Cadogan Settled Estates Company ((in Liquidation)) v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 29 November 1968 |
| Date | 29 November 1968 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Surtax - Investment company - Computation of actual income - Estate or trading income - Relief for expenditure on maintenance, repairs, etc. - Whether to be based on actual expenditure or five-year average - Deduction for profits tax allowed in original apportionment - Profits tax subsequently repaid - Whether further apportionment competent - Finance Act 1947 (10 & 11 Geo. 6, c. 35), s. 31(2); Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), ss. 101(1), 245, 248, 255(3) and 262; Finance Act 1952 (15 & 16 Geo. & 1 Eliz. 2, c. 33), s. 68.
The Appellant Company was an investment company to which s. 245, Income Tax Act 1952, applied. Its income was derived mainly from rents, but there was also interest from loans and investments. The Company went into voluntary liquidation on 13th March 1961, the final period for which accounts were made up being from 25th March 1960 to 13th March 1961. Surtax directions were given in respect of its estate or trading income for that period and in respect of its other income for the period 6th April 1960 to 13th March 1961. For the purposes of the apportionments under those directions (a) the estate or trading income was computed after allowing a deduction for the cost of maintenance, repairs, insurance and management based on the average expenditure in the preceding five years, and (b) at the Company's request both the estate or trading income and the other income were computed after allowing a deduction for profits tax paid but repayable in consequence of the apportionments. After the profits tax had been repaid a second notice of apportionment was issued in respect of the other income, and the Company was informed that, on the hearing of the undermentioned appeal concerning the maintenance relief allowable in the computation of the estate or trading income, the Crown would contend that the amount apportioned should be increased to take account of the profits tax repaid.
On appeal against the apportionment of the estate or trading income the Company contended (a) that allowances for the cost of maintenance, repairs, insurance and management should be based on actual expenditure, and not on the average of the preceding five years, and (b) that it was not open to the Crown to ask for an increase in respect of the amount apportioned; on appeal against the second notice of apportionment of other income the Company contended that the notice was void. For the Crown it was contended that the provision in s. 255(3), Income Tax Act 1952, that income from any source should be estimated in accordance with the provisions of the Act relating to income from that source required that in computing the actual estate or trading income for the period in question allowances for the cost of maintenance, etc., should be based on the average of the preceding five years, as provided by s. 101 of the Act. It was also contended for the Crown that the amount of estate or trading income apportioned should be increased to take into account profits tax allowed and afterwards repaid, and that the second notice of apportionment of the other income was valid. The Special Commissioners upheld all the Crown's contentions.
Held, (1) that in computing the actual estate or trading income allowance should be made for the actual expenditure of the period on maintenance, repairs, insurance and management;
(2) that nothing in the statutory provisions prohibited a further apportionment to take account of the recovered profits tax.
Stated under the Income Tax Management Act 1964, s. 12(5), and the Income Tax Act 1952, s. 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 6th and 7th November 1967, Cadogan Settled Estates Co. (in liquidation) (hereinafter called "the Company") appealed against the following apportionments made under s. 248 of the Income Tax Act 1952:
Period 25th March 1960 to 13th March 1961, the Rt. Hon. the Earl Cadogan M.C., £100,967.
Period 6th April 1960 to 13th March 1961, the Rt. Hon. the Earl Cadogan M.C., £5,010.
2. Shortly stated, the questions for our decision were:
(a) whether the amount (£100,967) specified in the first notice of apportionment dated 18th May 1965 hereinafter mentioned should be reduced or increased, and if so on what basis, and by what sum or sums;
(b) whether or not the further notice of apportionment dated 21st October 1965 hereinafter mentioned was valid and in the correct amount.
3. The following documents were proved or admitted before us:
(a) statement of agreed facts;
(b) notice of apportionment dated 21st October 1965.
Copies of the above are not annexed hereto as exhibits but are available for inspection by the Court if required.
4. The following facts were admitted between the parties:
(2) The Company was incorporated under the Companies Act 1929 on the 23rd July 1941 as an unlimited company. Its authorised and issued share capital was originally £1,500,000 divided into £1,250,000 ordinary shares and £250,000 preference shares, but this was reduced, and at all material times until its liquidation the issued capital of the Company was £1,162,500 ordinary shares.
