Commissioners of Inland Revenue v Barr
| Jurisdiction | Scotland |
| Judgment Date | 1953 |
| Date | 04 May 1954 |
| Year | 1953 |
| Court | Court of Session |
COURT OF SESSION-
HOUSE OF LORDS-
Income Tax, Schedule D - Sale of assets - Balancing charge - Income Tax Act, 1945 (8 & 9 Geo. VI, c. 32), Section 17.
A business of ironfounders carried on by B until 15th July, 1946, was sold on that date as a going concern and thereafter was carried on without a break by the purchaser as if there had been no change of ownership. The part of the purchase price allocated to plant and fittings exceeded their written-down value at the date of sale and a balancing charge was made on B under Section 17 of the Income Tax Act, 1945.
On appeal to the General Commissioners, it was contended on behalf of B that the trade had been permanently discontinued at the date of sale and that Section 17 did not therefore apply. On behalf of the Crown it was contended that the plant and fittings were sold before the permanent discontinuance of the trade, which had not been permanently discontinued on 15th July, 1946, within the meaning of Section 17 (1). The Commissioners held that they were bound by the decision of the Court of Session in the "Girl Eileen" case, 31 T.C. 402, and allowed the appeal.
Held, that the sale of the business as a going concern did not result in the permanent discontinuance of the trade and that the balancing charge had been properly made on B.
Stated for the opinion of the Court of Session, as the Court of Exchequer in Scotland, under the Income Tax Act, 1952, Section 64.
At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of the Upper Ward of Renfrew, held at Paisley on 5th February, 1951, John Barr, trading as Henry & Galt (hereinafter called "the Respondent"), iron founder, Sneddon Foundry, 18, New Sneddon Street, Paisley, appealed against:-
An assessment to Income Tax for the year of assessment 1946-47 in respect of a balancing charge made upon him under Sections 17 and 55 (3) of the Income Tax Act, 1945, in the sum of £1,405.
I. The following facts were admitted or were within the knowledge of the Commissioners:-
(2) For many years the firm of Henry & Galt carried on business as ironfounders in Paisley. The Respondent, who was previously the manager of the concern, became a partner with the late Mr. James Galt on 1st April, 1928, and from the latter's death on 24th December, 1945, carried on the business as sole proprietor until it was sold in July, 1946.
(3) In the course of 1946, Mr. Thomas Reid, managing director of Thomas Reid & Sons (Paisley), Ltd., engineers, Paisley, and the Respondent had a meeting for the purpose of discussing the sale and purchase of the business of Henry & Galt, and the Respondent eventually agreed to sell the business to Mr. Reid for the sum of £14,000. The sale was actually completed by written documents in accordance with letters passing between Mr. Reid and Messrs. MacNair, Crawford & Clyde, now MacNair, Clyde & Ralston, solicitors, 43, High Street, Paisley, dated 5th and 6th July, 1946, respectively, copies of which are attached hereto and form part of the Case(1) . The date of Mr. Reid's entry to the premises was stated to be Monday, 15th July, 1946, at 10 a.m. By letter dated 10th July, 1946, Mr. Reid suggested that £4,000 should be allocated to the plant and fittings and by letter dated 11th July, 1946, the Respondent's solicitors indicated that he was agreeable to this allocation. The letters dated 10th and 11th July, 1946, copies of which are attached hereto, form part of the Case(1).
(4) The transfer of the business as a going concern to the said Thomas Reid was duly completed on 15th July, 1946, when he paid the said purchase price of £14,000 by a cheque drawn on his own account, and from that time the Respondent's interest in, and connection with, the said business ceased.
(5) On 15th June, 1949, the Inspector of Taxes for the 1st District of Paisley wrote a letter to Messrs. J. Balderston Whyte & Nicol, accountants, Moss Street, Paisley, who had acted for the Respondent, pointing out that a new company called Henry & Galt, Ltd., had taken over the business of Henry & Galt from Mr. Reid. A copy of this letter is attached to and forms part of the Case(1). This Company was not registered until 11th September, 1946. The Company in due course submitted accounts for taxation purposes, which included the period from 15th July, 1946, to the date of the incorporation of the Company. The plant and fittings of Henry & Galt were brought into these accounts at the figure of £4,000, being the amount of the purchase price of the business allocated to such assets in the letters of sale and purchase.
(6) The Respondent's interest in and connection with the trade of Henry & Galt ceased when the sale thereof to Mr. Reid took place, and the Respondent then retired from business and permanently discontinued trading.
(7) After the sale the business was carried on and continued as if there had been no change.
-
(8) The amount of the balancing charge made upon the Respondent for the year of assessment 1946-47 was based on the figure of £4,000, as per allocation of the purchase price, but as the written down value of the plant and machinery for Income Tax purposes at the date of
sale, 15th July, 1946, was £770, the balancing charge was restricted, under Section 17 (4) (b), Income Tax Act, 1945, to the aggregate of the wear and tear allowances given to Henry & Galt, viz.:-£1,405.
