Henriksen (HM Inspector of Taxes) v Grafton Hotel, Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 13 May 1942 |
| Date | 13 May 1942 |
| Court | King's Bench Division |
No. 1221-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
Income Tax, Schedule D - Profits of trade - Deduction - Payment for monopoly value - Licensing (consolidation) Act, 1910 (10 Edw. VII & 1 Geo. V, c. 24), Section 14; Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Schedule D, Cases I and II, Rule 3.
The Respondent Company was the tenant of a fully-licensed hotel, the lease providing that the tenant should pay all charges imposed in respect of the licences by virtue of the Licensing (Consolidation) Act, 1910. On the renewal of the licence in March, 1934, and in March, 1937, sums in respect of monopoly value were imposed, payable in instalments. The Company appealed against assessments under Schedule D for the years 1938-39 and 1939-40, claiming that the instalments of monopoly value should be deducted in computing the assessments. The Commissioners allowed the appeal.
Held, that the instalments were capital sums, that they did not lose their capital nature because the Company had undertaken to pay them under its lease, and that they were not admissible deductions for Income Tax purposes.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the General Purposes of the Income Tax for the Division of St. Margaret and St. John in the County of Middlesex for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of St. Margaret and St. John in the County of Middlesex held at 15 Victoria Street, in the City of Westminster on 12th April, 1940, Grafton Hotel, Ltd., whose registered office is at St. Ermin's, Caxton Street, Westminster, London, S.W.1 (hereinafter called "the Company"), appealed against the following assessments made upon it under Schedule D of the Income Tax Act, 1918, in respect of the profits of its trade of licensed hotel and victualling house proprietor carried on at certain premises (hereinafter called "the said premises") known as the Grafton Hotel, Tottenham Court Road, London:-
(a) For the year ended 5th April, 1939, in the sum of £4,805, less £704 wear and tear.
(b) For the year ended 5th April, 1940, in the sum of £3,750, less £550 wear and tear.
2. The sole ground of the Company's appeal was that, in the computation of the profits assessed, no deduction had been made for instalments of monopoly value paid by the Company under Section 14, Licensing (Consolidation) Act, 1910, and amounting to £190 in each of the Company's
years of account ended on 24th June, 1937, and 24th June, 1938, on the profits of which the said assessments for 1938-39 and 1939-40 were respectively based.3. The Company was incorporated on 30th October, 1931, with the objects mentioned in its memorandum of association which include the carrying on of the business or businesses of hotel, restaurant, café, inn, beerhouse and tavern proprietors and keepers.
4. The Company is and has at all material times been in possession of the said premises pursuant to the terms of an agreement dated 30th November, 1931, and made between the Company of the one part and Associated London Properties, Ltd. of the other part. Under the terms of the said agreement the parties thereto covenanted to grant and accept respectively a lease of the said premises in the form of the draft annexed to the said agreement, which draft contains covenants by the Company (inter alia) to conduct the said business on the said premises in a lawful and orderly manner, to use their best endeavours to maintain and extend the same, to preserve the character of the said premises with the licensing authorities and the public, and to pay all charges which might be imposed in respect of the licences necessary for keeping open the said premises as a fully licensed hotel. A copy of the said agreement together with the said draft lease annexed thereto is attached hereto and marked "A" and forms part of this Case(1).
5. On 11th November, 1931, the Licensing Justices granted to George Leslie Brown and Harold John Scott (being nominees for and on behalf of the Company) a Justices' licence in respect of the Grafton Hotel for the period from 11th November, 1931, to 5th July, 1934, and the sum of £825 was imposed as monopoly value payable in three instalments of £275 each on 1st October, 1931, 1st October, 1932, and 1st October, 1933. (A copy of this document is attached hereto, marked "B", and forms part of this Case(1).)
6. On 14th March, 1934, the Licensing Justices upon application by the said George Leslie Brown and Harold John Scott (being nominees for and on behalf of the Company) for a re-grant of the said licence, granted to them a second licence for the period from 5th July, 1934, to 5th July, 1937, and the sum of £570 was imposed as monopoly value payable in three instalments of £190 each on 1st October, 1934, 1st October, 1935, and 1st October, 1936. (A copy of this document is attached hereto, marked "C", and forms part of this Case(1).)
