Commissioners of Inland Revenue v Wood Bros. (Birkenhead) Ltd
| Jurisdiction | England & Wales |
| Judge | Viscount Simonds,Lord Morton of Henryton,Lord Reid,Lord Keith of Avonholm,Lord Somervell of Harrow |
| Judgment Date | 18 December 1958 |
| Judgment citation (vLex) | [1958] UKHL J1218-1 |
| Date | 18 December 1958 |
| Court | House of Lords |
[1958] UKHL J1218-1
House of Lords
Viscount Simonds
Lord Morton of Henryton
Lord Reid
Lord Keith of Avonholm
Lord Somervell of Harrow
Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Wood Bros. (Birkenhead) Ltd. (In Liquidation), that the Committee had heard Counsel, as well on Monday the 3d, as on Tuesday the 4th and Wednesday the 5th, days of November last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, London, W.C.2, 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 4th of October 1957, 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 printed Case of Wood Bros. (Birkenhead) Ltd. (In Liquidation), 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 4th day of October 1957, 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 Respondents the Costs incurred by them in respect of the said Appeal, such Costs to be taxed as between Solicitor and Client, and the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
I am so fully in agreement with the Opinion of my noble and learned friend, Lord Keith of Avonholm, that I can be very brief in stating my own views. Nor shall I occupy your Lordships' time in stating the many sections of the Income Tax Act, 1952, to which reference was made in the course of the argument. The Act contains over 500 sections and 25 schedules. A considerable number of them were relied on by one side or the other. The question is in fact a very short one. It is whether the amount in respect of which a so-called balancing charge was properly made upon the Respondent company under sections 292 ( 1) and 323 (4) of the Act was part of its actual income from all sources for the relevant period within the meaning of section 245 of the Act. If so, that amount was apportionable among the members of the Respondent company and the apportionment made by the Special Commissioners was properly made. But it has been held by Mr. Justice Harman upon a Case Stated by the Commissioners and, for different reasons, by the Court of Appeal that the amount in question ought not to be regarded as part of its actual income for the period in question.
The argument was twofold: first, as was held by the Court of Appeal, that no statutory enactment provided that the amount on which the balancing charge was assessed should be deemed to be income of the company for income tax purposes; and, secondly, that in any case it was not part of the actual income of the company from all sources. If the first argument prevailed, the second argument was unnecessary: it was not suggested that the amount in question could be actual income of the company if it was not income at all.
My Lords, it appears to me that the construction placed by the Court of Appeal upon the relevant sections of the Act is too narrow. The purpose of the balancing charge is not in doubt. I respectfully adopt the language of my noble and learned friend Lord Morton of Henryton in the recent case of Kirkness v. John Hudson & Co. Ltd. [1955] A.C. 696 at p. 716:
"Conversely, if the moneys received on the sale were in excess of the written-down value of the asset, a 'balancing charge' was imposed, in order to restore to the public revenue the amount by which the past allowances were shown to have been excessive."
The allowances were made in respect of the computation of profits or gains for purposes of income tax, the part of the public revenue affected was that which was derived from income tax and the balancing charge is made in order to restore to that tax an amount by which it has been mistakenly reduced. Call it notional or artificial or what you will. It is an amount which for the purpose of income tax is as truly part of the subject's income as is, for instance, the notional or artificial amount which is under Schedule A regarded as his income. My noble and learned friend Lord Keith of Avonholm will exhaustively examine the relevant sections. I hope, therefore, I may not be thought to be wanting in respect to those who take a different view, if I say that in my opinion the solution of the problem lies in remembering that in the Act the word "income" has a special meaning, namely, a sum which is by the Act charged to income tax and measured in accordance with its provisions and that, specifically, where Case I of Schedule D is in question, "profits and gains" is an expression synonymous with "income". It is because the amount, on which the balancing charge is assessed, falls within that Case that it is brought into charge as income. I do not wish to elaborate what my noble and learned friend will say, but I cannot refrain from observing upon the incongruity of the conclusion to which, in the case of a company, the Court of Appeal has come with the result in the case of an individual trader. His surtax liability appears to be concluded by section 524 (4) of the Act. I agree too that no little weight should be attached to the language of section 270 (6) ( c). In that subsection, quite naturally and in my opinion rightly, that "which is the subject of a balancing charge under this Chapter" is called "income". So, in my opinion, it is for all the purposes of the Act.
