Harrison v Willis Bros
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE HARMAN |
| Judgment Date | 27 October 1965 |
| Judgment citation (vLex) | [1965] EWCA Civ J1027-1 |
| Docket Number | T. 106 |
| Court | Court of Appeal |
| Date | 27 October 1965 |
[1965] EWCA Civ J1027-1
In The Supreme Court of Judicature
Court of Appeal
From Mr Justice Buckley
The Master of the Rolls
(Lord Denning)
Lord Justice Harman and
Lord Justice Winn
MR H. H. MONRCE, Q. C. and MR J. RAYMOND PHILLIPS (instructed by the Solicitor of Inland Revenue) appeared as Counsel for the Appellant.
MR R. BUCHANAN-DUNLOP (instructed by Messrs Wilkins & Son, Aylesbury) appeared as Counsel for the Respondents.
THE MASOIBR OF THE ROLLS: This case raises the questions How should a partnership be taxed after one partner dies? Many years ago two brothers, W. H. Willis and H. H. Willis, carried on business in partnership under the name of Willis Bros. They were dairymen at the Manor Park Dairy, 2 Ascot Road, Aylesbury, They were assessed for tax under Schedule in the partnership-name for all the years from 1943/42 to 1948/49, inclusive. Their profits were assessed at figures ranging from £497 to £858. In the year 1950 the brothers dissolved the partnership. W. H. Willis went out and thereafter H. H. Willis carried on the business alone. A few years later the Crown took the view that, during the partnership, the brothers had returned the profits at too low a figure: and in 1955 the Crown made an additional assessment in the partnership name for the year 1948/49: thus rendering the two brothers (who were both alive) liable. This was within the six years permissible. On 17th December, 1957, H. H. Willis died. His Executors took out predate of his Will, and presumably sold the business. By the year 1962 the Crown took the view that, during the partnership, the brothers had consistently returned the profits at too low a figure. In consequence on the 29th March, 1962, the Crown made additional assessments for all the years from 1941/42 to 1947/48 in figures ranging from £62 to £433. These additional assessments described the "person assessed" as "Willis Bros. (W. H. Willis and Executors H. H. Willis, deceased)" and the "place of assessment" as "Manor Park Dairy, 2 Ascot Road, Aylesbury". I regard these assessments as made in the partnership name Willis Bros, but with a notification in brackets that the Crown would seek to make W. H. Willis liable and also the Executors of H. H. Willis. The surviving brother, W. H. Willis, did not appeal, but the Executor of the dead brother, H. H. Willis, did appeal. That Executor died before the hearing but the Executor's widow took steps to obtain probate and carried on the appeal.
At the appeal before the Commissioners, Counsel for the Executor took the point that the additional assessments from 1941/42 to 1947/48 were out of time and were bad. The Commissioners upheld this contention and discharged all the assessments. Mr Justice Buckley affirmed this decision. He held that the assessments were bad, not only against the Executor of H. H. Willis, but also against the surviving brother, W. H. Willis. The Crown now appeal to this Court.
In the ordinary way any additional assessment must be made within six years after the year of assessment to which it relates - see Section 47(1) of the Income Tax Act, 1952: but the Crown claim that they are entitled to make these additional assessments after all these years for these reasons:-
(1) Because there was fraud or wilful default committed by or on behalf of the partnership, and, accordingly, under the proviso to Section 47(1) of the Income Tax Act, 1952, additional assessments may be made "at any time" to make good the loss of tax. The fraud or wilful default enables the Crown, therefore, to go back right to 1943/42.
(2) Alternatively, even if there was no fraud or wilful default, there was neglect by one or other of the brothers and, accordingly, under Sections 51 and 52 of the Finance Act, 1960, additional assessments may be made for six years before the "normal year". The "normal year" was 1948/49, inasmuch as an additional assessment was properly made in 1955 for that year. The neglect, therefore, enables the Crown to go back for the years 1942/43 to 1947/48: though not to the year 1943/42.
The Executors of H. H. Willis, deceased, defend themselvesby saying that they are protected by the limitation of time contained in the statutes, because Section 47(2) of the 1952 Act and Section 53 of. the 1960 Act make it clear, even in the case of fraud, wilful default, or neglect, when a person has died, an assessment on his personal representatives must be made within three years after the year of assessment in which he died. It cannot be made against the Executor of the deceased partner. Nor also, they add, can it be made against the surviving partner.