The instalment payable on 1st October, 1936, is that to which the appeal for 1938-39 relates.
7. On 10th March, 1937, the Licensing Justices upon application by the said George Leslie Brown and Harold John Scott (being nominees for and on behalf of the Company) for a further re-grant of the said licence, granted to them a third licence for the period from 5th July, 1937, to 5th July, 1940, and the sum of £570 was imposed as monopoly value payable in three instalments of £190 each on 1st October, 1937, 1st October, 1938, and 1st October, 1939. (A copy of this document is attached hereto, marked "D", and forms part of this Case(1).)
The instalment payable on 1st October, 1937, is that to which the appeal for 1939-40 relates.
8. On behalf of the Company it was contended that:-
(2) The monopoly value payments were necessary expenses of carrying on the Company's trade.
(3) The monopoly value payments were not a condition precedent of the commencement of trading. Unless the payments were kept up the Company could not continue the trade. The payments were therefore expenses of conducting it, not commencing it.
(4) The Company, being merely tenants of the licensed premises did not secure any asset or advantage of a capital nature to itself by making the payments, but on the contrary would have forfeited the said lease if it had not made the said payments.
(5) The monopoly value instalment amounting to £190 was deductible from the assessed profits each year.
9. The Inspector of Taxes on behalf of the Crown contended (inter alia) that:-
(2) Payment of monopoly value was an essential preliminary to the carrying on of the trade of a licensed victualler, whether the payment was imposed in one sum or by instalments, and whether the licence granted was annual or for a period.
(3) The Company obtained by the payments of monopoly value an enduring benefit for its trade.
(4) The payments were of a capital nature, and the deductions claimed were inadmissible.
10. We, the Commissioners who heard the appeal, decided in favour of the Company.
Dissatisfaction with our determination as being erroneous in point of law was thereupon expressed by the Inspector of Taxes who subsequently required us to state and sign a Case for the opinion of the High Court, which Case we hereby state and sign accordingly.
Dated 12th February, 1941.
L.H. SAVILE, CHARLES G. DUCANE, Commissioners of Taxes for the Division of St. Margaret and St. John in the County of Middlesex.
J.A. Warrington Rogers.
Clerk to the Commissioners for the Division
of St. Margaret and St. John in the County of Middlesex.
The case came before Lawrence, J., in the King's Bench Division on 1st October, 1941, when judgment was given in favour of the Crown, with costs.
Lawrence, J.-This is an appeal from the General Commissioners, who have decided that the Respondent Company was entitled to deduct for Income Tax purposes the sums which were paid by it in respect of monopoly value of licensed premises of which it was lessee. In the case ofKneeshaw v. Albertolli, [1940] 2 K.B. 295; 23 T.C. 462, this point came before me on a previous occasion, when I decided that a sum paid as monopoly value on the grant of a licence in respect of licensed premises was a capital payment and could not be deducted in an assessment to Income Tax. In that case I followed a number of decisions as to the nature of a payment for monopoly value which had been decided by various Courts, including the House of Lords, but not upon the question as to what was a capital payment for the purposes of Income Tax.
Mr. Hayward, who has argued the case very fully and ably on behalf of the Respondent, admits that it would be difficult to distinguish the case of Kneeshaw v. Albertolli(1) from the present, except in this regard, that it does not appear either from the Stated Case or from the report in that case whether the licensee was the owner of the premises or whether he was a tenant, and in the present case the Respondent Company is the lessee of the premises and it has paid the instalments of monopoly value in pursuance of a clause in the lease, clause, 2 (14), which provides: "The tenants will pay all charges "which may be imposed in respect of the said licences or any of them by "virtue of the Licensing (Consolidation) Act 1910 or any amendments thereof "and in default the landlords may pay all such costs charges and expenses; "any moneys expended by them for that purpose shall be repayable by "the tenants on demand and may be recovered by action forthwith." Mr. Hayward therefore contends on that clause in the lease that the payments which were made by the Respondent Company in pursuance of that clause were payments made by it under a contractual liability and were made in the course of and for the purpose of its trade. He says that the tenant might just as well have agreed with the landlord...
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