Griffiths v J. P. Harrison (Watford) Ltd
| Jurisdiction | England & Wales |
| Judge | Viscount Simonds,Lord Reid,Lord Denning,Lord Morris of Borth-y-Gest,Lord Guest |
| Judgment Date | 15 March 1962 |
| Judgment citation (vLex) | [1962] UKHL J0315-2 |
| Date | 15 March 1962 |
| Court | House of Lords |
Viscount Simonds
Lord Reid
Lord Denning
Lord Morris of Borth-y-Gest
Lord Guest
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause Griffiths (Inspector of Taxes) against J. P. Harrison (Watford) Limited, that the Committee had heard Counsel, as well on Monday the 5th, as on Tuesday the 6th, days of February last, upon the Petition and Appeal of Elwyn Thomas Griffiths, of Finsbury 2nd District, Empire House, St. Martin's-le-Grand, London, E.C.1 (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 5th of May 1961, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order 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 Case of J. P. Harrison (Watford) Limited, 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 5th day of May 1961, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: 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, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
Upon an appeal by the company against the rejection by the Inspector of Taxes of its application for relief under section 341 of the Income Tax Act, 1952, the Commissioners for the Special Purposes of the Income Tax Acts found that a certain transaction was not entered into by it as part of any trade of dealing in shares and was not an adventure in the nature of trade. They stated a case at the request of the company stating that the question of law for the opinion of the Court was whether there was evidence on which they could arrive at their finding. This question was answered in the negative by Mr. Justice Danckwerts who held that the Commissioners' determination could not be justified by their own findings of fact and was quite unreasonable having regard to those findings. His decision was affirmed by the Court of Appeal Holroyd Pearce and Upjohn, L.JJ., Donovan, L.J. dissenting).
My Lords, when the question is asked whether there was evidence upon which the Commissioners could arrive at their findings, I take it that this means whether (to adapt the words of my noble and learned Friend, Lord Radcliffe, in Edwards (H.M.I.T.) v. Bairstow & Harrison) the contrary conclusion is the true and only reasonable one. This can only be determined by a close scrutiny of the evidence led before the Commissioners. In this case the relevant evidence can be shortly summarised.
The respondent company was incorporated in 1948 and carried on business as merchants up to some date in the year 1953-54 when that business ceased. In that year it incurred a loss of £13,585 which was admittedly available to carry forward to the year 1953-54 for the purpose of relief under section 341 of the Act. In October, 1953, the company's memorandum of association was duly altered so as to enable it to carry on the business of buying and selling ( inter alia) stocks, shares, bonds and debentures or other securities of any company. On 4th December, 1953, the company purchased all the issued share capital amounting to 1,000 £1 shares of Julius Bendit Limited for £16,900. For that purpose it borrowed £15,900 from another company called Boslift Limited. Shortly afterwards Julius Bendit Limited changed its name to Claiborne Limited. Its shares were bought by the company on a blank transfer which was not registered and was passed on to the purchaser when the company resold the shares on 4th June, 1954. No stamp duty was paid by the company on the purchase of the shares. (I mention these facts as they appear in the Case but cannot attach any relevant significance to them.)
Claiborne Limited had carried on business as cloth merchants up to 30th November, 1953, when that business ceased. At the time of the purchase of its shares by the company Claiborne Limited had no business but had considerable accumulated profits available for dividend. It was described by the Commissioners as "simply a company pregnant with dividend" and they added:
"The company purchased the shares with a view to obtaining a dividend against which it could claim to set off its losses."
On 16th January, 1954, Claiborne Limited declared a dividend of £28,912 13s. 3d. less income tax £13,010 14s. and the net dividend of £15,901 19s. 3d. was received by the company. On the same day the directors of the company resolved—
(1) that out of this sum of £15,901 19s. 3d. the company should repay £15,900 to Boslift Limited;
(2) that the 1,000 £1 shares in Claiborne Limited should be resold to a company called Lewistown Limited for £1,000. They were in fact so sold. There was no evidence that the company bought or sold any other shares in the year 1953-54 but it was not disputed that in the following year, 1954-55, it was carrying on the business of dealing in shares. This, my Lords, is the sum of the evidence upon which the Commissioners determined that the company's purchase and sale of the Claiborne Limited shares was not entered into as part of any trade of dealing in shares or an adventure in the nature of trade. As the Commissioners made no other finding than that which I have mentioned, it must be assumed that their determination can only have been based on the facts (1) that the Claiborne transaction was an isolated one in the year of assessment and (2) that the shares were purchased with a view to obtaining a dividend against which it could claim to set off its losses.
The first of these reasons, if not formally abandoned, was not seriously maintained before your Lordships and appears to me quite unsustainable.
It was the second reason that was urged as justifying the Commissioners' determination. I hope that I do no injustice to the argument for the Crown if I say that it rested entirely on the proposition that the essence of a trading transaction is that its object is to make a profit and that the found object of this transaction was the ulterior one of obtaining a dividend against which it could claim to set off its losses. This proposition was supported by the fact that the shares were bought for £15,900 and sold for £1,000, a transaction which thus baldly stated, could not be regarded as a favourable or even a normal one from the point of view of a dealer in shares.
But, my Lords, attractive as this propostion is, and attractively as it was advanced by the then Solicitor-General, it does not convince me. Here was a company whose object it was to deal in shares. It entered into a commercial transaction which, though it might be given an invidious name, contained no element of impropriety, much less of illegality. I can find nothing that enables me to say that it is not a trading transaction and echo the question asked by the majority in the Court of Appeal:
"If it is not that, what is it?"
No doubt, many observations that have been made alio intuitu will be found to the effect that trade is carried on with a view to a profit. But this proposition is not universally true, nor can it be tested merely by ascertaining the difference between the purchase price (or, it may be, the manufacturing cost) of an article and the selling price of that article. For a dealer may seek his profit, if a profit is essential, otherwise than by an enhanced price upon a resale, as by a declaration of dividend, a repayment upon a reduction of capital or upon a liquidation of the company whose shares he has bought. It appears to me to be wholly immaterial, so long as the transaction is not a sham (as was the case in R. L. Johnson v. J. S. Jewitt (I.T.) 40 A.T.C. 814), what may be the fiscal result or the ulterior fiscal object of the transaction, and since this can be the only ground upon which the Commissioners could have reached their determination, I must conclude that it cannot be upheld.
I would dismiss this appeal with costs.
My Lords,
This case arises out of a claim made by the Respondents for relief under section 341 of the Income Tax Act, 1952. The claim is based on alleged loss in the trade carried on by them; its validity depends on whether a certain transaction was done in the course of or as part of that trade. The Special Commissioners found that the transaction "was not entered into as part of any trade of dealing in shares and was not an adventure in the nature of trade", and accordingly only allowed a part of the claim. The question before your Lordships is whether that finding must be held to be wrong.
The transaction in question was a simple one. A company called Claiborne, with a share capital of 1,000 £1 shares, had ceased to trade but it held accumulated profits which had borne tax amounting to some £15,900. On 4th December, 1953, the Respondents bought these shares for £16,900. The Commissioners found as a fact, and it is not disputed, that they bought the shares with a view to obtaining a dividend against which they could claim to set off losses. Claiborne, now controlled by the Respondents, duly declared a dividend on 26th January, 1954, and the net sum of £15,901 19s. 3d. was received by the Respondents. The shares were then...
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