Curtis (HM Inspector of Taxes) v J. & G. Oldfield, Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 12 March 1925 |
| Date | 12 March 1925 |
| Court | King's Bench Division |
NO. 516.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
Income Tax, Schedule D - Profits of trade - Deduction - Bad debts - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Schedule D, Cases I and II, Rule 3.
The Managing Director of a Company of wine and spirit merchants was for many years up to his death on the 4th February, 1919, in sole control of the Company's business. An investigation after his death showed that many payments and some receipts not relating to the Company's business but to his private affairs had been passed through the Company's books, and it was calculated that, as at the 28th February, 1919, some £14,000 was due from his estate to the Company. The debt was valueless and was written off as bad in the Company's accounts for the sixteen months to the 30th June, 1920.
The General Commissioners, on appeal, allowed the Company's claim to deduct the amount in question in computing its profits for assessment to Income Tax, holding that the loss was a bad debt that had arisen in the course of the Company's trading.
Held, that there was no evidence to support the Commissioners' findings; that the loss was not a trading loss; and that it was not an admissible deduction from the Company's profits for Income Tax purposes.
Stated under the provisions of Section 149 of the Income Tax Act, 1918, by the Commissioners for the General Purposes of the Income Tax for the City of York for the opinion of the King's Bench Division of His Majesty's High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of the City of York held at the Board Room, Museum Street, York, within the said Division on the 17th day of March, 1922, J. and G. Oldfield, Ltd., (hereinafter called "the Company") (represented by Mr. S. Cole, Director) appealed against an assessment of £4,500 made
upon the Company under Schedule D of the Income Tax Act, 1918, for the year ending 5th April, 1921, in respect of the profits of its business. The sole ground of appeal and subject at issue in this case is whether in arriving at the Company's liability to tax for that year it was entitled to charge as a deduction in respect of the trading of the Company for the 16 months ended the 30th day of June, 1920, the sum of £14,584 which it alleged was a bad debt or defalcation due from the late Managing Director, Mr. J.E. Oldfield.2. The Company (which was incorporated in June, 1891) carries on the business of Wine and Spirit Merchants at 1, Lendal, York.
3. Until his death on the 4th day of February, 1919, the business of the Company was managed by the late Mr. J.E. Oldfield who was Managing Director and (since 1897) was in sole control of it. From the evidence which was tendered to us there is no trace of any Minute Book with records of proceedings at Board Meetings or General Meetings of the Company. There appear to have been no Auditors appointed and an almost entire absence of Balance Sheets for recent years. The late Mr. J.E. Oldfield seemed to have been allowed very great latitude in the management of the Company.
4. The shares of the Company until the 10th day of November, 1919, according to information supplied, were held as follows:-
5. Since the 10th day of November, 1919, the whole of the shares of J. & G. Oldfield, Ltd., have been held by W.H. Chaplin & Co., Ltd., of Mark Lane, London, with the exception of 13 Preference and 21 Ordinary Shares which were sold by them to Mr. W.H. Webb, the late Manager of J. & G. Oldfield, Ltd.
6. The accounts for the business which had been submitted to the Commissioners from time to time were prepared by the late Mr. J.E. Oldfield and were of a very meagre description.
7. After the death of the late Mr. J.E. Oldfield the remaining shareholders called in Accountants who prepared accounts from the best information available for 7 years and 11 months ending the 28th day of February, 1919. A copy of these accounts is annexed and forms part of this Case together with a copy of the accounts for the 16 months ending the 30th day of June, 1920.(1)
8. A bundle of copy correspondence between the Accountants and the Inspector and Messrs. W.H. Chaplin and Company and the Inspector setting out relevant facts in connection with the sum of £14,584 is also annexed and forms part of this Case. This correspondence shows that the Company was formed in June, 1891. The accounts show that in the Balance Sheet as at 31st March, 1911, Mr. J.E. Oldfield then owed the Company £7,624. The Accountants who prepared that Balance Sheet and the Balance Sheet as at 28th February, 1919, and the Trading and Profit and Loss Accounts for the intervening period found that many cash payments passed through the Company's accounts did not refer to the Company's business but related to the private affairs of Mr. J.E. Oldfield. They accordingly dissected the accounts and charged all such items to his account and credited his account with various amounts paid into the Bank which did not appear to relate to the Company's business (see letter of 26th July, 1919). The £4,891 Cash Suspense Account mentioned in the next paragraph represents the amount so credited to Mr. J.E. Oldfield's account (see letter of the 24th October, 1919). It was in this way that Mr. J.E. Oldfield was brought out in debt to the Company as at 28th February, 1919, to the amount of £14,584 as compared with £7,624 at 31st March, 1911. A letter of 24th October, 1919, also states that Mr. J.E. Oldfield had mortgaged the Company's property as security for a private loan.
9. In the Balance...
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