Harrison (HM Inspector of Taxes) v Willis Bros
| Jurisdiction | England & Wales |
| Judgment Date | 27 October 1965 |
| Date | 27 October 1965 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax, Schedule D - Partnership - Death of partner - Time limit for assessment - Whether personal representatives of deceased partner liable for tax on partnership profits - Income Tax Act 1952 (15 & 16 Geo. 6 & 1 Eliz. 2, c. 10), ss. 47 and 144; Finance Act 1960 (8 & 9 Eliz. 2, c. 44),ss. 51, 52, 53 and 63(3).
The Respondent firm traded as dairymen over a period including the years 1941-42 to 1947-48. One of the partners in those years died in 1957. In March 1962, the other partner being still alive, additional assessments to income tax under Case I of Schedule D were made on the firm for those years on the footing that tax had been lost through fraud, wilful default or neglect attributable to the partners.
On appeal, it was contended for the firm as a preliminary point that, since one of the partners had died more than three years before they were made, the assessments were all bad by virtue of ss. 53 and 63(3), Finance Act 1960, even if fraud, wilful default or neglect should be established. For the Crown it was contended that s. 63(3) did not provide for an assessment in the name of a partnership under s. 144, Income Tax Act 1952, to be treated as assessments on the partners as individuals, and that s. 53 did not apply to a partnership assessment. The Special Commissioners held that the assessments were invalid, as being made outside the time limit prescribed by s. 53, as applied by s. 63(3), Finance Act 1960.
The assessments were contested before the Commissioners and in the Courts by the personal representative of the deceased partner but not by the surviving partner.
Held, (1) that (in England and Wales) where an assessment on partnership profits was made after the death of a partner other than the last survivor, it imposed liability only on the surviving partners; (2) that s. 47(2), Income Tax Act 1952, applied to the executors of a partner.
Stated under the Income Tax Act 1952, s. 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 25th July 1963 Willis Brothers (W.H. Willis and the executors of H.H. Willis deceased), hereinafter called "the Respondents",
appealed against the following assessments to income tax made under Case I of Schedule D of the Income Tax Act 1952 on profits of the trade of dairymen:Year of assessment |
Amount of assessment |
|
£ |
||
1941-42 |
375 |
(additional) |
1942-43 |
319 |
" |
1943-44 |
62 |
" |
1944-45 |
838 |
" |
1945-46 |
433 |
" |
1946-47 |
405 |
" |
1947-48 |
354 |
" |
2. All these assessments were made on 29th March 1962, more than six years after the end of the last year of assessment under appeal, and they were made in the name set out in para. 1 of this Case. H.H. Willis died on 17th December 1957, more than three years before the date on which the assessments were made.
The executor named in the will of H.H. Willis had died before the date of this hearing, and his widow was at the date of this hearing in process of obtaining probate of his will. The executor of the will of H.H. Willis was represented before us by Counsel, but there was no appearance on behalf of W.H. Willis.
3. The Revenue relied on the proviso to s. 47(1) of the Income Tax Act 1952 as regards the year 1941-42, and on that provision, or alternatively on s. 51 of the Finance Act 1960, as regards the remaining years.
4. A preliminary point was taken on behalf of the Respondents. It was agreed by both parties that we should decide it before proceeding further, since a decision in favour of the Respondents would put an end to the matter at this stage. This preliminary point was as follows. Section 63(3) of the Finance Act 1960 provides:
For the purposes of this Part of this Act, an assessment made in the partnership name and the tax charged in such an assessment shall, according to the law in Scotland as well as according to the law elsewhere in the United Kingdom, be deemed to be respectively an assessment made on the partners and tax charged on and payable by them.
This, it was contended, means that an assessment in a partnership name has the effect of separate assessments on the partners, albeit they are still in respect of the partnership profits.
Section 53 of the Finance Act 1960 is in the same part of the Act as s. 63, and s. 53 provides:
For the purpose of making good to the Crown any loss of tax attributable to the fraud, wilful default or neglect of a person who has died, an assessment on his personal representatives to tax for any year of assessment ending not earlier than six years before his death may be made at any time before the end of the third year next following the year of assessment in which he died.
