Commissioners of Inland Revenue v Warnes and Company
| Jurisdiction | England & Wales |
| Year | 1919 |
| Date | 1919 |
| Court | King's Bench Division |
Revenue - Income Tax - Excess Profits Duty - Deductions - Penalty - “Loss connected with or arising out of” Trade or Business -
The respondents, who carried on the business of oil exporters, were sued for a penalty on an information exhibited by the Attorney-General under the
Held, that the penalty was not a “loss connected with or arising out of” the trade or business within the meaning of c. 100, Sched. (D), Case 1, Rule 3, of the Income Tax Act, 1842, and was therefore not a proper deduction in arriving at the profits of the respondents' trade or business for the purpose of excess profits duty (which is calculated upon the same principle as income tax, subject to certain modifications contained in s. 49, sub-s. 1, of the
CASE stated under the
At a meeting of the commissioners on May 14, 1917, the respondents, Messrs. E. C. Warnes & Co., Ld., appealed against two several assessments to excess profits duty amounting to 973l. for the accounting period ending June 30. 1915, and to 592l. 4s. for the accounting period ending June 30, 1916, made on them by the Commissioners of Inland Revenue in respect of their profits from the business of oil merchants carried on by them at Hull and elsewhere.
The ground of appeal was that in arriving at the profits of the business for the purpose of the assessments a penalty of 2,000l., imposed upon the respondents in Attorney-General v. E. C. Warnes & Co., Ld., heard in the King's Bench Division on April 10, 1916, and costs amounting to 560l. 18s. 10d. incurred by them in relation thereto, should be deducted under Rule 3, Case 1, Sched. (D) of the Income Tax Act, 1842, s. 100, on the ground that the penalty and costs were a loss arising out of and incidental to the trade of the respondents and, therefore, deductible.
The respondents, who carried on the business of oil exporters, were sued for a penalty in the King's Bench Division on an information exhibited by the Attorney-General under the provisions of the
In defending the proceedings, the respondents incurred legal costs amounting to 560l. 18s. 10d. The assessments appealed against were based on the profits made by the respondents without deduction of the sums of 2000l. and 560l. 18s. 10d. The transaction in respect of which this penalty was imposed took place in the first-mentioned accounting period, but the penalty and costs were debited as an expense in the respondent's accounts in arriving at the profits of the second accounting period when the action had been heard and determined.
The surveyor of taxes, on behalf of the Crown, contended that:—
(a) This was not a loss connected with or arising out of the trade or business of the respondents within the meaning of the 3rd Rule, Case 1, Sched. (D) of the Income Tax Act, 1842, s. 100.
(b) The amounts paid as penalty and costs could not be regarded as necessary expenses of carrying on the trade or business of the respondents, and were not proper deductions in arriving at the profits of the respondents' trade or business for the purpose of excess profits duty.
He cited the
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