Cape Brandy Syndicate v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 1921 |
| Date | 1921 |
| Year | 1921 |
| Court | King's Bench Division |
Revenue - Excess Profits Duty - Business having no pre-war Existence -
The provisions of the Finance (No. 2) Act, 1915, taken by themselves, do not impose excess profits duty on trades or businesses commenced after the outbreak of war on August 4, 1914. But the provision of s. 45, sub-s. 2, of the Finance Act, 1916 (which Act by virtue of s. 69 is to be construed together with the material sections of the Finance (No. 2) Act, 1915), that “in the case of trades or businesses commencing after August 4, 1914, the rate of [excess profits] duty shall be sixty per cent. of the excess in respect of any accounting period ending after August 4, 1915,” must be treated as an exposition of the law by Parliament that trades or businesses commenced since August 4, 1914, are within the scope of the Finance (No. 2) Act, 1915, and therefore liable to pay excess profits duty.
CASE stated by Commissioners for the Special Purposes of the Income Tax Acts.
In October, 1919, the appellants, Mr. Norris, Mr. White, and Mr. Browning (called for the purposes of the assessments and this appeal the “Cape Brandy Syndicate”), appealed against assessments to excess profits duty for the accounting periods March 11, 1916 — December 31, 1916, and January 1, 1917 — September 17, 1917. The three appellants were members of different firms, but the assessments in question were made in respect of profits arising from certain transactions undertaken by them on their joint account and not on behalf of their respective firms. In 1916 the appellants agreed to purchase certain brandy from the Cape Government on joint account. They first bought 100 casks, at the same time inquiring how much more was available, and, later in the same year, they bought two further lots of 1500 casks each. These 3100 casks constituted the whole amount the Cape Government had to offer, and the fact that the purchase was made in three instalments was because the appellants were not aware, in the first instance, how much there was for sale. Their intention was to buy all that was available. After the purchase the appellants sold some of the brandy for shipment to the East; the remainder they shipped to London, where, on its arrival, it was blended with French brandy purchased by the appellants for the purpose. The brandy so blended was sold on commission on behalf of the appellants. There were about 100 transactions of sale in all, the first taking place on July 1, 1916, and the last on September 17, 1917. The appellants received the profits of the sales after deduction of the agents' selling commissions and the expenses incurred on the appellants' behalf. It was admitted that the appellants' intention in purchasing the brandy was to sell the whole of it at a profit. None of the appellants had previously or since been engaged in a similar transaction.
For the appellants it was contended that the profits in question were capital profits on the realization of a speculative investment, and were not profits arising from any trade or business carried on by the appellants; that an isolated and exceptional transaction did not amount to the carrying on of a trade or business; alternatively, that if the profits arose from a trade or business, the trade or business did not commence until 1916, and any profits arising from a business commencing after August 4, 1914, were not chargeable to excess profits duty.
For the respondents it was contended that the profits in question arose from a trade or business carried on by the appellants, and were chargeable to excess profits duty.
The Commissioners upheld the respondents' contention.
Hon. Sir William Finlay K.C. (Bremner with him) for the appellants. First, the profits in question do not arise from any trade or business carried on by the appellants but are capital profits on the realization of a speculative investment: Hudson's Bay Co. v. StevensF1, and Tebrau (Johore) Rubber Syndicate v. Farmer.F2 The carrying on of a business involves a continuity of transactions: Inland Revenue Commissioners v. SangsterF3, and that element is absent in this case. The profits in question are therefore not liable to duty.
Secondly, even if the appellants can be said to have been carrying on a trade or business in the purchase and sale of the brandy, they are nevertheless not liable to pay excess profits duty, inasmuch as the business was commenced after August 4, 1914. This point turns upon the construction of certain sections of the Finance (No. 2) Act, 1915, which first imposed excess profits duty. Sect. 38, sub-s. 1, of that Act provides that “there shall be charged, levied, and paid on the amount by which the profits arising from any trade or business to which this Part of this Act applies, in any accounting period which ended after August 4, 1914, and before July 1, 1915, exceeded, by more than 200l., the pre-war standard of profits as defined for the...
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