II. It was contended on behalf of the Respondent that having regard to the case of Commissioners of Inland Revenue v.West(1), 1950 S.C. 516, ("Girl Eileen") in which the Court of Session had held, inter alia, that the true interpretation of Section 17, Income Tax Act, 1945, involved looking not to the continuation of the plant and machinery in trade, but to the continuance of the owner of the plant and machinery in trade, the trade of the Respondent had been permanently discontinued when he sold the business, and, therefore, Section 17 of the Income Tax Act, 1945, did not apply.
III. It was contended on behalf of the Appellants (the Crown), inter alia:-
(2) that the said plant and fittings were sold before the permanent discontinuance of the trade, for the purposes of which the said plant and fittings were used;
(3) that as the said Thomas Reid, by acquiring the said business as a going concern, succeeded to the trade carried on by the Respondent within the meaning of Rule 11 (2) of the Rules applicable to Cases I and II of Schedule D of the Income Tax Act, 1918, no permanent discontinuance of the said trade took place, within the meaning of Section 17 (1) of the Income Tax Act, 1945, when the Respondent sold his business as a going concern including the said plant and fittings to the said Thomas Reid;
(4) that the decision in Commissioners of Inland Revenue v.West, 1950 S.C. 516, which related to the sale of fishing boats in circumstances where it could not be said that the purchaser had succeeded to the trade of the seller, had no application to a case such as the present, where plant and fittings were sold as part of a business acquired as a going concern and continued as such;
(5) that as the sale money received by the Respondent in respect of the said plant and fittings exceeded the amount of the expenditure still unallowed in respect thereof at the date of sale thereof, a balancing charge became exigible in terms of Section 17 (3) of the Income Tax Act, 1945;
(6) that the assessment appealed against was properly made and should be confirmed.
IV. We, the Commissioners who heard the appeal, held that we were bound by the decision of the Court of Session in the case of Commissioners of Inland Revenue v. West ("Girl Eileen"), 1950 S.C. 516, and that no balancing charge was exigible in this case, and the assessment in respect thereof was accordingly discharged.
V. The Inspector of Taxes immediately after the determination of the appeal declared to us his dissatisfaction therewith as being erroneous in point of law and in due course having required us to state a Case for the opinion of the Court of Session as the Court of Exchequer in Scotland, this Case is stated and signed accordingly.
VI. The question of law for the opinion of the Court is:-
Whether on the foregoing facts a liability to a balancing charge under Section 17 of the Income Tax Act, 1945, arose on the sale by the Respondent of the plant and machinery of Henry & Galt.
J.R.M. Young, John Barr, Commissioners for the General Purposes of the Income Tax for the Division of the Upper Ward of Renfrew.
11, Gilmour Street,
Paisley.
3rd July, 1952.
The case came before the Court of Session (Lords Carmont, Russell and Keith) on 13th January, 1953, when judgment was given unanimously against the Crown, with expenses.
Lord Carmont.-In this case, in which the Commissioners of Inland Revenue are the Appellants, the question is raised as to liability to a balancing charge under Section 17 of the Income Tax Act, 1945, and whether it arose on the sale by the Respondent of the plant and machinery of a firm called Henry & Galt. I need only refer to the fact that the business was sold as a going concern to one Thomas Reid, and that a new firm acquired the concern and is running it. The Commissioners who heard the appeal had before them the case ofCommissioners of Inland Revenue v. West and Others(1), which was decided by this Court in 1950, and I refer to the Session Cases Report, page 516. It was held in that case that no balancing charge was exigible, and although the facts before us are different from those in West's case, the...
To continue reading
Request your trial
-
Morgan v Tate & Lyle Ltd
... ... 473-4 ... 9 My Lords, the Commissioners held that "the sum in question was money wholly and exclusively laid out ... v. Barr ... (3) Nationalisation even in the form of a compulsory acquisition of the ... the balance of the profits of it, and is none the less a proper revenue charge because it is laid out for the purpose of preserving the assets of ... of a fine is not an ordinary commercial loss ( Commissioners of Inland Revenue v. Warnes & Co., Ltd ... [1919] 2 K.B. 444 ); and insurance ... ...
-
Odeon Associated Theatres Ltd v Jones (HM Inspector of Taxes)
...[1926] A.C. 205; Naval Colliery Co. Ltd. v. Commissioners of Inland Revenue (1928) 12 T.C. 1017; Commissioners of Inland Revenue v. Barr 35 T.C. 293; 1954 S.C. (H.L.) 71; Commissioners of Inland Revenue v.Patrick Thomson Ltd. (1956) 37 T.C. 145; Hyam v. Commissioners of Inland Revenue 14 T.......
- Commissioners of Inland Revenue v Barr
-
Morgan v Tate & Lyle Ltd
...372. 3Ibid., at p. 421. 1 6 T.C., at p. 484. 1 [1923] A.C., at p. 149. 2 10 T.C., at p. 191. 3 6 T.C. 399. 4 6 T.C. 477. 1 35 T.C. 1. 2 35 T.C. 293. 3Ibid., at p. 1 35 T.C. 293. 2 23 T.C. 597. 3 Strong & Co. of Romsey, Ltd. v. Woodifield, 5.T.C., at p. 220. 4See page 402 ante. 1See page 406......