Cyril Lord, Ltd v Commissioners of Inland Revenue
| Jurisdiction | Northern Ireland |
| Judgment Date | 27 May 1965 |
| Date | 27 May 1965 |
| Court | Queen's Bench Division (Northern Ireland) |
QUEEN'S BENCH DIVISION (NORTHERN IRELAND)-
COURT OF APPEAL (NORTHERN IRELAND)-
HOUSE OF LORDS-
Excess Profits Levy - Valuation of trading stock - Finance Act, 1937 (1 Edw. VIII & 1 Geo. VI, c. 54), Section 20(1) and Fourth Schedule; Finance Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 33), Section 45(1) and Ninth Schedule.
The Appellant Company carried on business as textile manufacturers and merchants. At 31st December, 1951, as the result of a slump in its existing markets, the trading stock was written down in the Company's accounts from the cost figure of £543,530 to £103,487, the current market value. This figure was taken into account in assessments to Income Tax and Profits Tax based on the accounts for the year to 31st December, 1951, and onwards. After 31st December, 1951, the Company discovered a new market for its stock, and was able to sell a large part of it at a price exceeding the written-down value. The written-down value of the stock sold in the chargeable accounting periods to 31st December, 1952, and 30th November, 1953, was £50,583, but its value on a cost basis was £456,344. In the assessments to Income Tax and Profits Tax based on the accounts for these periods, the Company's profit was calculated by reference to the difference between the written-down values of the stock sold and the amounts realised on sale.
On a rehearing by the Additional Recorder of Belfast of appeals against assessment to Excess Profits Levy for these chargeable accounting periods, it was contended for the Company that it was entitled to commence the account for Excess Profits Levy by bringing in its stock at cost. For the Crown it was contended that this stock should be brought in at the written-down value adopted for Income Tax and Profits Tax. The Additional Recorder upheld the Crown's contention.
Held, that the Additional Recorder's decision was correct.
Stated under Section 63 of the Finance Act, 1952, and Paragraph 4 of Part II of the Fifth Schedule to the Finance Act, 1937, by Mr. Bradley McCall, Q.C., Additional Recorder of Belfast, for the opinion of the High Court of Justice in Northern Ireland.
1. The Appellants, being dissatisfied with assessments to the Excess Profits Levy in the sums of £99,000 and £75,740 17s. for the chargeable accounting periods for the twelve months ended 31st December, 1952, and the eleven months ended 30th November, 1953, respectively, appealed to the Commissioners for the Special Purposes of the Income Tax Acts (hereinafter called "the Special Commissioners"), who dismissed the appeal and determined the assessments in the following agreed figures:
Chargeable accounting period to 31st December, 1952, £86,512 7s.
Chargeable accounting period to 30th November, 1953, £75,740 17s.
2. The Appellants, being aggrieved by the said determination of the Special Commissioners, required that their appeal should be re-heard by the Recorder of Belfast, and the Recorder of Belfast (His Honour Judge Fox, Q.C.) duly re-heard the said appeal on 5th, 6th and 9th December, 1957, and after reserving judgment dismissed the said appeal.
3. The Appellants, having declared their dissatisfaction with the determination of the said Recorder, duly required him to state and sign a Case for the opinion of the High Court of Justice in Northern Ireland, which he accordingly did on 23rd September, 1958.
4. The said Case came before McVeigh, J., on 2nd, 3rd, 4th and 7th March, 1960, who, on 23rd March, 1960, for the reasons stated in his judgment delivered on that day, declined to answer the questions submitted in the said Case and ordered that the Case Stated be discharged and that the matter be remitted to the Recorder of Belfast to rehear and, if asked, to state a fresh Case.
5. The said Recorder of Belfast, His Honour Judge Fox, Q.C., having retired from the office of Recorder of Belfast the said appeal came before me sitting as Additional Recorder of Belfast on 5th, 6th, 7th, 24th, 25th, 26th, 27th and 28th October, 1960.
6. The appeal involved two questions which the Special Commissioners had decided against the Appellants, first, whether a subsidiary company of the Appellants was, as the Appellants contended, resident in the United Kingdom on the material date so that losses made by it could be taken into account in computing the profits of the Appellants liable to Excess Profits Levy, and, secondly, whether the liability of the Appellants to Excess Profits Levy should be calculated with reference to the difference between the market value of the stock, as appearing in the audited accounts of the Appellants on 1st January, 1952, and 1st January, 1953, and the realised value of the stock in the relevant accounting periods or, as the Appellants contended, with reference to the difference between the actual cost of the said stock and the realised value thereof.
