Clark (C. & J.) Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE STAMP,LORD JUSTICE SCARMAN,SIR ERIC SACHS |
| Judgment Date | 17 December 1974 |
| Judgment citation (vLex) | [1974] EWCA Civ J1217-4 |
| Date | 17 December 1974 |
| Court | Court of Appeal (Civil Division) |
[1974] EWCA Civ J1217-4
In The Supreme Court of Judicature
Court of Appeal
Civil Division
(Revenue Paper)
On appeal from Order of Mr. Justice Megarry.
Lord Justice Stamp
Lord Justice Scarman and
Sir Eric Sachs
Mr. A.J. BALCOMBE, Q.C., Mr. PATRICK MEDD, Q.C. and Mr. B.J. DAVENPORT (instructed by Solicitor of Inland Revenue) appeared on behalf of the Appellants.
Mr. MICHAEL NOLAN, Q.C. and Mr. P.G. WHITEMAN (instructed by Messrs Slaughter and May) appeared on behalf of the Respondents.
This is an appeal from a Judgment and Order of Mr. Justice Megarry allowing an appeal of the taxpayer company, C. & J. Clark Ltd., from a decision of the Special Commissioners. Because the case is reported in 1973 I Weekly Law Reports at page 905, I need not set out the facts or the issues which fall to be determined on this appeal.
I ought, however, to emphasise at the outset that the payments here in question made by this close company, which is a trading company, were "covenanted donations to charity" within Section 52(4) of the Finance Act, 1965, and were accordingly treated for Corporation Tax purposes as charges on the income of the company deductible in computing the income for the purposes of that tax. I should, perhaps, also emphasise that the payments if made by an individual would not have been allowable in computing his total income for surtax purposes. The Crown seeks by the process of apportionment to add the amounts in appropriate proportions to the sur-taxable income of the shareholders.
It is common ground that prior to the Finance Act, 1965, covenanted payments such as are here in question made by a company under the control of not more than five persons (I will call it a close company, though it was not so called in those days) could, if the company was an investment company, be apportioned among its members so as to make the members liable to surtax in respect of those payments. As I understand it, you could not so organize your affairs through the medium of such a company as to escape the ambit of surtax on payments under covenant made by the company to charity which would not be allowable as deductions in computing your income for the purposes of surtax if you yourself had madethe payments under covenant. Under Section 262 of the Income Tax Act, 1952, the income of such a company was liable to be treated as the income of its members and so apportioned among them for surtax purposes however much or however little had been distributed and (by the effect of subsection (2) of that section) no deductions were allowable in computing the income of the company so apportionable which would not have been allowable in computing the income of an individual. The shareholders of a close company which was a trading company were not similarly vulnerable, for there was no provision in the case of such a company for disallowing in computing its income deductions not allowable in computing an individual's income.
The introduction of Corporation Tax by the Finance Act, 1965, brought with it a new situation regarding income tax. The broad effect of Section 77 of that Act was that if there was what was called a shortfall in a close company's distributions, i.e. the amount, if any, by which the distributions fell short of what was called the required standard, a charge of income tax (in effect) was placed on the company on an amount equal to the shortfall. The required standard was, subject to certain limitations, the distributable income of the company, but, in the case of a trading company, less such amount as could not be distributed without prejudice to the requirements of the company's business. So, if a trading company distributed all the income which it could distribute without prejudice to its business, it in general fell outside the section. There were complicated provisions for limiting the required standard. In approaching the construction of Section 78 it is to be emphasized first thatSection 77 was concerned with the avoidance of the charge of income tax, imposed by section 47 of the Act, by the withholding of distributions, and second that a trading company which retained no more than the amount of its distributable income necessary for its business requirements was outside it.
Section 78 was concerned with surtax. In the cases to which it applied it brought into operation, by the effect of the concluding words of subsection (1), the provisions of Section 249 of the Income Tax Act, 1952 (as amended) so as to attract surtax on the amount apportioned to a surtax payer. Subsection (1) of Section 78 is expressed in general terms permitting the whole of the income of close companies - investment companies and trading companies alike - to be apportioned for surtax purposes. The limitation on the generality of subsection (1) is found in subsection (4), precluding any apportionment unless an assessment is made under Section 77 and providing, before its amendment, that the amount apportioned should be the amount of that assessment. So, if you stop there, there could be no apportionment for surtax purposes in respect of a trading company which had withheld form distribution no more than the amount of its distributable income necessary for its business and which was accordingly immune from an income tax assessment under Section 77. Such a trading company would thus be in a similar position as regards surtax apportionments as it was prior to the 1965 Act. An investment company, on the other hand, by the effect of subsection (3) of Section 78 was liable to an apportionment, if the Board saw reason for it, of the whole of its income up to the required standard notwithstanding the absence of any shortfall; and, because subsection (4) is expressed to besubject to subsection (3), notwithstanding the absence of an assessment under Section 77.
