Commissioners of Inland Revenue v Smith's Executors
| Jurisdiction | England & Wales |
| Judgment Date | 08 March 1951 |
| Date | 08 March 1951 |
| Court | King's Bench Division |
HIGH COURT OF JUSTICE, NORTHERN IRELAND (KING'S BENCH DIVISION)-
Excess Profits Tax - Income Tax principles - Stock in bond purchased by publican - Licensed business carried on by executors after death of publican and then sold-Stock in bond later sold separately by executors- Whether stock-in-trade of executors - Finance Act, 1938 (1 & 2 Geo. VI, c. 46), Section 26.
S, who until his death in November, 1942, carried on business as a publican on licensed premises which he owned, had bought a quantity of wine and spirits in bond. After S's death his executors carried on the business until May, 1943, when they sold the licensed premises, and during this period one quarter-cask of whiskey was taken from the stock in bond into stock on the licensed premises. The balance of the stock in bond was sold by public auction in October, 1944.
On appeal to the County Court against a decision of the Special Commissioners that, for the purpose of computing the Executors' liability to Excess Profits Tax, the stock in bond formed part of the trading stock of the trade carried on by the executors and should be valued in accordance with the provisions of Section 26, Finance Act, 1938, the executors contended (i) that in so far as they were trading they were carrying on the trade of the deceased, that their discontinuance of his trade in May, 1943, was due to his death, and that accordingly Section 26 did not apply by virtue of Sub-section (3) of that Section; and, alternatively, (ii) that if the trade carried on was the trade of the executors the stock in bond was never stock "belonging to the trade" carried on by them within the meaning of Section 26. For the Crown it was contended (i) that the trade carried on by the executors was their own trade, the discontinuance of which was due to the sale of the licensed premises; (ii) that the stock in bond had been trading stock of the deceased and was stock belonging to the trade carried on by the executors at the date of the discontinuance of the trade; and, accordingly, (iii) that in computing the profits of the executors' trade for Excess Profits Tax purposes the stock in bond should be valued in accordance with the provisions of Section 26 (1) (a). In the County Court it was held that the trade carried on by the executors was their own trade but that the stock in bond was not stock belonging to that trade within the meaning of Section 26. The Crown demanded a Case.
Held, that there was no evidence on which it could be held that the stock in bond was not stock belonging to the executors' trade.
Stated under the Finance (No. 2) Act, 1939, Section 21 (2), the Finance 1937, Fifth Schedule, Part II, Paragraph 4 and the Income Tax 1918, Section 149, by His Honour Judge Begley, K.C., County C Judge for County Down.
1. On 14th June and 19th November, 1948, I re-heard an appeal Joseph Walsh and Herbert Jamison, the executors of the will of John Smith deceased, against an assessment to Excess Profits Tax in the sum of £15,000 for the chargeable accounting period 24th November, 1942, to 30th May, 1943, made upon them in respect of profits arising from the trade of licensed victuallers.
2. The Respondents being dissatisfied with the said assessment appealed to the Commissioners for the Special Purposes of the Income Tax Acts (hereinafter called "the Special Commissioners") who upon hearing the appeal on 18th February, 1948, determined that the said assessment be reduced to the sum of £6,325.
The Respondents being aggrieved by the determination of the Special Commissioners duly required that I should re-hear the said appeal.
3. The question at issue before me was whether a stock of wines and spirits held in bond, belonging to the late John Smith and sold by the Respondents on 11th October, 1944, was "trading stock" within the meaning of Section 26 of the Finance Act, 1938, belonging to the trade admitted to be carried on by the Respondents. If such bonded stock was such trading stock a further question then arose as to the method of its valuation under the provisions of the said Section 26. The facts admitted or proved in evidence before me are as hereinafter set out.
4. The late John Smith for some years prior to his death carried on trade as a publican in Bangor on licensed premises which he owned. During his lifetime he purchased a quantity of wines and spirits in bond, some in Northern Ireland and the remainder in Eire. The said stock in bond was included at its cost price of £805 3s.11d. in the late John Smith's trading and profit and loss accounts and balance sheets for the year ended 5th November, 1942, and for the period 5th November, 1942, to 24th November, 1942 (the date of his death).
Copies of the said trading and profit and loss accounts and balance sheets are annexed hereto marked "A" and "B" respectively and form part of this Case(1).
5. The said John Smith died on 24th November, 1942, having by his will dated 23rd November, 1942, appointed the Respondents to be executors and trustees thereof. The said will was duly proved by the Respondents in the Principal Probate Registry of the High Court of Justice in Northern Ireland on 30th March, 1943.
By his said will the said John Smith (inter alia) gave devised and bequeathed his licensed premises with the licences and fixtures and fittings attached thereto unto his trustees upon trust to sell the same as therein mentioned and to hold the proceeds of such sale for his sons John Smith and Edward Smith in equal shares as tenants in common.
As to the rest residue and remainder of his estate, the said John Smith left, devised and bequeathed the same to his trustees upon trust to sell the same and, after paying thereout certain expenses and pecuniary legacies, to pay the balance of such proceeds of sale to his said two sons John Smith and Edward Smith in equal shares as tenants in common.
A copy of the said will and probate is annexed hereto marked "C" and forms part of this Case(1).
6. The said stock in bond was valued on the death of the said John Smith for the purposes of estate duty as follows:-
Stock in Eire |
… |
… |
£3,663 |
Stock in Northern Ireland |
… |
… |
£2,363 |
£6,026 |
7. From the date of the death of John Smith on 24th November, 1942, until 30th May, 1943, the Respondents ran the licensed premises employing a barman though they only had a protection order and had not obtained a transfer of the licence. It was admitted that during this period the Respondents were carrying on a trade in respect of the said licensed premises the profits of which were assessable to Income Tax and Excess Profits Tax.
During this period, namely from 24th November, 1942, to 30th May, 1943, the Respondents had no dealings with the stock in bond except that on 8th January, 1943, a quarter cask of Comber whiskey was taken from the stock in bond into stock in the licensed premises. The reason for this was that the public house had run out of ordinary un-named whiskey and the barman had asked for some to keep the business going. It was not possible at the time to obtain any otherwise than from the bonded stock.
A copy of the trading and profit and loss account and balance sheet of the Respondents for the said period 24th November, 1942, to 30th May, 1943, is annexed hereto, marked "D", and forms part of this Case(1). The stock in bond appears in such accounts throughout at the original figure of £805 3s. 11d. The said accounts also show that during this period the executors spent £1,340 8s. 11d. on the purchase of liquor such as beer and stout...
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