Cenlon Finance Company Ltd v Ellwood
| Jurisdiction | UK Non-devolved |
| Judge | Viscount Simonds,Lord Reid,Lord Denning,Lord Morris of Borth-y-Gest |
| Judgment Date | 01 March 1962 |
| Judgment citation (vLex) | [1962] UKHL J0301-1 |
| Date | 01 March 1962 |
| Court | House of Lords |
[1962] UKHL J0301-1
Viscount Simonds
Lord Reid
Lord Denning
Lord Morris of Borth-y-Gest
Lord Guest
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause Cenlon Finance Company Limited against Ellwood (Inspector of Taxes), that the Committee had heard Counsel, as well on Wednesday the 31st day of January last, as on Thursday the 1st day of February last, upon the Petition and Appeal of Cenlon Finance Company Limited, whose registered office is at 40 Queen Anne Street, W.1, in the County of London, 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 1st of May 1961, 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 J. H. G. S. Ellwood (Her Majesty's Inspector of Taxes), lodged in answer to the said Appeal; and due consideration 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 1st day of May 1961, 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 Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
I am so fully in agreement with the judgments of the Court of Appeal in this case that I can state my opinion shortly upon the only question which it fell to them to consider. But there is a second question upon which they were constrained to follow an earlier decision of the Court and upon this question it will be necessary to state the facts in some detail.
The appeal relates to an additional assessment for the year 1955-56 and an assessment for the year 1956-57 made upon the Appellant in the circumstances appearing in the Case Stated by the Special Commissioners which can be summarised as follows.
The Appellant was registered on 12th October, 1953. It carried on business as a dealer in stocks and shares and was assessable to income tax under Case I of Schedule D in respect of any profits arising from such dealing. On 20th October, 1953, the Appellant acquired the whole issued share capital of Henry White (Sutherland House) Limited (hereinafter called "Henry White") for £72,000. Henry White carried on the business of ladies outfitters and had previously realised a profit from the sale of some of its freehold property which was a capital profit and not assessable to income tax in its hands. On 2nd November, 1953, Henry White made to the Appellant a distribution of £25,000 out of that capital profit. On 4th December, 1953, the Appellant sold its holding of shares in Henry White for £27,500. These figures were included in the Appellant's accounts for the period 16th October, 1953 to 15th April, 1955. On 1st July, 1955, those accounts were submitted to H.M. Inspector of Taxes for St. Martin's district together with a computation of the profits adjusted for the purposes of Case I of Schedule D in which the sum of £25,000 dividends received from Henry White was deducted and excluded from the profits. Details of these dividends were then asked for and given in correspondence between the Appellant's accountants and the Inspector. On 8th August, 1955, the Inspector wrote to the accountants agreeing their computation. On 24th November, 1955, the Inspector issued a notice of assessment for income tax Schedule D for the Appellant for the year 1955-56 in accordance with the agreed computation. In May, 1956, a new Inspector succeeded to the charge of the St. Marlin's District, and having received a tax memorandum from the Chief Inspector of Taxes, and having read the relevant correspondence and documents, he came to the conclusion that the dividend of £25,000 received from Henry White should have been included as a trading receipt in the computation of the Appellant's profits for the purposes of Case I of Schedule D. He subsequently raised the additional assessment for 1955-56 and the assessment for 1956-57 whereby the dividend from Henry White was included in the assessable profits. He did not have any facts in relation to the Appellant's affairs before him additional to those before his predecessor in 1955.
It will be noticed that no question arises on the assessments for the years 1953- 1954, or 1954-1955. The reason for this is irrelevant. But in regard to the additional assessment for the year 1955-1956 and the assessment for the year 1956-1957 the question is whether a sum paid by way of dividend out of so-called capital profits and received by the Appellant as a trader in stocks and shares ought to be included in the computation of his liability under Case I of Schedule D of the Income Tax Act, 1952, in respect of that trade. A second question arises only upon the additional assessment for the year 1955-1956. I will deal with this hereafter. It does not arise if the first question is answered in favour of the Appellant. That question was decided against the Appellant by the Special Commissioners. Their decision was reversed by Mr. Justice Cross but restored by the unanimous judgment of the Court of Appeal.
My Lords, it is beyond doubt that under Case I of Schedule D and the applicable Rules the dividend in question must be included in the receipts of the Appellant's trade for income tax purposes unless it is excluded by statutory provision or (perhaps I should add to do justice to the contentions of the Appellant) by judicial interpretation of the relevant statute. Such exclusion could arise either because the dividend is made subject to income tax under some other schedule or because it is exempt from tax altogether in whosesoever hands it may be. The first reason for exclusion is not advanced: on the contrary it is claimed that the dividend is not liable to tax under Schedule D or any other schedule. It is the second reason that was urged with much ingenuity by counsel for the Appellant.
My Lords, it is a familiar fact that the statutory provisions in regard to the payment of dividends by any body of persons (which expression includes a limited company) have from time to time caused difficulties and created anomalies. But first it must be observed that no other section is relied on for affording exemption from tax than section 184 of the Act and this section will be searched in vain for any least suggestion that, where a dividend has been paid by a company out of profits and gains which have not been assessed to tax, it is to be exempt in the hands of the shareholders. On the contrary it does nothing more than require that the company shall be assessed to tax on the full amount of its profits and gains before any dividend is paid and entitles it, but no more, to deduct from the dividend tax at the standard rate for the year in which the amount payable becomes due.
There is no resemblance here, my Lords, to such cases as Hughes v. Bank of New Zealand [1938] A. C. 366, where in respect of certain securities specific and express exemption from tax was provided.
It is however upon observations that have been made in this House in other tax cases that reliance was placed. It is not clear to me whether they are to be regarded as interpretations of section 184 though that section or its predecessors were not mentioned or as expositions of some underlying principle which governs the liability to tax of sums received by way of dividend by any person in any circumstances. My Lords, I have read, not for the first or second time, the many cases that were cited to us, of which I name only Bradbury v. English Sewing Cotton Company Ltd. [1923] A.C. 744, Neumann v. Commissioners of Inland Revenue [1934] A.C. 215, Canadian Eagle Oil Company Ltd. v. The King and Selection Trust Ltd. v. Devitt [1946] A.C. 119. These cases establish that a dividend as such is not taxable in the hands of its recipient. So be it. But it is not a logical step from that to say that a sum paid out of untaxed profits and received by a trader in respect of his trade is to be excluded from the computation of his profits and gains. Nor is there any warranty for it in any speech in your Lordships' House that I have read, unless it be in a dictum made per incuriam in the speech of Lord Wright in Neumann's case.
I will add two more observations. First, it is true that the Selection Trust case, where the shareholder was a trader in stocks and shares, might have been shortly disposed of upon the grounds on which I would dismiss this appeal. But the case had been linked with the Canadian Eagle Oil Coy. case which had been brought to this House to dispose of that longstanding sore in the administration of the revenue, Gilbertson v. Fergusson, 7 Q.B.D. 562. That point having been determined in favour of the Crown, it was unnecessary to discuss any other question. Secondly, I would affirm what was said by Lord Justice Donovan (than whom no one has a wider knowledge of revenue law) about the treatment by a trading company of dividends from which tax has been deducted at the source. There is no doubt that the practice is and, so far as I know, always has been to include such dividends in the computation of profits taxable under Case I of Schedule D and to make an allowance or...
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