But it remains to determine whether it is "actual" income within section 245. This expression is defined in section 255 (3). I do not think it necessary to look beyond its terms. It clearly has a purely temporal significance: it means income as defined, computed and measured by the Act but by reference to a particular period. That is in accordance with what Lord Atkin said in the Fattorini case, 24 Tax Cases 328, and it is perhaps permissible to add that, if it means anything else, there is no guide to what it does mean.
I would only add that I agree with the observations of my noble and learned friend Lord Morton of Henryton upon what Lord Uthwatt said in the Howard de Walden case 30 Tax Cases 345.
I would therefore allow this appeal, but, as I understand that the majority of your Lordships think otherwise, it must be dismissed.
1. that a "balancing charge" was properly made upon the Respondent company under sections 292 and 323 (4) of the Income Tax Act, 1952;
2. that "the amount on which the balancing charge is made" was correctly computed, under the same provisions of that Act, at the sum of £18,675;
3. that on the true construction of the Act, once the amount on which the balancing charge is made has been ascertained, the balancing charge is income tax on that amount at the appropriate rate.
My Lords,
The one question which remains for decision is whether the sum of £18,675 already mentioned is or is not part of the "actual income from all sources" of the Respondent company for the relevant period, within the meaning of section 245 of the Act. If this question is answered in the affirmative, it follows that a direction and apportionment has been properly made under section 245, with the result that the members of the company are liable to pay any appropriate amount of surtax on the sums apportioned to them respectively.
Counsel for the company submitted, first, that the £18,675 was not "income" of the company within the meaning of section 245, and, secondly, that if this sum could properly be described as income, it was not actual income within the meaning of the section.
My Lords, I would accept Counsel's first submission.
I have had the pleasure of reading the speech which is about to be delivered by my noble and learned friend, Lord Reid. I entirely agree with his reasoning and conclusion, and I shall only add some observations upon certain passages in speeches delivered in this House which were much discussed in the course of the argument. In Thomas Fattorini (Lancashire) Limited v. Inland Revenue Commissioners [1942] A.C. 643 at p. 658, Lord Atkin said:
"Actual income does not mean the specific receipts that come in from time to time, but the 'income tax income' as calculated at the end of the year of assessment. To hold otherwise would make nonsense of the section when applied to commercial companies, who use their receipts as soon as they come in, and hardly ever have left for distribution the actual incomings as sought to be defined in the argument."
In Commissioners of Inland Revenue v. Lord Howard de Walden, 30 T.C. 345 at p. 370, Lord Uthwatt said:
"My Lords, for myself I am content to take the view that, in light of the context, the words 'actual income' can mean only income which is in some real sense capable of distribution. Apart from that context, indeed, the phrase 'actual income' is hardly apt to include fictional income; and non-existent income composed of amounts deemed to be income is fictional income."
In each case these observations were directed to the words "actual income" in section 21 of the Finance Act, 1922, but...
To continue reading
Request your trial
-
Re Sutherland, decd
......, Deceased) and Commissioners of Inland Revenue [1961] UKHL ......
-
Commissioners of Inland Revenue v Lloyds Bank Ltd
...in the light of the opinions of the majority of the House of Lords in Commissioners of Inland Revenue v. Wood Bros. (Birkenhead), Ltd., 38 T.C. 275, a balancing charge could not be included in total income for Surtax Held, that the amount on which the balancing charge was imposed must be in......
-
Cadogan Settled Estates Company ((in Liquidation)) v Commissioners of Inland Revenue
...v. Linsleys (Established 1894) Ltd. TAXELR37 T.C. 677; [1958] A.C. 569Commissioners of Inland Revenue v. Wood Bros. (Birkenhead) Ltd.TAXELR38 T.C. 275; [1959] A.C. 487 8. We, the Commissioners who heard the appeal, took time to consider our decision and gave it in writing on 24th November 1......
-
Cadogan Settled Estates Company v Commissioners of Inland Revenue
...v. Linsleys (Established 1894) Ltd. TAXELR37 T.C. 677; [1958] A.C. 569Commissioners of Inland Revenue v. Wood Bros. (Birkenhead) Ltd.TAXELR38 T.C. 275; [1959] A.C. 487 8. We, the Commissioners who heard the appeal, took time to consider our decision and gave it in writing on 24th November 1......