Commissioners of Inland Revenue v Parkhouse Collieries, Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 25 June 1956 |
| Date | 25 June 1956 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Procedure - Appeal - Special Commissioners satisfied on appeal that company existed for purpose of carrying on trade - Whether finding subject to further appeal - Finance Act, 1922 (12 & 13 Geo. V, c. 17), Section 21 (8) and First Schedule, Paragraphs 1 and 2; Finance Act, 1939 (2 & 3 Geo. VI, c. 41, Section 14 (7).
The Respondent Company carried on the trade of colliery owners until 1st January, 1947, when its colliery assets vested in the National Coal Board under the Coal Industry Nationalisation Act, 1946. Thereafter it remained in being simply for the purpose of getting the compensation due under the Act, and on the receipt of an award it went into liquidation in August, 1952. The Company's income for the years 1947-48 to 1949-50 consisted of interim income and further revenue payments under the Coal Industry Acts, 1946 and 1949, and income from investments previously held for the requirements of its colliery business.
Directions were made on the Company for the said years under Section 21, Finance Act, 1922, as extended by Section 14, Finance Act, 1939, on the basis that the Company was within the latter Section since its income for those years consisted of investment income. On appeal the Special Commissioners were satisfied that the Company existed wholly or mainly for the purpose of carrying on a trade within the meaning of Section 14 (7), Finance Act, 1939, and discharged the directions.
The Crown required a rehearing by the Board of Referees, before whom the Company submitted as a preliminary point that the application of Section 14 (1) was conclusively excluded by the Special Commissioners' finding. Further, it contended (inter alia) that during the material years it carried on the trade of colliery owners, that the interim payments were immediately derived from the carrying on of the said trade and that those payments represented income which in the hands of an individual would be "earned income"; or, alternatively, that the interim payments were not income within the meaning of the Income Tax Acts. The Board of Referees upheld the preliminary objection: but being requested by both parties to hear the appeal on its merits, they found that the Company, in claiming and collecting compensation under the Coal Industry Nationalisation Act, was carrying on the trade of colliery owners and that the interim payments were trading income.
Following the decision of the House of Lords in Commissioners of Inland Revenue v. Butterley Co., Ltd., 36 T.C. 411, it was admitted that the Board's finding on the substantive issues could not stand.
Held, (1) that the Special Commissioners' finding under Section 14 (7), Finance Act, 1939, was subject to the appeal procedure under the First Schedule, Finance Act, 1922. Port of London Authority v. Commissioners of Inland Revenue, 12 T.C. 122, applied.
(2) that in the material period the Company did not carry on, or exist for the purpose of carrying on, a trade and that the interim payments were investment income. F.P.H. Finance Trust, Ltd. v. Commissioners of Inland Revenue, 26 T.C. 131, and Commissioners of Inland Revenue v. Butterley Co., Ltd., applied.
Stated by the Board of Referees pursuant to the Finance Act, 1922, First Schedule, Paragraph 2, for the opinion of the High Court of Justice.
1. At a meeting of the Board of Referees held on 26th March, 1954, pursuant to the Finance Act, 1922, First Schedule, Paragraph 2, the Board reheard an appeal by Parkhouse Collieries, Ltd. (hereinafter called "the Company") against directions given by the Commissioners for the Special Purpose, of the Income Tax Acts (hereinafter called "the Special Commissioners") under Section 21 of the above-mentioned Act that the actual income from all sources of the Company for the years 1947-48, 1948-49 and 1949-50 be deemed to be the income of the members of the Company and the amount thereof be apportioned among the members.
2. The said appeal had previously been heard by the Special Commissioners in their judicial capacity, when, on 15th October, 1953, they determined that the said directions be discharged. The Commissioners of Inland Revenue, being dissatisfied with the said determination, required the said appeal to be reheard by the Board of Referees.
3. At the said hearing before the Board the following facts were agreed or admitted, that is to say:-
(2) The Company was incorporated on 30th September, 1929. Until 1st January, 1947, the primary vesting date for the purposes of the Coal Industry Nationalisation Act, 1946, the Company carried on a trade or business as colliery owners at Chesterton, near Stoke-on-Trent.
(3) At all material times the Company had an authorised capital of £50,000 divided into £1 shares 43,300 of which had been issued and were fully paid-up. Since February, 1951 (following upon a reduction of capital) the capital of the Company has been £50,000 divided into 1s. shares, 43,300 of which have been issued and are fully paid.