The Crown, in reply, admit that if H. H. Willis was an individual trader, they could not proceed against his Executors more than three years after the year in which he died: but they say it is different with a partnership. There is no limit of time, they say, to assessments against a partnership in respect of tax accruing while the partnership was in existence. They can go against both the survivor and the Executor with no limit of time.
In order to determine the dispute, we must decide what is the nature of the liability of a partnership to tax. Is it the liability of the firm it self; or of the partners? If it is the liability of the partners, is their liability joint, or several, or joint and several? This question depends on the true interpretation of the statutes. The liability of any one of us to pay tax is a statutory liability. It does not arise out of contract, nor out of tort, but out of the statute. The Revenue makes an assessment on the person chargeable.- The tax becomes payable when the assessment becomes final, either because no appeal is made against it or when it is resolved in the Revenue's favour on appeal. The liability attaches when the assessment becomes final and not before - see B. P. Refinery (Kent) Limited. v. Lower Medway Internal Drainage Board, 1957, 1 Queen's Bench, at p. 98 by Mr Justice Donovan.
It has been suggested that for taxing purposes "a partnership firm is treated as an entity distinct from the persons who constitute the firm" - see Income Tax Commissioners v. Gibbs, 1942 Appeal Cases at p. 419 by Lord Macmillan. But I do not think this is correct. The statutes from 1842 to 1960 make it plain that the liability of partners to pay tax is the joint liability of all the partners, and not the several liability of each. It is not "joint and several". It is a joint liability only. The partnership firm is not an entity for taxing purposes or any other purposes. Its name is simply a convenient way of describing the persons who constitute the firm. My reasons are these:-
Section 144 of the Income Tax Act, 1952 (which repeats provisions which go back to the first Act in 1842) says that "when a trade or profession is carried on by two or more persons jointly, the tax in respect thereof shall be computed and stated jointly, and in one sum, and shall be separate and distinct from any other tax chargeable on those persons or any of them, and a joint assessment shall be made in the partnership name". The provision for a joint assessment shows that it is a joint liability imposed on all those who were partners during the year of assessment, that is, during the year when the profits were made which are being taxed, (if there was a change in partners in the course of a year, the situation is met by Section 145, but that does not arise here). The provision that the assessment is to be made "in the partnership name" is machinery by which those persons are designated who were partners during the year when the profits were made. They are still to be designated by that name, even after the partnership is dissolved. This use of the partnership name is a familiar piece of machinery. We all know that in an action at law, when two or morepersons are liable as partners in respect of a cause of action, they can be sued in the name of the firm of which they were partners at the time when the cause of action accrued, even though it has since been dissolved - see Order 81. So also In taxing matters, when a joint assessment is made on partners in respect of a year when they were partners, the assessment can be made, and indeed must be made, in the partnership name of the firm, even though it has since been dissolved. So long as they are all alive, they are all chargeable for the tax in the years that they traded in partnership. The assessment must be made in the partnership name. But in point of law an assessment is made on those persons jointly and the tax is charged on and payable by them. This is clearly accepted as the law of England by Section 63(3) of the Finance Act, 1960.
What is the position when one of the persons (who were jointly chargeable) dies? The answer is, I think, that the survivors become chargeable. At common law it has always been held that where two or more persons are jointly liable for a debt, and one of them dies, the liability passes to the survivors. The dead person is not liable,. nor are his Executors. When the survivors are reduced to one, the last survivor is alone liable; and on the death of the last survivor, his Executors are liable. (in equity the rule was modified so as to enable a creditor to proceed against the estate of a dead partner in due course of administration - see Kendall v. Hamilton (1879) 4 Appeal Cases at p. 539 by Lord Selborne and Section 9 of the Partnership Act, 1890: but this equitable recourse does not affect the legal nature of joint liability). Likewise, in regard to tax, it appears to me that when two or more persons are jointly chargeable to tax (as in the case of partners), and one dies, the assessment (for a year whilst they were partners) must still be made in the partnership name,...
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Harrison v Willis Bros
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