Commissioners of Inland Revenue v Bell & Nicolson, Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 16 January 1952 |
| Date | 16 January 1952 |
| Court | High Court |
HIGH COURT OF JUSTICE-
Profits Tax - Distribution of profits from sale of investments - Whether a distribution for Profits Tax purposes - Finance Act, 1947 (10 & 11 Geo. VI, c. 35), Sections 35 (1) and 36 (1).
On 18th February, 1947, the Respondent Company made a special distribution to shareholders, amounting to £5,625, out of a non-taxable surplus arising from the sale of investments.
On appeal before the General Commissioners against an assessment to Profits Tax for the chargeable accounting period ended 31st December, 1947, the Company contended that this distribution was not a distribution within the meaning of Section 36, Finance Act, 1947, nor a gross relevant distribution to proprietors within the meaning of Section 35, Finance Act, 1947. The Commissioners accepted this contention.
Held, that the distribution of £5,625 was a distribution, and a gross relevant distribution, within the meanings of Sections 35 and 36, Finance Act, 1947.
Stated under the Finance Act, 1937, Section 24 (2), and Fifth Schedule, Part II, Rule 4, and the Income Tax Act, 1918, Section 149, by the Commissioners for the General Purposes of the Income Tax for the Division of the Hundred of Hemlingford in the County of Warwick for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of the Hundred of Hemlingford held on the 16th day of February, 1950, at Richmond House, 84, Newhall Street, Birmingham, Bell & Nicolson, Ltd. (hereinafter called "the Company") appealed against an assessment to Profits Tax for the chargeable accounting period of 12 months to 31st December, 1947, in the (estimated) sum of:-
£250,000 at 25 per cent. |
= £62,500 |
|
Less Non-Distribution Relief on |
£150,000 at 15 per cent. |
= £22,500 |
Estimated Profits Tax payable |
£40,000 |
2. The question for determination was whether a sum of £5,625 paid by the Company to its shareholders out of surplus on realisation of investments is a distribution within the meaning of Section 36 of the Finance Act, 1947, and a gross relevant distribution to proprietors within the meaning of Section 35 of the Finance Act, 1947.
3. On 29th January, 1947, the Directors of the Company passed a resolution in the following terms: "Resolved that a special distribution of 41/2d. "per ordinary share out of the surplus arising out of sale of investments be "paid." A print of the balance sheet of the Company for the year to 31st December, 1946, is attached hereto, marked "A", and forms part of this Case(2).
The amount so due to the shareholders, totalling £5,625, was paid on 18th February, 1947, together with a dividend on the Company's shares to 31st December, 1946.
The relevant wording on the dividend warrant in question is "Distribution of 41/2d. per ordinary share "out of un-taxable profits".
A copy of the said dividend warrant dated 18th February, 1947, is attached hereto, marked "B", and forms part of this Case(1).
4. The balance sheet of the Company as at 31st December, 1947, shows on the left-hand side (inter alia):-
"1946 |
"Reserves and Surplus- |
1947 |
||
"£ |
£ |
£ |
||
"5,687 |
Surplus on Realisation of Investments |
… |
… |
5697 |
Less Distribution to Members |
… |
… |
5625 |
72" |
5. The Company carries on the trade of wholesale drapers and it is common ground between the parties that the surplus out of which the said distribution was made was not liable to Income Tax in the hands of the Company.
6. For the Company it was contended that the distribution of the £5,625 was not a distribution or a gross relevant distribution to proprietors within the meaning of the Finance Act, 1947, and that the assessment was excessive.
7. For the Crown it was contended;
(i) that the said sum of £5,625 was an "amount…distributed directly "or indirectly by way of dividend or cash bonus to any person" within Section 36 (1) (a) of the Finance Act, 1947, and that accordingly there was deemed, by virtue of the said Section 36 (1), to be a distribution thereof for the purposes of Section 35 of the said Act; and
(ii) that the distribution of the...
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