B. W. Nobes & Company Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Morris of Borth-y-Gest,Lord Upjohn,Lord Wilberforce,Lord Pearson |
| Judgment Date | 15 December 1965 |
| Judgment citation (vLex) | [1965] UKHL J1215-2 |
| Date | 15 December 1965 |
| Court | House of Lords |
[1965] UKHL J1215-2
House of Lords
Lord Reid
Lord Morris of Borth-y-Gest
Lord Upjohn
Lord Wilberforce
Lord Pearson
After hearing Counsel, as well on Thursday the 14th, as on Monday the 18th, Wednesday the 20th and Thursday the 21st, days of October last, upon the Petition and Appeal of B. W. Nobes & Company Limited, whose registered office is situate at 108a Cannon Street, London, E.C.4, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 26th of November 1964, so far as therein stated to be appealed against, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order, so far as aforesaid, might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of the Commissioners of Inland Revenue, lodged in answer to the said Appeal; and due considerations had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 26th day of November 1964, in part complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
This House has decided the case of Chancery Lane Safe Deposit Co. v. C.I.R. in favour of the Inland Revenue, and it appears to me necessarily to follow that the present appeal must fail. Even on the view which commended itself to me in the Chancery Lane case, I would have thought that the present appeal must fail, but no good purpose would be served by setting out my reasons for making the difference.
Two arguments submitted for the Appellants in the present case did not enter into the Chancery Lane case. The first was based on Exhibit H which purported to show accumulated taxed profits out of which the dividends could have been paid, and the second arose out of some observations of Lord Radcliffe in C.I.R. v. Frere [1965] A.C. 402. For the reasons given by my noble and learned friend Lord Wilberforce I am of opinion that neither of these arguments can succeed. I would therefore dismiss this appeal.
My Lords,
The transactions which gave rise to this case which, as Harman L.J. observed, seem to have an air of total unreality, are carefully recounted in the Case Stated. The agreements that were entered into had the result that the Appellants (the Company) were to receive from Consolidated Investment Funds, Limited as capital payments, yearly amounts which for all practical purposes were equal to the yearly payments which the Company had covenanted to pay to Aconite Investments, Limited. The assessments of which the Company complained, and which had been made under section 170 of the Income Tax Act, 1952, related to the three years 1957/8, 1958/9, and 1959/60. The assessments were in the sums of the annual payments under the Deed of Covenant. They were the sums for the respective years of £43,870, £47,126 and £43,329. In making the annual payments the Company had deducted tax. If the payments were "payable wholly out of profits or gains brought into charge to tax" then it followed (pursuant to section 169) that the Company could retain the tax deducted: if the payments were not so payable or not wholly so payable then it followed (pursuant to section 170) that the Company was assessable.
The general rule as to the taxpayer's ability to attribute an annual payment was considered in Central London Railway Co. v. Commissioners of Inland Revenue 20 T.C. 102 and in Allchin v. Corporation of South Shields 25 T.C. 445. In the latter case Viscount Simon L.C. (at p. 463) stated the general rule as being that—
"annual payments paid in a particular year, which, if the profits or gains brought into charge for that year were large enough, would have been properly payable thereout, are to be treated as having notionally been paid out of the payer's assessed income for that year, and the payer is to be allowed to deduct and retain the tax on the annual payments, provided that the amount so deducted and retained does not exceed the amount of tax payable by him in that year on his assessed income. Any such excess he may not retain but he must account for it to the Crown."
It might be, however, that taxpayers have "precluded themselves by in-consistent action".
In the present case the Special Commissioners came to the conclusion that the annual payments were made entirely out of capital. The Company used its capital receipts to make its annual payments. Evidence was before the Commissioners as to the Dividends paid by the Company. For the three years ending 5th April, 1958, 1959 and 1960 the figures appear to have been as follows:—
| Year ending 5th April | |||
| 1958 | 1959 | 1960 | |
| £ | £ | £ | |
| Profits and gains brought into charge … | 116,979 | 49,070 | 50,193 |
| Annual payments under Covenant … | 43,870 (gross) | 47,126 | 43,329 |
| Dividends … … … … … | 15,737 (gross) | 44,000 | 40,000 |
It is manifest that in some years at least the Company did not have taxed profits greater in amount than the total of its annual payments and the dividends from which it deducted tax. It was the submission of the Company that the annual payments could be attributed to the taxed income and that the question as to the tax position in regard to the dividend payments that were made need not now arise or be decided. It was also submitted that if the annual payments are attributed to the taxed income the payment of dividends with deduction of tax was warranted because there was a cumulative balance of taxed income which over-topped the cumulative total of gross dividends paid: there was, it was said, at the 5th April, 1957, a cumulative balance of taxed income of £376,609 whereas the cumulative total of gross dividends paid was £302,421: there was therefore, it was said, a balance of over £74,000 to enable dividends to be "franked" for tax deduction. So also it was said that for the next three years there was a cumulative balance of taxed income less annual payments which over-topped the cumulative figure of gross dividends paid.
My Lords, these figures are in any event somewhat unreal. As Harman L.J. pointed out, no such figure as £74,000 accumulated balance is to be found in the accounts nor any asset which could represent that sum. The £74,000 did not exist in the form of resources capable of being drawn upon or distributed.
My Lords, in my view the present case is governed by the decision in Central London Railway Co. v. Inland Revenue Commissioners 20 T.C. 102. I need not here repeat what I have endeavoured to say in the case of Chancery Lane Safe Deposit and Office Co. Ltd. v. Inland Revenue Commissioners as to the principles laid down in the Central London Railway case. The facts in the present case show that there was a clear decision to make the annual payments out of capital. That decision was maintained and was acted upon year after year. The decision of the Special Commissioners that the annual payments were in fact made out of capital was one that was manifestly supported by the evidence. The Company so acted as to preclude themselves from attributing the annual payments to the taxed profits. This was not a matter of method of account-keeping or book-keeping. Though the figure of profits or gains brought into charge to tax is a notional figure it is to be remembered that when annual payments are made or when tax is paid or when dividends are paid there have to be actual payments out of some actual...
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Princes Investments Ltd v Commissioners of Inland Revenue; Clore v Commissioners of Inland Revenue
...Co. Ltd. v. Commissioners of Inland Revenue(1) [1966] 2 W.L.R. 251 and B. W. Nobes & Co. Ltd. v. Commissioners of Inland Revenue(2) [1966] 1 W.L.R. 111, that it would be open to the company to seek to rewrite that part of its accounts. Accordingly, I think I must proceed upon the basis that......