Whatever be the effect of subsection (2) which is subject to the controversy in this case, it is clear that once there is an apportionment in respect of either a trading or investment company, there falls to be added - and there is no discretion in the matter - "to the amount of income to be apportioned" any amounts which were deducted in respect of annual payments in arriving at the company's distributable income. So, if a trading company withheld from distribution more than the amount necessary for its business requirements, that amount plus the last-mentioned amounts was apportionable. The question for determination is whether subsection (2) operates as well in the case of a trading company which has not withheld more than is necessary for its business.
Because the argument of the Crown, if not founded on, is supported most strongly, by an argument based on anomaly, it is convenient to refer at once to the suggested anomaly. What is said is that it would be anomalous if a trading company which had withheld from distribution more than the amount necessary for its business should be liable to have these covenanted sums added to the amount apportionalbe, but that a trading company which had distributed all that its business requirements permitted should not be liable. But I am not sure that it is correct to describe the situation as anomalous. It might have been said that under the pre-1965 legislation it legislation it was anomalous that a trading company, which had failed to distribute a reasonable amount of its income and was perhaps being used by its shareholders for the purpose of making payments which would not have been deductions in computingtheir total income for surtax purposes if they had made them themselves, should be free from an apportionment of its covenanted sums, whereas an investment company which had distributed the whole of its income should be liable to an apportionment of its covenanted sums. And when it came to the 1965 Act it may have been thought that a trading company should still be in a better position in this regard, provided it had distributed all the income not required for the purpose of its business (and so had at least to the extent shown an absence of intent to protect its shareholders from a surtax assessment), than a company which had not done so.
But, however anomalous one may regard the effect of the distinction, the Court is not at liberty to force a construction of clear language to correct even a clear anomaly. And I am afraid one will always find that taxing Acts of such complexity as that with which we are here concerned appear to produce anomalies. Were it not so, there would, I think, be fewer amending provisions. Mr. Gorfrey in the Court below argued, as I read the Judgment of Mr. Justice Megarry, that to-day one must not make too literal an approach to the construction of a statute. That argument was repeated in this Court. I need not pursue it, because I am not persuaded that in favour of the Crown the provisions of a taxing Act ought to have put upon them a construction which would alter their natural meaning and so enlarge the ambit of the tax imposed. Of course, in construing a particular section of an Act of Parliament you must read and consider the effect of the Act as a whole and each and every part of it. That was the process adopted by Lord Reid in Stenhouse Holdings Ltd. v. Inland Revenue Commissioners, 46 Tax Cases, 670, in determiningagainst the Crown that a too literal construction of the language of a particular section would defeat the intention of the legislature as shown by a reading of other provisions of the Act. But that does not mean that you should in favour of the Crown, to use Mr. Justice Megarry's words...
To continue reading
Request your trial
-
R v HM Inspector of Taxes, ex parte Lansing Bagnall Ltd
...Re Baker ELR(1980) 44 Ch.D. 262 British Oxygen Co. Ltd. v. Board of Trade ELR[1971] A.C. 610 C. & J. Clark Ltd. v. I.R. Commrs. TAXELR(1974) 50 T.C. 103. Re Findlay [1985] A.C. 318 I.R. Commrs. v. National Federation of Self-Employed and Small Businesses Ltd. ELR[1982] A.C. 617 I.R. Commrs.......
- Newcrest Mining (Wa) Ltd v Bhp Minerals Ltd
-
C. & J. Clark Ltd v Commissioners of Inland Revenue
...Solicitor of Inland Revenue.] 1 Reported (Ch.D.) [1973] 1 W.L.R. 905; [1973] 2 All E.R. 513; [1973] S.T.C. 299; 117 S.J. 509; (C.A.) [1975] 1 W.L.R. 413; [1975] 1 All E.R. 801; [1975] S.T.C. 206; 119 S.J. 1 36 T.C. 28 [1955] A.C. 696. 1 36 T.C. 28, at p. 63. 2 12 T.C. 358, at p. 366. 1 43 T......
-
R v HM Inspector of Taxes and Another.ex parte Lansing Bagnall Ltd
...referred to in the judgments: British Oxygen Co. Ltd. v. Minister of Technology ELR[1971] A.C. 610 C. & J. Clark Ltd. v. I.R. Commrs.TAX(1974) 50 T.C. 103 I.R. Commrs. v. National Federation of Self-Employed and Small Businesses Ltd. ELR[1982] A.C. 617 Julius v. Lord Bishop of Oxford [1880]......
-
A Warm and Dry Place to Live: Energy Efficiency and Rental Accommodation
...and Carter, above n 63 at 440, quote Megarry J in C&J Clark Ltd v Inland Revenue Comsrs [1973] 2 All ER 513 at 520 (ChD), aff’d [1975] 1 All ER 801 (CA), “Where there is no clash, the phrase does nothing: if there is a collision, the phrase shows what is to prevail.” 68 Burrows and Carter a......