Commissioners of Inland Revenue v Wilsons (Dunblane) Ltd
|England & Wales
|Lord Reid,Lord Normand,Lord MacDermott,Lord Keith of Avonholm
|25 January 1954
|Judgment citation (vLex)
| UKHL J0125-1
|House of Lords
|25 January 1954
 UKHL J0125-1
House of Lords
Lord Keith of Avonholm
Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Wilson's (Dunblane) Limited, that the Committee had heard Counsel, as well on Monday the 9th, as on Tuesday the 10th, days of November last, upon the Petition and Appeal of the Commissioners of Inland Revenue, praying, That the matter of the Interlocutor set forth in the Schedule thereto, namely, an Interlocutor of the Lords of Session in Scotland, of the First Division, sitting as the Court of Exchequer, of the 25th of June 1952, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Interlocutor 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 Wilson's (Dunblane) 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 Interlocutor of the 25th day of June, 1952 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, the amount thereof to be certified by the Clerk of the Parliaments: And it is also further Ordered, That unless the Costs, certified as aforesaid, shall be paid to the parties entitled to the same within one calendar month from the date of the certificate thereof, the Cause shall be, and the same is hereby, remitted back to the Court of Session in Scotland, or to the Judge acting as Vacation Judge, to issue such Summary Process or Diligence for the recovery of such Costs as shall be lawful and necessary.
During the hearing by the Appellate Committee of this case and the cases following, which are to be decided by your Lordships this morning, Viscount Simon took the Chair. It would be presumption on my part to seek to add to the tributes so recently paid to him in this House, but I may perhaps be permitted to put on record our gratitude for his wise leadership in our discussions and our deep regret that he is not here to express the views which he had formed in each of these cases before his last illness. I desire further to express on behalf of all Scots lawyers our acknowledgment of the debt which Scots law owes to him for the many contributions which he has made in this House to the clarification and development of our law.
After carrying on the business of wool spinning for many years, Mr. A. B. Wilson in 1944 took his two sons into partnership and brought in to the partnership the whole assets of the business at the figures which then appeared in his accounts. The machinery and plant stood in his balance sheet at a written down value of £8,000. On 16th November, 1945, the partners formed the Respondent Company to take over the business, all the shares being allotted to the partners. The Company bought the machinery and plant for £17,554. It has been found by the Special Commissioners that this was the price which they would have fetched if sold in the open market at that date. The question in this case is whether allowances in respect of wear and tear of that machinery and plant from 1946 onwards should be calculated with reference to the sum of £8,000 or the sum of £17,554. It is admitted that before the Income Tax Act, 1945, came into operation the proper basis was the cost to the Company, £17,554.
The Income Tax Act, 1945, contained a new and elaborate scheme for determining allowances: obviously this was designed at least in part to meet the situation at the end of the war when prices had risen steeply and new equipment was scarce. The Act covered other types of equipment besides machinery and plant, and various initial allowances, annual allowances, balancing allowances, and balancing charges were introduced: one difference between machinery and plant and other equipment is that allowances for other equipment are in general based on cost of construction, whereas allowances for machinery and plant are based on its cost to the trader seeking the allowances. In the case of a trader buying secondhand machinery or plant the cost to him might far exceed the original cost of construction. In that case he would get allowances much greater than those available to the trader who sold the plant or machinery to him. It was plain that this might possibly lead to arrangements between traders whereby machinery or plant changed hands in order to get increased allowances at the expense of the Revenue, and section 59 of the Act prevents this result in certain cases.
Section 59, so far as relevant to this case, is as follows:
"(1) The provisions of this section shall have effect in relation to sales of any property where either—
( a) the buyer is a body of persons over whom the seller has control, or the seller is a body of persons over whom the buyer has control, or both the seller and the buyer are bodies of persons and some other person has control over both of them; or
( b) it appears with respect to the sale or with respect to transactions of which the sale is one, that the sole or main benefit which, apart from the provisions of this section, might have been expected to accrue to the parties or any of them was the obtaining of an allowance or deduction under any of the following enactments, that is to say, any of the provisions of this Act or of Rule 6 or Rule 7 of the Rules applicable to Cases I and II of Schedule D or of section nineteen of the Finance Act, 1941, or of Part IV of the Finance Act, 1944.
References in this subsection to a body of persons include references to a partnership.
(2) Where the property is sold at a price other than that which it would have fetched if sold in the open market, then, subject to the succeeding provisions of this section, the like consequences shall ensue for the purposes of the enactments mentioned in subsection (1) of this section, in their application to the income tax of all persons concerned, as would have ensued if the property had been sold for the price which it would have fetched if sold in the open market.
(3) Where the sale is a sale of machinery or plant—
( a) no initial allowance shall be made to the buyer; and
( b) subject to the provisions of the next succeeding subsection, if the price which the property would have fetched if sold in the open market is greater than the limit of re-charge on the seller, the last preceding subsection shall have effect as if for the reference to the price which the property would have fetched if sold in the open market there were substituted a reference to the said limit of re-charge:
Provided that this subsection shall not apply in relation to a sale of machinery or plant which has never been used if the business or part of the business of the seller was the manufacture or supply of machinery or plant of that class and the sale was effected in the ordinary course of the seller's business;
Provided also that where the sale is one to which paragraph ( a) of subsection (1) of this section applies and took place before the appointed day, and the seller acquired the machinery or plant on or after the sixth day of April, nineteen hundred and forty-four, paragraph ( a) of this subsection shall not apply.
In this subsection the expression 'the limit of recharge' means, in relation to a person who sells machinery or plant—
(i) if he provided that machinery or plant for himself before the appointed day, the actual cost to him of the machinery or plant, including in that actual cost any expenditure in the nature of capital expenditure on machinery or plant by way of renewal, improvement or reinstatement;
(ii) if he provided the machinery or plant for himself on or after the appointed day, the expenditure incurred by him on the provision thereof."
This section only applies where either there was an ulterior object behind the sale (subsection (1) ( b)) or the buyer and seller were not independent (subsection (1) ( a)). There is no suggestion in this case of any ulterior object but the fact that the partners controlled the Respondent Company which bought from them admittedly brings the case within subsection (1) ( a) and so brings the rest of the section into operation. Subsection (4) has no application to this case: the question at issue turns on the proper interpretation of subsections ( 2) and (3).
Subsection (2) applies to sales of all kinds of equipment dealt with in the Act, but subsection (3) only applies to sales of machinery or plant. The only part of subsection (3) which directly affects this case is subsection (3) ( b), which provides that, if the price which the property would have fetched if sold in the open market (in this case £17,554) is greater than the limit of recharge on the seller (in this case £8,000), subsection (2) is to have effect subject to a certain modification set out in the latter part of subsection (3) ( b). In order to discover the meaning of this latter part of subsection (3) ( b) it is necessary to examine closely both the terms of subsection (2) and the terms of subsection (3) ( b). I think it helpful to begin by noting the structure of subsection (2). It begins by stating a condition which must be satisfied before the subsection can have any operative effect—the property must have been sold at a price other than the market price. If that...
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