It was contended that, since H.H. Willis died more than three years before the assessments under appeal were made, they were all bad, and would be bad even if the Revenue established fraud or wilful default under the proviso to s. 47(1) of the Income Tax Act 1952 or fraud, wilful default or neglect under s. 51 of the Finance Act 1960.
5. On behalf of H.M. Inspector of Taxes, it was contended on this preliminary point that:
(2) s. 144 of the Income Tax Act 1952 provides that an assessment must be made in the partnership name, and the assessments under appeal had been so made;
(3) s. 63(3) of the Finance Act 1960 does not provide for assessments on individuals who were in partnership;
(4) s. 53 of the Finance Act 1960 deals only with an individual on his own account, and does not refer to an individual who was a member of a partnership; moreover, the provisions of s. 53, which in terms refers to "an assessment on…personal representatives", are not relevant to this case, where the assessments were made, as required by s. 144, "in the partnership name";
(5) all the assessments under appeal were competent.
6. The case of North v. Spencer's Executors36 T.C. 668 was cited to us.
7. We, the Commissioners who heard the appeal, gave our decision as follows.
All the assessments under appeal were made out of time, and the Revenue can only support them on the ground that tax has been lost owing to the fraud, wilful default or neglect of the taxpayers.
Section 53 of the Finance Act 1960, put shortly, prescribes a time limit within which assessments can be made on the personal representatives of an individual through whose fraud, wilful default or neglect tax has been lost to the Crown. In our view s. 63(3) of the Act of 1960 provides that an assessment made in the partnership name shall be deemed to be assessments made respectively on the individual members of the partnership.
We think that a reading of these two sections together has the effect that an assessment could only be made on the executor of H.H. Willis in respect of the profits of the partnership, of which H.H. Willis was a member while he was alive, within three years of his death. The assessments under appeal were not made within this time limit, and we hold that they were invalid and we discharge them all.
8. H.M. Inspector of Taxes, immediately after the determination of the appeal, declared to us his dissatisfaction therewith as being erroneous in point of law and on 13th August 1963 required us to state a Case for the opinion of the High Court pursuant to the Income Tax Act 1952, s. 64, which Case we have stated and do sign accordingly.
9. The question of law for the opinion of the High Court is whether we were right in holding as we did.
R.W. Quayle, H.G. Watson, Commissioners for the Special Purposes of the Income Tax Acts
Turnstile House,
94-99 High Holborn,
London, W.C.1.
12th May 1964.
The case came before Buckley J. in the Chancery Division on 10th and 11th December 1964, when judgment was reserved. On 21st December 1964, judgment was given against the Crown, with costs.
Buckley J.-Until his death on 17th December 1957 the late Mr. H.H. Willis (hereinafter called "the deceased") for many years carried on, in partnership with his brother W.H. Willis, the trade of dairymen under the style of Willis Bros. This partnership was dissolved by his death. On 29th March 1962, more than four years after the deceased's death, additional assessments were raised under Case I of Schedule D of the Income Tax Act 1952 on the profits of the partnership in respect of each of the years 1941-42 to 1947-48 inclusive. The latest of these years of assessment ended more than nine years before the deceased died and nearly 14 years before the date of the assessment. The assessments were expressed to be made upon "Willis Brothers (W.H. Willis and Executors of H.H. Willis deceased)". There never had been any partnership between W.H. Willis and the deceased's executors. W.H. Willis and the deceased's executors appealed against the assessments to the Special Commissioners. Upon the appeal a preliminary point was taken that, since the deceased died more than three years before the assessments under appeal were made, they were all bad even if the Revenue established fraud or wilful default or neglect. The Commissioners held that, in view of ss. 53 and 63(3) of the Finance Act 1960, an assessment could only be made on the executors of the deceased in respect of profits of the partnership within three years of his death, and that, as none of the assessments was made within this time, they were all invalid. Accordingly, the Commissioners discharged them all. From that decision the Crown appeal to this Court.
For the Crown it is contended that the Income Tax Act 1952, s. 144, requires an assessment on a partnership to be made in the partnership name, and that for this purpose a partnership, though not incorporated, is regarded as an entity distinct from the individual partners. In this connection reliance is placed on Stevens v. Britten[1954] 1 W.L.R. 1340 and Income Tax Commissioners for...
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