Chancery Lane Safe Deposit and Offices Company Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HARMAN,LORD JUSTICE DANCKWERTS |
| Judgment Date | 26 November 1964 |
| Judgment citation (vLex) | [1964] EWCA Civ J1126-5 |
| Date | 26 November 1964 |
| Court | Court of Appeal |
[1964] EWCA Civ J1126-5
In The Supreme Court of Judicature
Court of Appeal
(Revenue Paper)
Lord Justice Harman
Lord Justice Danckwerts
Lord Justice Salmon
Judgment Corrigenda
Page 2: After "Lord Justice Harman" insert new paragraph:
"I am authorized by Lord Justice Salmon to say that he concurs with the judgment I am about to deliver".
The Association of Official Shorthand Writers.
7 December, 1964
SIR ANDREW CLARK. Q. C. and MR. NEIL ELLES (instructed by Messrs. Paisner & Co. 44, Bedford Square, London, W. C. I.) appeared as Counsel for the Appellants.
MR. H. H. MONROE, Q. C., MR. J. P. WARNER, MR. J. RAYMOND PIHLLIPS and ANDREW MERRITT (instructed by the Solicitor of Inland Revenue, Somerset House, Strand, W. C.2.) appeared for the Respondents.
In the Court below this appeal was decided upon the footing that it was governed by the Judge's decision in the immediately preceding case, namely, Nobes' case, in which we have just given judgment. This was because the Judge decided that case upon the footing that the only special circumstance which could disentitle a company from re-writing its accounts so as to show that a payment of annual interest appearing in the books to have been paid out of capital most be taken to have been paid out of profits, if profits there were as the Judge there assumed, though I think wrongly, was the fact that the Company seeking to re-write its accounts was going so in order to obtain some fiscal advantage as in the Birmingham Corporation case, 15 Tax Cases, 172, where the Corporation was claiming a subsidy upon the footing that it had paid out a gross sum in interest whereas in fact it had only paid out a net sum. Lord Atkins treated this as something akin to a case of estoppels, holding that the fact that the gross sum was claimed by way of subsidy was conclusive evidence that the corporation had, in fact, paid the interest out of untaxed funds. I do not think that the obtaining of such an advantage is necessarily the only criterion. The true test in my judgment is whether there is evidence to the contrary.
The facts of this case are simple enough. The Chancery Lane Safe Deposit and Offices Company, Limited, which I shall call "the Company", was a public company carrying on business before the war in a building in Chancery Lane. The business consisted of carrying on in the basement a safe deposit and letting the upper parte of the building to various tenants. In the war almost everything above the ground was destroyed, though the safe deposit survived and was alone useable until re-building began. This spread over the years from 1949 until 1958 and during that time the Company borrowed large sums of money on mortgage, notably in 1954) 1955 and 1956 and it reached in 1957 the sum of £650,000. Repayments started in 1958 and the whole sum was repaid by 1961. In 1954 the assessed income of the Company was £8,933. By 1959 it bad reached over 675,000. This, of course, was due to the fact that as re-building progressed, lettings to tenants were made. These figures are shown in Table attached to the Case.
It appears that the Company took the advice of their auditors as to how during the re-building process the interest on the mortgages raised to finance the re-building ought to be treated in the Company's accounts. Interest in the year 1954-55 was £2,350 and it reached its height in 1957-56 when it was nearly £30,000. It decreased slightly in 1959 and thereafter rapidly disappeared. The Company appears to have received the advice, which it is admitted was perfectly proper in the circumstances, that in order to give a fair view of the Company's affairs it was proper to charge a certain Reaction of the interest payments to capital according to a formula which is set out in the Case and which I need not repeat here. The Company accordingly, in the years 1954-55 to 195a-59 charged certain sums of mortgage interest against capital in their accounts. These are set out on page 6 of the Case Stated. The Crown claimed that so much of the interest as was debited to capital account was, in fact, paid out of capital and was not paid out of profits or gains brought into charge to tax. The Company claimed that these allocations to capital were mere bookkeeping entries and irrelevant for tax purposes. The Company was able to show that in the years in question there were profits out of which the portion of the interest attributed to capital might have been paid and argued that it followed from the decision in Allchin and Coulthard. 1943 Appeal Cases, that the Company's methods of bookkeeping were irrelevant and that the mortgage interest must be deemed to have been paid out of profits brought into charge. The learned Judge assented to this view on the same reasoning as he had adopted in the Nobes case, namely, that the only special circumstance precluding the Company from taking this course was proof that the object of taking it was to obtain a fiscal advantage. I have already said that I disagree with this view. I think it depends on the facts of the case and the evidence.
What conclusion I should have reached on this matter if it had been integra I am not prepared to say. In my opinion this case cannot be distinguished from the Central London Railway case, 1937 Appeal Cases. In that case the appellant railway company was empowered to raise additional capital by means of an issue of 5 per cent, debenture stock and was authorised by its special Act to charge interest on the monies so raised to capital over a period of five years. It did so as to a part of the interest and the House of Lords held that although there were profits out of which the interest could have been paid, still, having regard to the facts, the annual payments had in fact been made out of capital and were chargeable accordingly.
Lord Macmillan who delivered the only speech, in which the rest of the Bouse concurred, said this at page 88: "I now come to the special circumstances of the case in hand. Accepting the position that in the year in which the interest in question was paid there were 'profits or gains' of the railway company 'brought into charge to tax', in the sense of income assessed and charged to tax in that year, in excess of the amount of interest paid, there remains the question whether the interest was 'payable' out of these 'profits or gains'? The...
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