Emanuel (Lewis) & Son Ltd v White
| Jurisdiction | England & Wales |
| Judgment Date | 26 March 1965 |
| Year | 1963 |
| Date | 26 March 1965 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income Tax, Schedule D - Fruit and vegetable importing company - Whether also carrying on trade of dealing in securities - Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c.10), Section 341.
The first Appellant Company had traded as fruit and vegetable importers for many years. Following a business set-back the Company began in November, 1958, to buy and sell Stock Exchange securities in addition to its other activities, having been advised that it had power to do so under its memorandum of association. Additional staff was engaged and separate books of account were opened, but no record of the new activity was entered in the Company's minute book. In the Company's accounts for the years ended 31st March, 1959, and 31st March, 1960, the securities were valued at cost and the transactions were not included in the trading account. A loss in the first year and a profit in the second year were, however, shown in the profit and loss account. In the accounts for the years ended 31st March, 1961, and 31st March, 1962, the transactions were shown in a separate trading and profit and loss account headed "dealers in stocks and shares" and the securities were included at market value. The losses for these years were shown as £2,518 and £4,951 respectively.
The Company applied for an adjustment of its liability for 1960-61 and 1961-62 under Section 341, Income Tax Act, 1952, in respect of the losses on the transactions in question, contending before the Special Commissioners that it was carrying on the separate trade of dealing in securities. It was contended on behalf of the Crown that the Company had no power under its memorandum of association to start a separate trade in dealing in securities and that the nature of the transactions merely pointed to speculation. The Commissioners decided that the Company did not carry on the separate trade of dealing in securities, and disallowed the application.
In the second case the facts, the contentions of the parties and the Commissioners' findings were the same in all material respects.
Held, that the only proper conclusion from the evidence before the Commissioners was that each Company was carrying on the trade of a dealer in securities.
(1) Lewis Emanuel & Son, Ltd. v. White (H.M. Inspector of Taxes)
CASE
Stated under the Finance Act, 1953, Section 15, and the Income Tax Act, 1952, Section 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 16th January, 1964, Lewis Emmanuel & Son, Ltd. (hereinafter called "the Company"), applied under the provisions of Section 341 of the Income Tax Act, 1952, for an adjustment of its liability by reference to losses sustained in transactions in Stock Exchange securities in the Income Tax years 1960-61 and 1961-62.
2. The sole question for our determination was whether the Company, during the two years, had carried on the separate trade of dealing in Stock Exchange securities. This application was heard at the same time as an application by Joseph I. Emanuel, Ltd., where a similar issue was raised and the relevant facts were agreed to be alike. A separate case intituled "Joseph I. Emanuel, Ltd. v. Southall (H.M. Inspector of Taxes)" has been stated in respect of the application.
3. The following witnesses gave evidence before us: Mr. Joseph Isaac Emanuel, the managing director of the Company, hereinafter referred to as "Mr. Emanuel"; Mr. John Arnold Ellert, a partner in the firm of Ellert, Barnard, North & Co., stockbrokers, who for many years had acted for the Company; Mr. Oliver Nigel Tansley Witt, a partner in the firm of Fenn and Crosthwaite, stockbrokers, who also had acted for the Company; Mr. Solomon Brief, senior partner in the firm of S. Brief & Co., accountants and auditors of the Company.
4. The following documents were proved or admitted before us:
A. A copy of the memorandum and articles of association of the Company.
B. A schedule of Stock Exchange transactions by the Company for the year ended 31st March, 1959, with a reconciliation of the schedule with the Company's accounts for the year ended 31st March, 1959.
C. A schedule of Stock Exchange transactions by the Company for the year ended 31st March, 1960, with a reconciliation of the schedule with the Company's accounts for the year ended 31st March, 1960.
D. A schedule of Stock Exchange transactions by the Company for the year ended 31st March, 1961.
E. A schedule of Stock Exchange transactions by the Company for the year ended 31st March, 1962.
F. A copy of the Company's trading and profit and loss account for the year ended 31st March, 1959, with a copy of the Company's balance sheet on that date.
G. A copy of the Company's trading and profit and loss account for the year ended 2nd April, 1960, with a copy of the Company's balance sheet on that date.
H. A copy of the Company's trading and profit and loss account for the year ended 31st March, 1961, with a copy of the Company's balance sheet on that date.
I. A copy of the Company's trading and profit and loss account for the year ended 30th March, 1962, with a copy of the Company's balance sheet on that date.
5. From the evidence, both oral and documentary, adduced before us we found the following facts:
(a) The Company, which was incorporated on 5th May, 1944, was formed to take over the trade of fruit and vegetable importer which had been carried on previously by Mr. Emanuel's father. The Company still carries on this trade.
(b) The trade of importing fruit and vegetables is highly speculative for the following reasons-(i) The importer must order the goods well in advance of delivery on a seasonal basis. The contracts with the growers or the shippers are made at prices agreed at the date of the order. (ii) Owing to the perishable nature of the goods, their condition on delivery depends on several factors apart from the quality of the harvest, namely, the skill and honesty of the packers, the weather and conditions of storage on the voyage and the speed of delivery. (iii) The market conditions existing at the time of delivery of the goods which depend not only on the soundness of the goods themselves but on the supply available and the demand for such goods in the weather conditions then subsisting.
(c) Mr. Emanuel, who had many years' experience in this trade, was responsible for all the buying and selling for the Company. Sometimes the Company sold the goods whilst they were in transit, sometimes before the goods were shipped and sometimes the Company brought the goods into the market and sold them. To employ Mr. Emanuel's own words, "the conduct of the Company's business was primarily by instinct, there had to be a feel for the market and sometimes the Company had to buy blindly."
(d) In May, 1958, there was a strike at the London docks which brought them to a standstill. This strike lasted for five weeks and had a very serious effect on the Company, which was unable to obtain delivery of any of its goods waiting aboard ship or in the warehouses. In perished goods, the Company suffered a loss of about £8,500; the work of many years with its customers was severely disrupted.
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(e) Because of the serious and far-reaching effects of the dock strike on the Company's business Mr. Emanuel looked for some other activity which could be carried on by the Company at the same time as the importing of fruit and vegetables. In November, 1958, the Company started buying and selling securities on the Stock Exchange. He had been advised that the Company had the power to do so in the objects clause of its memorandum of association. A copy of the Company's memorandum and articles of association is annexed hereto, marked "A"(1), and forms part of this Case. No record of the new activity was entered in the Company's minute book, which contained only formal matters. At all relevant times the only other director of the Company, Mr. Emanuel's father, was sick and unable to attend to business. Mr. Emanuel engaged extra staff and arranged for separate books of account to be opened in respect of the transactions in stocks and shares.
(f) In 1958 Mr. Emanuel held no shares on his own account. For many years he had read the financial press and the financial articles in the national press and had a layman's knowledge of the markets. Mr. Emanuel thought that the same technique could be employed in the buying and selling of...
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