Edwards (Inspector of Taxes) v Bairstow

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeViscount Simonds,Lord Radcliffe,Lord Tucker,Lord Somervell of Harrow
Judgment Date25 Jul 1955
Judgment citation (vLex)[1955] UKHL J0725-1

[1955] UKHL J0725-1

House of Lords

Viscount Simonds

Lord Radcliffe

Lord Tucker

Lord Somervell of Harrow

Edwards (Inspector of Taxes)
and
Bairstow and Another

Upon Report from the Appellate Committee, to whom was referred the Cause Edwards (Inspector of Taxes) against Bairstow and another, that the Committee had heard Counsel, as well on Monday the 20th, as on Tuesday the 21st and Wednesday the 22d, days of June last, upon the Petition and Appeal of Harold Lewis Edwards, of Halifax 1st District, Bull Green House, Halifax, in the County of York, one of Her Majesty's Inspectors of Taxes, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 10th of May 1954, so far as therein stated to be appealed against, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order, so far as aforesaid, might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the printed Case of H. Bairstow and F. Harrison, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled. That the said Order of Her Majesty's Court of Appeal, of the 10th day of May 1954, in part complained of in the said Appeal, be, and the same is hereby Reversed except as to Costs: And it is hereby Declared, That the buying and selling of the plant constituted a trade, or adventure in the nature of trade, and that the profit and gains arising therefrom are assessable to income tax under Case I of Schedule "D" of the Income Tax Act, 1918: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal to this House, such Costs to be taxed as between Solicitor and Client, and the amount thereof certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Chancery Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.

Viscount Simonds

My Lords,

1

This appeal relates to certain assessments for income tax made upon the Respondents, Harold Bairstow and Fred Harrison, for the years of assessment ending respectively the 5th April, 1947, and the 5th April, 1948, in respect of the profits made by them from sales of machinery. The assessments had originally been made on the Respondent Harold Bairstow only, but it became common ground that the operations out of which the profits arose were the joint venture of both Respondents and the case has throughout been argued upon the footing of the assessments being made in their joint names.

2

Against these assessments, which were in the sum of £10,326 for the first year and £5,000 for the second year, appeals were taken to the Commissioners for the General Purposes of the Income Tax for the Division of West Morley in the County of York. They discharged the assessments but, the Appellant having expressed his dissatisfaction with their decision as being erroneous in point of law, stated a Case for the opinion of the High Court.

3

My Lords, it would not be right for me, in view of the conclusion which I have reached in this appeal, to try to abbreviate the statement of facts upon which the Commissioners made their determination and I therefore set out verbatim paragraph 3 of the Case which is in these terms.

3. The following facts were admitted or proved:—

(1) Mr. Harrison became aware in 1946 that a Complete Spinning plant was for sale at Messrs. Whitworths at Luddenden Foot and had reason to believe that the plant could be purchased for a reasonable figure. He communicated this information to Mr. Bairstow as he himself was not in a position to finance any purchase. Mr. Bairstow expressed himself to be interested but both he and Harrison agreed that they had no intention of holding the plant—what they desired was a quick purchase and re-sale. Mr. Bairstow therefore arranged for a valuation to be made by a professional valuer in order that he might be satisfied that the price asked by Whitworths was one on which he could make a quick profit. He also immediately and before purchasing the plant made enquiries as to whether he could arrange to sell the plant even before it had been purchased. Mr. Harrison was in touch with an Indian by name Wattal who was very anxious to purchase some of the plant, namely, the Botany Spinning section; for this he was prepared to pay £17,000 but both Harrison and Bairstow were quite decided that they had no intention of selling the plant piece-meal; they wanted to sell it as a complete unit. Then Mr. Bairstow began negotiations with the International Export Company. They said they were prepared to buy the whole of the plant. On the 14th November the International Export Company wrote to Mr. Bairstow saying that they were prepared to buy the plant which was on the fourth floor which was the Botany Spinning plant for £15,000 this, of course, being £2,000 less than the price offered for the same section of the plant by the Indian Wattal. The reason why the International Export Company were prepared to pay £15,000 immediately for that particular section of the plant was because although they were willing to purchase the whole of the plant it was their intention to export it and whilst they were confident that an Import Licence into China would be forthcoming for the asking in respect of the botany spinning section they were not willing to complete the purchase of the remainder of the plant until the Import Licences for such remainder were in fact forthcoming. On the 20th November Mr. Bairstow on behalf of himself and Harrison having negotiated the purchase of the spinning plant together with two small items of warping plant completed the purchase by the payment to Whitworths of £12,000. On the 27th November, one week later, the International Export Company paid Mr. Bairstow the sum of £15,000 for the botany spinning plant. Subsequently Messrs. Bairstow and Harrison were informed by the International Export Company that unfortunately the Import Licences relating to the remainder of the plant could not be obtained and therefore it was regretted that they could not purchase the remainder of the plant. Thus Mr. Bairstow and Mr. Hanison found themselves with the remainder of the plant on their hands (which they had endeavoured to avoid) and this left them no alternative but to sell that remainder in whatever market they could.

(2) The rest of the plant was sold in two other principal and two smaller lots by February 1948 though owing to difficulties the last plant was not removed until March 1949. The two smaller lots consisted of the two items of warping plant.

(3) Mr. Bairstow was a Director of a company manufacturing leather. Mr. Harrison was an employee of a spinning firm. Neither of them had had any transactions in machinery or any other commodity before.

(4) The profits shown by the accounts (which form part of this Case and are annexed hereto, marked 'A') was £18,225 11s. 3d.

(5) The Respondents' sole purpose in the transaction was to sell the plant at a profit.

(6) With regard to the manner in which the sales were effected:—

(a) Some commissions were paid for assistance received in effecting sales.

(b) There was no advertising. Customers principally learnt of the existence of the plant for sale when they came to inspect the premises which were being advertised by the original owners as becoming vacant.

(c) About 400 spindles out of the 220,000 which the plant represented were replaced because they were missing or damaged.

(d) Insurance risks were covered by the Respondents while the plant was in their hands.

(e) Some costs for renovation were incurred because of damage by floods during their ownership.

(f) When it was seen that the transaction would not be over in a matter of weeks, wages were paid to Mr. Bairstow's Secretary who kept books and did other office jobs in connection with these transactions.

(g) The Respondents incurred expense in travelling and entertainment in meeting both the actual persons who would eventually buy the plant and others who did not in fact become customers. A number of advertisements asking for plant, which appeared in trade papers, were answered by the Respondents in an attempt to sell the plant remaining after the first main sale.

(h) Owing to the delay in removing the plant, rent was paid to the landlords for the last six months during which the plant was housed, and it is thought that a further amount will have to be paid to put the premises in order.

4

EXHIBIT "A" Case Stated

5

Nor can I omit a reference to some at least of the contentions which were urged before the Commissioners on the one side or the other.

6

The Respondents contended that this was a transaction the profits of which could not be liable to tax under Case I of Schedule D, because, as they said, in the case of Leeming v. Jones 15 Tax Cases 333 (to which I shall refer later) four conditions had been approved by the Court, one of which must be present to establish liability,

(a) the existence of an organisation, or

(b) activities which led to the maturing of the assets to be sold, or

(c) the existence of special skill, opportunities, in connection with the article dealt with, or

(d) the fact that the nature of the asset itself should lend itself to commercial transactions.

7

And they contended that none of these conditions was present in the transaction in question. They distinguished certain cases upon which the Appellant relied and urged that the profit was a capital one and...

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