-
(3) At all material times the Company was one to which s. 245 of the Income Tax Act 1952 applied, and the Rt. Hon. the Earl Cadogan M.C. (hereinafter called "the Earl Cadogan") was the sole person beneficially entitled to its dividends. For all periods up to 24th March 1960 the Company distributed the greater part of its income by way of dividend. This income derived mainly from rents, but there was also interest from loans and investments. The profits and distributions of the Company for the period ended the 13th March 1961, when the company went into liquidation, were as follows:
£
Rents
…
…
193,221
Interest
…
…
28,930
Tax refund management expenses claim
…
…
1212
Tax refund maintenance claims
…
…
2,950
226,313
-
(4)
£
£
Management expenses
…
…
…
…
…
72,958
Mortgage interest
…
…
…
…
…
51,875
Furniture written off
…
…
…
…
…
720
Profits tax
…
…
…
…
…
15,176
Income tax
…
…
…
…
…
68,224
208,953
Net profits
…
…
…
…
…
17,360
-
(5) The management expenses include:
£
Directors' fees
…
…
…
1200
Directors' managerial remuneration
…
…
…
5261
Audit fees
…
…
…
851
Repairs and alterations to premises
…
…
…
50,636
57,948
-
(6) Net distributions have been as follows:
£
Interim dividend
…
…
…
…
…
…
7120
Final dividend
…
…
…
…
…
…
Nil.
7,120
(7) The resolution for the voluntary winding-up of the Company was passed at an extraordinary general meeting held on 13th March 1961. The original liquidators were a Mr. F. L. Robertson and a Mr. H. L. Layton (hereinafter called "the liquidators"), but Mr. Robertson died on 21st March 1966 and Mr. S. G. Sillem was appointed in his place. Mr. Layton retired as liquidator on 31st May 1967, and Mr. Sillem is now sole liquidator.
-
(8) It was accepted on behalf of the liquidators that the Company had been an investment company to which s. 245 of the Income Tax Act 1952 applied, and that the Commissioners of Inland Revenue were required by s. 262(1) of that Act to make a direction under s. 245 in respect of its income other than estate or trading income for the period 6th April 1960 to 13th March 1961. The accountants acting for the liquidators (hereinafter called "the accountants") also indicated in a letter addressed to the Clerk to the Special Commissioners of Income Tax (now the Controller of Surtax), dated 11th June 1964, that a direction under s. 245 in respect of the Company's estate or trading income for the period 25th March 1960 to 13th March 1961 would not be opposed, but it was added:
(a) that in the computation of the Company's actual income a deduction of the grossed-up amount of the profits tax paid in respect of the periods in question would be claimed in accordance with s. 68(1) of the Finance Act 1952; and
(b) that by virtue of s. 255(3) of the Income Tax Act 1952 it was claimed that the Company was entitled to deduct the amount of its actual expenditure on the maintenance of properties in the period in question and not just the average of its expenditure in the preceding five years.
(9) The accountants subsequently advised the Clerk to the Special Commissioners (now the Controller of Surtax) that when the proposed directions had been made it was intended to reclaim from the Inspector of Taxes the amount of the profits tax paid on the profits of the periods in question, in accordance with s. 31(2) of the Finance Act 1947, and they asked for confirmation that no further apportionments or assessments would be made as a result. The Clerk to the Special Commissioners (now the Controller of Surtax) replied that it was the Revenue's normal practice in such circumstances to leave profits tax out of account altogether in computing the actual income of a company, but that where a company insisted upon a deduction of the grossed-up profits tax, it was the practice to allow the deduction and then to make a further apportionment when the profits tax had been repaid. The accountants were also advised that it was not accepted that the Company was entitled to the deduction of the actual amount expended by it on the maintenance of properties for the period in question in the computation of its estate or trading income.
(10) Two separate directions, both dated 18th May 1965, were made and served upon the liquidators in respect of such part of the Company's actual income from all sources as was estate or trading income for the period 25th March 1960 to 13th March 1961 and such part of its actual income from all sources as was not estate or trading income for the period 6th April...
To continue reading
Request your trial