Commissioners of Inland Revenue v Dowdall, O'Mahoney & Company Ltd

JurisdictionUK Non-devolved
JudgeLord Oaksey,Lord Reid,Lord Radcliffe,Lord Tucker
Judgment Date25 February 1952
Judgment citation (vLex)[1952] UKHL J0225-1
Date25 February 1952
CourtHouse of Lords

[1952] UKHL J0225-1

House of Lords

Lord Oaksey

Lord Reid

Lord Radcliffe

Lord Tucker

Commissioners of Inland Revenue
and
Dowdall O'Mahoney and Company Limited

Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Dowdall O'Mahoney and Company Limited, that the Committee had heard Counsel, as well on Wednesday the 14th, as on Thursday the 15th and Friday the 16th, days of November 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 His Majesty's Court of Appeal of the 4th of April 1950, so far as therein stated to be appealed against, might be reviewed before His Majesty the King, in His 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 His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of Dowdall O'Mahoney and Company 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 His late Majesty's Court of Appeal, of the 4th day of April 1950, complained of in the said Appeal, be, and the same is hereby, Reversed except as to Costs, and that the Order of the Queen's Bench Division of the 25th day of October 1949, be, and the same is hereby, Discharged: And it is hereby Declared, That the taxes incurred by the Respondent Company in Eire were not wholly and exclusively laid out for the purposes of the Company's trade in the United Kingdom: And it is further Declared, That no part of the said taxes are an admissible deduction in computing the profits of trade for the purposes of Excess Profits Tax in the United Kingdom: And it is further Ordered, That the Cause be, and the same is hereby, remitted back to the High Court of Justice, to do therein as shall be just and consistent with this Judgment.

Lord Oaksey

My Lords,

1

This is an appeal from an order of the Court of Appeal (Somervell and Singleton. L.JJ., and Roxburgh. J.) dated the 4th April, 1950. allowing the appeal of the above-named Respondent (hereinafter referred to as "the Company") from an order of the King's Bench Division (Croom-Johnson, J.) dated the 25th October. 1949, whereby he ordered that the Case Stated by the Commissioners for the Special Purposes of the Income Tax Acts should be remitted to such Commissioners and that they should restate the Case. The order of the Court of Appeal against which the Commissioners of Inland Revenue now appeal allowed the appeal of the Company and affirmed the determination in its favour of the Commissioners for the Special Purposes of the Income Tax Acts, and dismissed the cross-appeal of the Commissioners of Inland Revenue.

2

The question arising in the present appeal is whether the proportion of certain taxes paid by the Company in Eire in respect of profits of its trade arising in England are deductible in arriving at its profits assessable to Excess Profits Tax of the United Kingdom.

3

An agreed Memorandum as to the nature of these Irish taxes was put in and is as follows:—

"That the Irish Income Tax, Corporation Profits Tax and Excess Profits Tax referred to in the case stated were imposed under Irish Statutes, the provisions of which are similar to the provisions of the United Kingdom Finance Acts imposing Income Tax, National Defence Contribution and Excess Profits Tax. and in particular that the Irish Income Tax was imposed on the profits of a trade, which profits were computed on Income Tax principles similar to United Kingdom Income Tax principles and that the profits of a trade for assessment to Irish Corporation Profits Tax and Excess Profits Tax were computed on Irish Income Tax principles with adaptations similar to the adaptations for the purposes of United Kingdom National Defence Contribution and Excess Profits Tax."

4

The Company was incorporated in Eire and it is managed, controlled and resident there. Its business there is that of margarine manufacturers and butter merchants. It has two branches in England, one at Manchester and the other at Cardiff, where a general grocery business is carried on.

5

In the Court of Appeal and in your Lordships' House the question raised was treated as involving two points:

First, whether the Irish taxes in question were disbursements or expenses wholly and exclusively laid out or expended for the purposes of the trade of the Company in England within the meaning of Rule 3 ( a) of the Rules applicable to Cases 1 and 11 of Schedule D; and

Second, whether even if they were not the Company was entitled to deduct them by reason of the provisions of paragraph 5 of Part I of the 7th Schedule to the Finance Act (No. 2) of 1939 and section 30 of the Finance Act, 1940.

