Commissioners of Inland Revenue v Land Securities Investment Trust Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Hodson,Lord Pearce,Lord Donovan,Lord Diplock |
| Judgment Date | 29 April 1969 |
| Judgment citation (vLex) | [1969] UKHL J0429-2 |
| Date | 29 April 1969 |
| Court | House of Lords |
[1969] UKHL J0429-2
House of Lords
Lord Reid
Lord Hodson
Lord Pearce
Lord Donovan
Lord Diplock
Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Land Securities Investment Trust Limited, that the Committee had heard Counsel, as well on Monday the 10th, as on Tuesday the 11th, Wednesday the 12th and Thursday the 13th, days of March last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, Strand, 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 20th of May 1968 might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order 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 The Land Securities Investment Trust Limited, 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 20th day of May 1968, complained of in the said Appeal, be, and the same is hereby, Set Aside: And it is further Ordered, That the Case be, and the same is hereby remitted back to the Commissioners for the Special Purposes of the Income Tax Acts with a Direction to restore the assessments and to adjust them in the manner offered by the Crown in a letter, dated the 25th day of March 1969, from the Solicitor of Inland Revenue to Messrs. Nabarro Nathanson & Co., the Agents for the Respondents: And it is also further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Courts below, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments.
My Lords,
I agree with the speech of my noble and learned friend, Lord Donovan. I would allow the appeal and remit the case as my noble and learned friend proposes.
My Lords,
I have had the advantage of reading the Opinion of my noble and learned friend, Lord Donovan, with which I agree. I would allow the appeal.
My Lords,
I concur.
My Lords,
The Respondent carries on business as a property investment company. It acquires properties for letting and makes its profits from the rentals received. These properties are its capital assets. It does not buy and sell them as a property dealing concern would do.
In 1960 the company purchased interests in a number of properties from the Church Commissioners. The consideration was expressed in the sale agreement as follows:
"4. The consideration for the transfers shall be the respective rentcharges described in column five of the Schedule and the covenants on the part of the respective purchasers for the payment of the said rentcharges."
The reference to "respective purchasers" is a reference to the Respondent Company and one of its wholly owned subsidiaries, Associated London Properties, Ltd. This company bought one of the seven properties in question: but since it is grouped with its parent for the purposes of the assessments to tax under appeal, nothing turns on this feature of the case.
The "respective rentcharges" referred to in the sale agreement added up to the gross sum of £96,000 per annum for ten years from 1st April, 1959, charged on and issuing out of the properties acquired.
When they came to pay the rentcharges in question to the Church Commissioners the Respondent Company deducted income tax at source, relying upon the provisions of section 177 Income Tax Act, 1952. When they came to making up their Profit and Loss Account, they debited these rentcharges as though they were an expense of earning their revenue.
From what Counsel for the Respondent Company told your Lordships it seems reasonably clear that the Church Commissioners had some initial misgivings. Being a charity, they would want to reclaim from the Revenue the tax deducted from the rentcharges. If, however, section 177 did not for any reason entitle the Respondent Company to deduct tax at source, then the Church Commissioners in reliance on the contract of sale would have to look to the Company to make good the underpayment. This may well be the explanation why, in the litigation which has ensued concerning the Respondent Company's claim to deduct these rentcharges as a business expense, so much emphasis has been put on the question whether section 177 applies to them. It was put in the forefront of the Company's case before the Special Commissioners: and one finds Danckwerts L.J. in the Court of Appeal commencing his judgment by saying:
"The question is simply whether certain rentcharges which were created by the parties in regard to the relevant transactions are deductible under the provisions of section 177 of the Income Tax Act, 1952".
(I read this as meaning whether income tax was deductible at source under that section, for this is the only "deduction" with which the section deals.)
Yet I think all your Lordships are agreed that whether or not tax was so deductible at source from these rentcharges is quite inconclusive of the question whether they are deductible expenses in computing the Company's taxable profits. The...
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