Boarland (HM Inspector of Taxes) v Madras Electric Supply Corporation, Ltd ((in Liquidation))

JurisdictionEngland & Wales
CourtChancery Division
Judgment Date11 March 1955
Date11 March 1955

HIGH COURT OF JUSTICE (CHANCERY DIVISION)-

COURT OF APPEAL-

HOUSE OF LORDS-

(1) Boarland (H.M. Inspector of Taxes)
and
Madras Electric Supply Corporation, Ltd. (in liquidation)

Income Tax, Schedule D - Balancing charge - Succession by Crown - Whether cessation provisions apply - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Schedule D, Cases I and II, Rule 11; Finance Act, 1926 (16 & 17 Geo. V, c. 22), Section 32.

The Respondent Company carried on an electricity undertaking in Madras under several licences which all provided that on 29th August, 1947, the local authority or local government should have the option to purchase the undertaking. This option was exercised by the Madras Government who took possession of the undertaking on that date and thereafter carried it on.

A balancing charge was made on the Company for the year 1947-48 on the footing that on 29th August, 1947, the Madras Government succeeded to the trade within the meaning of Rule 11 (2) of Cases I and II of Schedule D; that accordingly the basis period for the assessment on the Company for that year was the period beginning 5th April, 1947, and ending 29th August, 1947; and that the sale of the Company's undertaking occurred in that basis period.

On appeal to the Special Commissioners, the Company contended that the person succeeding to its trade was the Crown; that Rule 11 (2) of Cases I and II of Schedule D had no application where the successor to the trade was the Crown or was not chargeable to Income Tax; and that the Company's basis period for the year of assessment 1947-48 was therefore the preceding year, the year to 31st December, 1946, and not the period in which the sale occurred. The Commissioners allowed the appeal, holding that the trade was carried on after 29th August, 1947, by the Crown and that the Crown was not a "person" for the purposes of Rule 11 (2).

Held, that "person" in Rule 11 (2) includes the Crown.

CASE

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 22nd May, 1952, the Madras Electric Supply Corporation, Ltd. (in liquidation), hereinafter called "the Company", appealed against an assessment to Income Tax made upon it under Schedule D for the year of assessment 1947-48 in the sum of £850,000.

2. The assessment was made in respect of balancing charges under Part II of the Income Tax Act, 1945, alleged to arise on the sale by the Company of its plant and machinery on 29th August, 1947.

3. The question of law for the opinion of the Court is whether the assessment was competent.

4. Our attention was drawn in the course of the appeal (inter alia) to the following documents:-

  1. (2) The memorandum and articles of association of the Company.

  2. (3) Two extracts from the "Fort St. George Gazette" dated 29th August, 1905, and 17th August, 1909, which respectively contain the terms of the Madras Electric License, 1905, and the Madras (Port) Electric License, 1909.

  3. (4) An extract from the "Gazette of India" dated 8th January, 1910, containing the terms of the Madras (Cantonments) Electric License, 1910.

  4. (5) Three notices served on the Company by the Government of Madras, Public Works Department, dated 16th March, 1945, 27th July, 1945, and 27th July, 1945, respectively, relating to the aforesaid licences.

  5. (6) A notice served on the Company by the Government of India, Department of Labour, dated 7th August, 1945.

  6. (7) An agreement dated 27th August, 1947, between His Excellency the Governor of Madras and the Company and a further agreement supplemental thereto dated 29th August, 1947.

  7. (8) An indenture dated 30th March, 1951, between His Excellency the Governor of Madras and the Company.

With the exception of the notices (nos. (4) and (5)) and the indenture (no. (7) above) these documents, which are referred to later in this Case, are not annexed hereto, but may be referred to, if necessary, as part of this Case.

5. The Company was incorporated under the Companies Acts, 1862 to 1900, on 27th January, 1906, with the objects, inter alia, of carrying on in India and elsewhere the business of an electric light and power company in all its branches, and, in particular, of entering into a contract referred to in article 3 of its articles of association and to carry the same into effect and to put into operation the licence therein referred to.

