Cenlon Finance Company, Ltd v Ellwood (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 01 March 1962 |
| Date | 01 March 1962 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax - Additional assessment - Discovery - Facts known to Inspector at all material times - Appeal settled by agreement after enquiry on material point - Whether additional assessment can be made subsequently - Income Tax Act, 1952 (15 & 16 Geo. VI & Eliz. II, c. 10), Sections 41, 50 and 510.
C Ltd., the Appellant in the first case, commenced the trade of dealing in stocks and shares on 16th October, 1953, and made up its first accounts to 15th April, 1955. Among the receipts included in those accounts was an item for dividends paid out of profits not charged to Income Tax. Before these accounts were sent to the Inspector of Taxes, assessments under Case I of Schedule D in estimated amounts were made on the Company for 1953-54 and 1954-55, against which it appealed. After receiving the accounts the Inspector asked for particulars of the item above mentioned, and was told that it included a dividend of £25,000 from capital profits made by a subsidiary on the sale of freehold property. He thereupon agreed a computation of the liabilities from which the dividend had been excluded, and the assessments were adjusted accordingly. Subsequently an assessment was made for 195556 on the same footing. In 1956 a new Inspector reviewed the assessments and raised additional assessments for the years 1953-54 to 1955-56 and a first assessment for 1956-57 in amounts including the dividend from the subsidiary.
On appeal to the Special Commissioners against these assessments it was contended on behalf of C Ltd., (i) that the dividend, having been paid by a company resident in the United Kingdom, was not taxable in the hands of the
recipient; (ii) that there had been no discovery within the meaning of Section 41, Income Tax Act, 1952, to render the additional assessments competent; and (iii) as regards 1953-54 and 1954-55 that there had been an agreement within the meaning of Section 510, Income Tax Act, 1952, on the specific point that the dividend should not be included. It was contended on behalf of the Crown (i) that the dividend should be included in the assessments; (ii) that a discovery had been made in respect of the years 1953-54 to 1955-56; and (iii) as regards 1953-54 and 1954-55 the additional assessments were not barred by reason of the settling of the first assessments under Section 510, Income Tax Act, 1952. The Commissioners decided (a) that the dividend was a taxable receipt; (b) that the Inspector had made a discovery with regard to the years 1953-54 to 1955-56; but (c) that Section 510 (1), Income Tax Act, 1952, precluded additional assessments for the years 1953-54 and 1954-55In the second case the facts, the contentions of the parties and the findings of the Commissioners were not materially different from those in the first case.
In view of the decision of the Court of Appeal in Commercial Structures, Ltd. v. Briggs, 30 T.C. 477, the Appellant Companies conceded in the High Court and the Court of Appeal that the Inspector had made a discovery within the meaning of Section 41; but C Ltd. contended in the House of Lords that there had been no such discovery.
Held, (in the House of Lords)
(1) that the dividend was a taxable receipt in the hands of the Company and
(2) that there had been a discovery within the meaning of Section 41, Income Tax Act, 1952, but (in the Court of Appeal) that the point having been agreed under Section 510, Income Tax Act, 1952, for the years 1953-54 and 1954-55, it could not be taken again by the Crown in additional assessments for those years.
Commissioners of Inland Revenue v. Mackinlay's Trustees,22 T.C. 305, and Commercial Structures, Ltd. v. Briggs,30 T.C. 477, approved.
(1) Cenlon Finance Co., Ltd. v. Ellwood (H.M. Inspector of Taxes) (H.M. Inspector of Taxes) v. Cenlon Finance Co., Ltd.
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 meetings of the Commissioners for the Special Purposes of the Income Tax Acts held on 8th December, 1958, and 23rd March, 1959, Cenlon Finance Co., Ltd. (hereinafter called "the Company"), appealed against assessments made upon it under Case I of Schedule D for the years 1953-54, 1954-55, 1955-56 and 1956-57 in the sums of £10,452, £22,134, £22,134 and £22,241 respectively. The assessments for the years 1953-54 to 1955-56 were additional assessments.
2. The questions for our decision were:
(i) As regards the years 1953-54 to 1955-56, whether there had been a discovery within the meaning of Section 41 of the Income Tax Act, 1952. In view of the authorities this question was raised only formally.