6

On the first question it was contended on behalf of the Appellants that the authorities establish that the payment of such taxes by a trader is not a disbursement wholly and exclusively laid out for the purposes of his trade and that this is so whether such taxes are U.K. taxes or foreign or dominion taxes and reliance was placed upon the cases of Strong v. Woodifield [1906] A.C. 448, 5 Tax Ca. 215; Commissioners of Inland Revenue v. Von Glehn [1920] 2 K.B. 553, 12 Tax Ca. 232; Commissioners v. Warnes [1929] 2 K.B. 444. 12 Tax Ca. 227; L.C. Ltd. v. Ollivant [1944] 1 All Eng. 510 60 T.L.R. 336; and Smiths Potato Crisps v. Commissioners of Inland Revenue [1948] A.C. 508, 30 Tax Ca. 267.

7

On behalf of the Company it was contended that the principle of these cases ought not to be extended and that dominion and foreign taxes stand on a different footing from United Kingdom taxes and ought to be considered as disbursements which the trader has as a matter of fact and not of law to pay for the purposes of his trade in the U.K. Reliance was also much placed by the Respondents upon the case of Stevens v. Durban Roodepoort Company, 5 Tax Ca. 402, in which Mr. Justice Channell held that a tax paid in the Transvaal of 10 per cent, on the net produce obtained from working gold mines should be deducted from the profits of the year to which it related before striking the average for the three years.

8

I may say at once that, in my opinion, this is not a decision which affords much help since it was agreed between the Crown and the taxpayer in that case that the tax upon the profits was to be brought in to the computation and the only question was whether it was to be deducted from the profits of the year to which it related or from the average profits of three years.

9

On the first question I am of opinion that taxes such as those now in question, namely. Income Tax, Corporation Profits Tax and Excess Profits Tax, are not according to the authorities wholly and exclusively laid out for the purposes of the Company's trade in the United Kingdom. Taxes such as these are not paid for the purpose of earning the profits of the trade: they are the application of those profits when made and not the less so that they are exacted by a dominion or foreign government. No clear distinction in point of principle was suggested 10 your Lordships between such taxes imposed by the U.K. government and those imposed by dominion or foreign governments.

10

The second question is one of more difficulty but I have come to the conclusion that neither paragraph 5 of Part I of the 7th Schedule to the Finance Act (No. 2) of 1939 nor section 30 of the Finance Act, 1940, confer upon the taxpayer the right to deduct such taxes.

11

The provision in paragraph 5 of the First Part of the 7th Schedule was, I think, necessary in order to make clear that in cases which would otherwise have come under Cases IV and V deduction of dominion income tax was still to be allowed although the computation was now by section 14 (1) to the made under Case 1. But this provision confers no new right of deduction: it merely leaves the right to deduct income tax on investments and possessions in the Dominions as before.

12

As to section 30 of the Finance Act, 1940. I am of opinion that the section confers no new power upon the Commissioners to allow a deduction in respect of excess profits tax unless an Order in Council has been made, and none had been made at the time the present assessments were made.

13

Subsection (2) was, I think, intended to allow the Commissioners either to make such adjustment of the excess profits tax as might be necessary to give effect to the arrangements with the government of the Dominion or to allow the deduction of the Dominion excess profits tax.

14

It was provided by subsection (2), no doubt, that the adjustment should not be less favourable to the taxpayer than the effect of allowing the deduction, but I do not think these words can be read as conferring a right to the deduction unless the Order in Council was made.

15

For these reasons, though not without some doubt. I am of opinion that the appeal must be allowed and I so move your Lordships. In accordance with the order of the Court of Appeal each party will pay their own costs of this appeal.

Lord Reid

My Lords,

16

The Respondents are a Company incorporated, managed and controlled in Eire: they are margarine manufacturers and butter merchants and they had two branches in Manchester and Cardiff where they carried on business as grocers. They were assessed to Excess Profits Tax in the United Kingdom in respect of the profits of these branches for seven consecutive chargeable accounting periods ending on 31st March. 1946 for amounts varying between £5.400 and £9.000. They have paid taxes in...

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