The said article 3 of the Company's articles of association reads as follows:-

  1. 3. The Company shall enter into the following agreement:-

  2. 3. An agreement with Crompton & Co., Limited, on the terms set forth in the draft of such agreement, and which agreement will provide for the acquisition by the Company of a license granted by the Madras Government to Crompton & Co., Limited, and their permitted assigns to supply energy for electric traction and to the public for all purposes within the areas controlled by the Corporation of Madras, and for the construction and equipment by Crompton & Co., Limited, of all works necessary to enable the Company to carry on the supply of electrical energy in Madras pursuant to the said license.

6. The licence referred to in the said article 3 is the Madras Electric License, 1905, hereinafter called "the licence of 1905", the grant of which was sanctioned by the Governor of Madras in Council and notified in the "Fort St. George Gazette" on 29th August, 1905 and referred to in paragraph 4 (2) above. The licence was granted under the powers in that behalf conferred by the Indian Electricity Act, 1903 (Act III of 1903), and was subject to the provisions of Section 7 thereof, which reads as follows:-

  1. (2) Where a license has been granted, a local authority shall, on the expiration of such period, not exceeding forty-two years, and of every such subsequent period, not exceeding ten years, as shall be specified in this behalf in the license, have the option of purchasing such portion of the undertaking as is in the area for which it is constituted, and, if the local authority, with the previous sanction of the Local Government, elects to purchase, the licensee shall sell the undertaking or part thereof to it upon terms and conditions similar to those set forth in section 5, clauses (b) and (d).

  2. (3) In any such case as aforesaid, if a local authority does not elect to purchase, the Local Government shall have the like option upon the like terms and conditions save that where the Local Government purchases the undertaking or any part thereof under such option, the license shall, in so far as the Local Government is concerned, cease to have any further operation.

  3. (4) Where, in exercise of the option conferred by sub-section (1), a local authority has elected to purchase a portion of the undertaking which is within the area for which it is constituted, the Local Government shall have the like option upon the like terms and conditions in respect to any portion of the undertaking which is without such area.

  4. (5) Not less than twelve months' notice in writing of any election to purchase under this section shall be served upon the licensee by the local authority or Local Government as the case may be.

  5. (6) Notwithstanding anything hereinbefore contained, the local authority may, with the previous sanction of the Local Government, waive its option to purchase and enter into agreement with the licensee for the working by him of the undertaking, or such portion thereof as is in the area for which such authority is constituted, until the expiration of the next subsequent period referred to in sub-section (1), upon such terms and conditions as may be stated in such agreement.

The Indian Electricity Act, 1903, was repealed by Act IX of 1910, but most of its provisions were re-enacted. Section 7 of the 1903 Act was re-enacted in substantially similar terms.

  1. (2) The said licence of 1905 was granted to Crompton & Co., Ltd., and empowered them or their permitted assigns to supply energy for electric traction and to the public for all purposes within a defined area in Madras. Clause 10 of the licence provided:-

The option of purchasing the undertaking accorded to the local authority and the Local Government by section 7 of the Act [i.e. the Indian Electricity Act, 1903] shall be exerciseable at the end of the period of 42 years computed from the commencement of the license and at the end of every subsequent period of ten years during the subsistence of this license.

(3) The date of the commencement of the licence was 29th August, 1905, and the said period of 42 years expired on 29th August, 1947.

(4) On 23rd December, 1905, the sanction of the Governor in Council was accorded to the transfer of the licence from Crompton & Co., Ltd., to the Company proposed to be formed (i.e. the Company, which had not at that date been incorporated) and by an agreement dated 7th February, 1906, the licence was transferred to the Company.

8. The Company acquired at various times two further licences for the supply of electricity in Madras.

  1. (a) The first was the Madras (Port) Electric License, 1909, hereinafter called "the licence of 1909", granted to the Company by the Government of Madras and coming into force on 17th August, 1909, and also subject to the provisions of the Indian Electricity Act, 1903, and referred to in paragraph 4 (2) above. It entitled the Company during the continuance of the licence to supply energy for all purposes including electric traction (a) to the public, (b) to particular consumers under special agreements, and it applied to areas not covered by the licence of 1905. Clause 10 thereof reads as follows:-

    1. 10. The option of purchasing the undertaking accorded to the local authority and the local Government by section 7 of the Act shall be exerciseable on the 29th day of August, 1947, and at the end of every subsequent period of ten years during the...

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