(ii) As regards the years 1953-54 and 1954-55, (a) whether there had been an agreement on certain matters within the meaning of Section 510 of the said Act; (b) if there had been such an agreement, whether additional assessments for these years were competent.
(iii) As regards all years, but subject as regards the years 1953-54 to 1955-56 to the answers to the above-mentioned questions, whether a dividend received by the Company, from which tax had not been deducted, was a receipt of the Company's trade which should be included in computing its Case I profits.
3. Evidence was given before us by Mr. D.E. Lupton (H.M. Inspector of Taxes).
4. The Appellant Company 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 dealings. The Company began trading on 16th October, 1953, and accounts have been drawn up for the period from that date to 15th April, 1955. The assessments for the years 1953-54, 1954-55, 1955-56 and 1956-57 are based on the due proportion of the profits shown in those accounts, i.e.,
1953-54 |
Period from 16th October, 1953, to 5th April, 1954 (52/3 months). |
1954-55 |
Year to 16th October, 1954. |
1955-56 |
Year to 15th April, 1955. |
1956-57 |
Year to 15th April, 1955. |
A copy of these accounts is annexed hereto, marked "A", and forms part of this Case (1).
5. Henry White (Sutherland House), Ltd. (hereinafter called "Henry White"), is a company carrying on business as ladies' outfitters.
On 20th October, 1953, the Company acquired the whole of the issued share capital of Henry White (20,000 £1 shares) for £72,000. Henry White had previously sold some of its freehold property at High Street and at Ironmarket, Newcastle-under-Lyme, and realised thereby a profit which was a capital profit and had not been assessed to tax in its hands.
6. On 2nd November, 1953, Henry White paid to the Company, its sole shareholder, a distribution of £25,000 out of such capital profits, pursuant to the following special resolution of 23rd October, 1953:
That the sum of £25,000 surplus moneys in the hands of the Company representing part of the capital profit arising from the sale of the Company's properties at High Street and Ironmarket and being an accretion to capital be distributed amongst the present holders of the shares in the capital of the Company pari passu and in proportion to the number of such shares respectively held by them and on the footing that they become entitled thereto as capital and the Directors are hereby authorised and directed to distribute the same accordingly.
7. On 4th December, 1953, the Company sold its holding of shares in Henry White for £27,500.
8. During the course of its trading from 16th October, 1953, to 15th April, 1955, the Company made various purchases and sales of stocks and shares, received commission, and sold a debt at a profit. There is annexed hereto a schedule, marked "B" and forming part of this Case(1), which gives details of the various profits and losses from dealing in stocks and shares, and also shows how a profit on trading of £634 was computed. It also received the following:
£ |
||
Dividends from United Kingdom companies: |
£ |
|
Paid out of profits not charged to Income Tax |
… |
33,200 |
Paid out of profits charged to Income Tax |
… |
31 |
Interest |
3625 |
These figures appear in the Company's accounts for the period to 15th April, 1955 (Exhibit "A").
9. On 19th November, 1954, Schedule D assessments were made on the Company for the year 1953-54 in the estimated amount of £500 and for the year 1954-55 in the estimated amount of £1,000. Formal notice of appeal against both these assessments was given on the Company's behalf on 22nd November, 1954, the grounds stated being that the Appellant had not yet prepared accounts relevant to the years of assessment.
10. On 1st July, 1955, accounts were submitted for the period 16th October, 1953, to 15th April, 1955 (Exhibit "A"), together with a computation of the Company's profits as adjusted for the purposes of Case I of Schedule D, in which the sum of £33,231, dividends received from United Kingdom companies (including the Henry White dividend of £25,000), was deducted and excluded from the profits. On 21st July, 1955, H.M. Inspector of Taxes for the St. Martin's district (in which the Income Tax affairs of the Company are dealt with) wrote to the Company's accountants, inter alia, as follows:
3. Profit on Trading£634. A copy of the account is required to show how this profit is made up.
5. I shall be glad to have particulars of the dividends paid out of profits not charged to income tax of £33,200.
11. On 27th July, 1955, the said accountants replied, inter alia:
"3 Profit on Trading£634:- |
£ |
Commission received |
22,519 |
Profit on debt bought |
1930 |
Profits on dealings in stocks and shares (see separate schedule) |
31,623 |
56,072 |
|
Losses on dealings in stocks... |
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