Capital and National Trust v Golder
| Jurisdiction | England & Wales |
| Judgment Date | 16 November 1949 |
| Date | 16 November 1949 |
| Court | Court of Appeal |
No. 1433-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
Income Tax - Investment company - Brokerage and stamp duties on changes of investments - Claim for relief in respect of management expenses - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Section 33.
The Appellant Company was an investment company. The whole of its investment income was charged to Income Tax by deduction or otherwise. In a claim to relief from Income Tax in respect of management expenses, the Company included sums representing brokerage and stamp duties relating to changes of investments, and contended that these sums were "expenses of management" within the meaning of Section 33 of the Income Tax Act, 1918, and further that the brokerage was within the phrase "including commissions" in that Section. The Special Commissioners decided that the sums claimed were not admissible as management expenses.
Held, that the decision of the Special Commissioners was correct.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 22nd March, 1948, Capital and National Trust, Ltd. (hereinafter called "the Appellant Company") claimed under Section 33 of the Income Tax Act, 1918, repayment of so much of the Income Tax paid by it for the year ending 5th April, 1948, as was equal to the amount of the tax on sums disbursed as expenses of management for that year. The claim was objected to by the Respondent to the extent and on the ground that, among the expenses of management claimed, there were included sums which the Appellant Company disbursed in respect of brokerage and stamp duty as hereinafter appears. The claim accordingly fell to be heard and determined by the Special Commissioners in like manner as in the case of an appeal under Schedule D.
1. The sole question raised by this appeal is whether sums paid or suffered by the Appellant Company amounting to £4,906, in respect of brokerage and stamp duty, for the year ending 5th April, 1948, are expenses of management within the meaning of Section 33 of the Income Tax Act,
1918, and on which sum the Appellant Company is entitled to repayment of Income Tax by reason of the matters hereinafter set out.2. The Appellant Company was incorporated on 2nd August, 1927, as an investment trust company. It has at all material times been a company whose business consists in the making of investments and the principal part of whose income is derived therefrom. The whole of its investment income has been charged to Income Tax by deduction or otherwise and it has never been charged in respect of its profits in accordance with the rules applicable to Case I of Schedule D. Its authorised and issued share capital has throughout been £500,000 divided into 50,000 shares of £10 each. A copy of its memorandum and articles of association, marked "A", is annexed to and forms part of this Case(1).
3. It has for many years been the practice of the Commissioners of Inland Revenue in examining claims under Section 33 made by investment trust companies (including the Appellant Company), to offer no objection to the inclusion of sums disbursed by way of brokerage and stamp duties in connection with changes of investments as distinguished from investments representing capital expansions. A simple formula for the determination of the capital expansion element in such disbursements was year by year applied in the case of investment trust companies generally and the Appellant Company in particular.
When, however, the Appellant Company made its claim on the customary basis for the year ended 5th April, 1948, it was informed that the Commissioners of Inland Revenue were no longer prepared to regard any part of the expenditure it had incurred by way of brokerage and stamp duties in connection with changes of investments as sums disbursed as expenses of management (including commissions) within the meaning of Section 33.
4. The following statement sets out particulars of the Appellant Company's management expenses claim under Section 33 for the year under appeal:-
Expenses of Management:- |
|
Secretarial remuneration |
£1,500 |
Bank commission |
33 |
Office expenses |
185 |
Subscription-Association of Investment Trusts |
26 |
A.R.P. expenses |
8 |
£1,752 |
|
Directors' fees |
1250 |
Debenture stock trustees' fee |
105 |
Auditors' fee |
105 |
Brokerage and stamp duty |
4,906 |
£8,118 |
|
Less: Transfer fees |
20 |
£8,098 |
|
Repayment due @ 9s. 0d. = £3,644 2s. 0d. |
The total amount disbursed by the Appellant Company by way of brokerage and stamp duty during the year of claim was £5,030. The amount of £4,906 shown above represents this figure of £5,030 as reduced by the deduction of £124 in respect of the "capital expansion element" as calculated in accordance with the formula above mentioned. The following statement sets out the calculation.
Total Brokerage |
||||
and |
||||
Brokerage |
Stamp Duty |
Stamp Duty |
||
Purchases during year |
£256,158 |
£1,595 |
£1,065 |
£2,660 |
Sales during year |
244,215 |
2,346 |
24 |
2,370 |
Excess purchases |
£11,943 |
3941 |
1089 |
5030 |
Purchases restriction |
11,943 |
|||
×£2,660 |
74 |
50 |
124 |
|
256,158 |
||||
Brokerage and stamp duty claimed |
||||
£3,867 |
£1,039 |
£4,906 |
5. A copy of the Appellant Company's accounts for the year ended 31st July, 1947, marked "B" is annexed to and forms part of this Case(1). The said sum of £5,030 is included in the item "investments at or under "cost £1,040,416" shown as an asset in the balance sheet. The chairman's statement, which is contained on the back of the said accounts, shows that the investments comprise 526 holdings which are classified as to 8 per cent. in bonds and debentures stocks, 413/4 per cent. in preference stocks and 501/4 per cent. in ordinary stocks.
6. The Appellant Company effected its purchases and sales of investments through Robert Fleming & Co., Ltd., who passed on the orders to stockbrokers, the contract notes being between Robert Fleming & Co., Ltd. and the stockbrokers. Specimens of bought and sold orders...
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