7. On 21st April, 1961, I delivered a written judgment, which is annexed to and forms part of this Case, marked exhibit "A"(1), accepting the Appellants' contention on the first question as to residence, and rejecting their contention on the second question as to the basis of calculation of the Appellants' profits for the purposes of Excess Profits Levy, and adjourned the hearing in order that, in the light of my judgment, the assessments might be agreed.
8. At a resumed hearing on 22nd November, 1961, the assessments having been so agreed without prejudice to the parties' rights of further appeal, I thereupon determined the appeal by reversing the decision of the Special
Commissioners on the first question, by affirming their decision on the second question and by altering the assessments as follows:for the chargeable accounting period ended 31st December, 1952 |
from £86,512 7s. to £91,295 14s. |
for the chargeable accounting period ended 30th November, 1953 |
from £75,740 17s. to £70,334 14s. |
The Appellants, having declared their dissatisfaction with my determination upon the second question, duly required me to state and sign a Case for the opinion of the High Court of Justice in Northern Ireland, which I accordingly do.
I found the following facts proved or admitted:
(i) The Appellants are manufacturers and merchants of textiles. At 31st December, 1951, they held a large stock the actual cost of which was £543,530. In that year a heavy slump took place in the textile trade both in the United Kingdom and in the United States of America, where they carried on their trade, and accordingly at 31st December, 1951, the stock was written down in their accounts to £103,487, which I was satisfied was its then true market value.
(ii) Subsequently to 31st December, 1951, the Appellants discovered a hitherto unexploited market in Africa and were able to dispose of large amounts of their stock at prices in excess of the written-down values at which they stood in their books.
(iii) On the basis of the said written-down values (no further writing down having taken place in subsequent years) the Appellants disposed of £19,587 worth of stock during the year to 31st December, 1952 (hereinafter called "the year 1952") and of £30,996 worth of stock during the eleven months to 30th November, 1953 (hereinafter called "the eleven months of 1953"). On the basis of cost they disposed of £68,961 worth of stock in the year 1952 and of £387,383 worth of stock in the eleven months of 1953.
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(iv) The respective figures of stock at the end of each of the said periods as shown in the said accounts, together with the respective figures of cost thereof before the writing down referred to above, are as follows:
Value of stocks shown in
Cost of
Accounts
the accounts at end of
stock
the accounting period
Year ended 31st December, 1952
£83,900
£474,569
11 months ended 30th November, 1953
£52,904
£87,186
(v) For the purposes of assessment to Income Tax and Profits Tax in respect of the Appellant's trading for the year to 31st December, 1951, the said writing down was accepted and taken into account. For the purposes of assessment to Income Tax and Profits Tax in respect of their trading for the years 1952 and 1953, the Appellants were assessed on a profit calculated with reference to the difference between the written-down values of the stock sold and the amounts realised on sale.
10. The Appellants contended:
(2) that the profits for the year 1952 had, by reason of the writing down, been inflated by £49,374 (being the difference between £68,961 and £19,587) and for the eleven months of 1953 by £356,387 (being the difference between£387,383 and £30,996), making a total inflation over the whole period of £405,761 above the profit based on actual cost which, they contended, was the true profit;
(3) that since the profit on a transaction of sale could not exceed the difference between the cost of the article sold and the amount realised, the actual cost of the articles sold must appear in the account at some stage and the Appellants were entitled to commence the account for Excess Profits Levy by bringing in their stock at cost;
(4) that for Income Tax and Profits Tax purposes in the year ending 31st December, 1951, the Appellants had been permitted to write down the value of their stock and so to anticipate and take credit in advance for a loss which had not been then realised, and were accordingly bound in future accounts for those purposes to bring that sum back by substituting the written down value for the cost, but since for Excess Profits Levy (which was a new tax) they had never made any deduction or taken credit for anticipated losses there was no reason to bring any sum back or to substitute any figure for the actual cost of stock in hand;
(5) that commencing the account with the stock at cost and not writing the stock down at 31st December, 1952, the result of the Appellants' trading over the two chargeable accounting periods, namely the year 1952 and the eleven months of 1953, would have...
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