(4) For the purposes of the Finance Act, 1922, Section 21, the Company is a company under the control of not more than five persons.
(5) Prior to the year ending 5th April, 1948, no action was taken against the Company under the said Section 21.
(6) The amount of the Company's investment holding was explained by the requirements of its business.
(7) On the aforesaid primary vesting date the assets previously used by the Company in its colliery business vested in the National Coal Board.
(8) After 1st January, 1947, the Company remained in being simply for the purpose of getting the compensation due under the Coal Industry Nationalisation Act, 1946. It was at all times after the said date the intention of the directors that the Company should be wound up immediately a settlement of the Company's claim for compensation was reached.
(9) On 7th August, 1952, there was made, subject to appeal, a compensation award in favour of the Company. As the Company did not appeal, the award became final on 18th September, 1952.
(10) By a notice given on 31st July, 1952, an extraordinary general meeting was called for 23rd August, 1952, to pass the special resolution necessary for winding the Company up. The resolution was duly passed.
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(11) The actual income from all sources of the Company in the three years under appeal was made up as follows:-
Year ending 5th April
1948
1949
1950
Interim income and further revenue payments payable under Section 22 of the Coal Industry Nationalisation Act, 1946, and Section 1 of the Coal Industry (No. 2) Act, 1949, respectively
£39,684
£39,684
£533
Income from investments:
British Government and Corporation stocks
3623
3560
4160
Industrial stocks
1,881
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-
£45,188
£43,244
£4,693
Less management expenses as agreed with H.M. Inspector of Taxes
3,398
3,981
3,875
£41,790
£39,263
£818
(12) In respect of the material period, the following distributions of income have been made, all by way of dividend:-
(13) For the year ending 31st December, 1947: £21,650 gross paid 8th May, 1948.
(14) For the year ending 31st December, 1948: £15,155 gross paid 21st May, 1949.
(15) For the year ending 31st December, 1949: £15,155 gross paid 29th April, 1950.
(16) For the year ending 31st December, 1950: £15,155 gross paid 19th May, 1951.
4. Upon the foregoing facts it was contended on behalf of the Commissioners of Inland Revenue:-
(2) that the said interim income and further revenue payments represented income which in the hands of an individual would not be earned income as defined in Sub-section (3) of Section 14 of the Income Tax Act, 1918, and accordingly represented investment income within the meaning of Sub-section (1) of Section 20 of the Finance Act, 1936;
(3) that at all material times the Company was a company the income whereof consisted mainly of investment income within the meaning of Sub-section (1) of Section 20 of the Finance Act, 1936, and was accordingly an investment company for the purposes of that Section;
(4) that the directions made on the Company were therefore required to be made under the mandatory provisions contained in Sub-section (1) of Section 14 of the Finance Act, 1939.
5. It was admitted on behalf of the Commissioners of Inland Revenue that the said directions ought to be discharged if Sub-section (1) of Section 14 of the Finance Act, 1939, were held not to be applicable as regards the Company in respect of the material years.
(a) It was submitted on behalf of the Company as a preliminary point that at the hearing of the Company's appeal by the Special Commissioners the Special Commissioners were satisfied that the Company existed wholly or mainly for the purposes of carrying on a trade within the meaning of Sub-section (7) of Section 14 of the Finance Act, 1939, and that the application of Sub-section (1) of the said Section must be treated as having been conclusively excluded by such satisfaction.
(b) It was admitted on behalf of the Commissioners of Inland Revenue that at the hearing of the Company's appeal by the Special Commissioners the Special Commissioners were so satisfied, but it was contended on their behalf that such satisfaction did not conclusively exclude the application of Sub-section (1) of the said Section.
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(c) It was further contended on behalf of the Commissioners of Inland Revenue:-
(i) that the Finance Act, 1922, First Schedule, Paragraph 2 (which by virtue of Sub-section (2) of Section 14 of the Finance Act, 1939, took effect in regard to cases in which a direction had been given by virtue of Sub-section (1) of that Section) had the effect of giving to the Board for the purpose of rehearing and determining the appeals the same powers and authorities in relation thereto as belonged to the Special Commissioners who originally heard the appeals;
(ii) that therefore the Board had the same powers and...
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