, but "Avisbank", the remaining ship in the fleet, was a diesel-engined vessel.
In the tramp shipping trade coal-burning ships were more expensive to run than diesel-engined ships. The main reasons for this were:
(a) coal was not readily available at many ports, whereas diesel fuel could be obtained anywhere;
(b) there was...
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