Hirsch v Crowthers Cloth Ltd

JurisdictionEngland & Wales
Judgment Date27 November 1989
Date27 November 1989
CourtChancery Division

Chancery Division.

Vinelott J.

Hirsch (HM Inspector of Taxes)
and
Crowthers Cloth Ltd

Mr Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown.

Mr Robert Venables (instructed by Dibb Lupton Broomhead, Bradford) for the taxpayer company.

The following cases were referred to in the judgment:

Luke v IR Commrs ELR[1963] AC 557

Mangin v IR Commr ELR[1971] AC 739

Mobil North Sea Ltd v IR Commrs WLRTAX[1987] 1 WLR 1065; [1987] BTC 8074

Ramsay (WT) Ltd v IR Commrs ELR[1982] AC 300

Corporation tax - Chargeable gains - Machinery and plant qualifying for capital allowance - Balancing charge - Whether consideration on disposal to be reduced by "disposal value" taken into account in computing balancing charge - Finance Act 1971 section 44Finance Act 1971, sec. 44, Capital Gains Tax Act 1979 section 31 subsec-or-para (1)Capital Gains Act 1979, sec. 31(1)(2).

This was an appeal by the Crown from the decision of a special commissioner that the Capital Gains Tax Act 1979 section 31 subsec-or-para (1) section 32 subsec-or-para (1)Capital Gains Tax Act 1979, sec. 31(1) and 32(1) both applied to the disposal of machinery and plant which had attracted capital allowances and balancing charges under the Finance Act 1971. The result was to convert a capital gain into a substantial loss.

The taxpayer company, which carried on the trade of manufacturing fabric and processing yarns and synthetic fibres, bought some looms during the 1970s at a cost of £545,930. On 8 February 1980 the looms were sold for a net sum of £715,967 and the company was assessed to corporation tax on a capital gain of £170,037 in respect of its accounting period to 31 December 1981.

The acquisition cost had formed an ingredient in the calculation of writing-down allowances and a balancing charge on disposal under theFinance Act 1971 section 44Finance Act 1971, sec. 44.

The company contended that the disposal value of the looms (limited to original cost by virtue of the proviso to the Finance Act 1971 section 44 subsec-or-para (6)Finance Act 1971, sec. 44(6)) had been taken into account in calculating the balancing charge and had thus been taken into account in computing its liability to corporation tax on the profits of its trade. Accordingly that sum was excluded from the consideration received on disposal by virtue of the Capital Gains Tax Act 1979 section 31 subsec-or-para (1)Capital Gains Tax Act 1979, sec. 31(1), reducing the consideration to £170,037 against which could be set the cost of acquisition under Capital Gains Tax Act 1979 section 32 subsec-or-para (1)sec. 32(1) producing a loss of £375,893 instead of a gain of £170,037.

A balancing charge under the Capital Allowances Act 1968 was specifically excepted from Capital Gains Tax Act 1979 section 31 subsec-or-para (1)sec. 31(1) by Capital Gains Tax Act 1979 section 31 subsec-or-para (2)sec. 31(2) and by an amendment made by the Finance Act 1980 the exception was extended to a balancing charge under Finance Act 1971 section 44sec. 44 of the 1971 Act. It was submitted that the amendment had not taken effect on 8 February 1980 so that on the date of disposal of the looms, Capital Gains Tax Act 1979 section 31 subsec-or-para (1)sec. 31(1) applied to a balancing charge underFinance Act 1971 section 44sec. 44.

The special commissioner thought that, although common sense would suggest that there was a chargeable gain, the relevant statutory provisions compelled the consequence for which the company contended.

Held, allowing the Crown's appeal:

1. It was a well established principle that, in construing a statutory provision, it was to be presumed that neither injustice nor absurdity was intended. If the language admitted an interpretation which would avoid such a result then that interpretation should be adopted.

2. The words "taken into account" in Capital Gains Tax Act 1979 section 31 subsec-or-para (1)sec. 31(1) of the 1979 Act were capable of being given a very wide construction and as comprehending a sum indirectly brought into account in calculating a balancing charge. But those words were also capable of being read, and in the present context were most naturally read, as referring only to sums which had been brought directly into the computation.

3. No weight could be given to the date of the amendment toCapital Gains Tax Act 1979 section 31 subsec-or-para (2)sec. 31(2). It was only in a case where an ambiguity could not be resolved that subsequent legislation might be invoked to resolve it. In any event the amendment was declaratory and did no more than make explicit what was previously implicit in the provision.

CASE STATED

1. On 22 July 1988 I, one of the special commissioners heard the appeal of Crowthers Cloth Ltd ("the company") against an assessment to corporation tax in the sum of £4,000 in respect of the accounting period to 31 December 1981. The amount of tax chargeable depended upon whether the company realised a chargeable capital gain or an allowable capital loss on the disposal by it on 8 February 1980 of certain machinery or plant, namely 60 Sulzer looms and accessories, which it had used for the purposes of its trade of manufacturing fabric and processing yarns and synthetic fibres and upon which it had received allowances under Ch. I of Pt. III of the Finance Act 1971.

2. The question for my decision was whether in the computation of the company's chargeable capital gains on the sale of the said machinery or plant on 8 February 1980 there should, pursuant to Capital Gains Tax Act 1979 section 31sec. 31 of the Capital Gains Tax Act 1979, be excluded from the consideration taken into account in such computation such part of the net proceeds of sale of the machinery or plant as was taken into account as "disposal value" in the making of a balancing charge on the company under Finance Act 1971 section 44sec. 44 of the Finance Act 1971 on the disposal of such machinery or plant.

3. [Paragraph 3 listed the documents proved or admitted before the commissioner.]

4. I took time to consider my decision and gave it in writing on 8 August 1988, allowing the appeal in principle subject to the agreement of figures.

5. The parties duly agreed the figures and on 4 October 1988 I reduced the assessment to nil.

6. Immediately after the determination of the appeal, on 11 October 1988, the inspector of taxes expressed his dissatisfaction therewith and required me to state a case for the opinion of the High Court pursuant to Taxes Management Act 1970 section 56sec. 56 of theTaxes Management Act 1970.

7. The question of law for the opinion of the court is whether on the true construction of Capital Gains Tax Act 1979 section 31sec. 31 of the Capital Gains Tax Act 1979 the "disposal value" of the said machinery or plant fell to be excluded as therein provided in the computation of the chargeable gain or allowable loss accruing on the disposal thereof as being,

any money or money's worth charged to income tax of, or taken into account as a receipt in computing income or profits or gains or losses of the person making the disposal for the purposes of the Income Tax Acts.

DECISION

This is an appeal by Crowthers Cloth Ltd ("the company") against an assessment to corporation tax for the year ending 31 December 1981. The amount of the assessment depends on events which took place in 1980. I am asked to give my decision in principle, leaving the figures to be agreed in the light of my decision.

The issue is whether in computing for the purposes of the Capital Gains Tax Act 1979 the amount of a gain accruing on the disposal on 8 February 1980 of certain assets, namely 60 Sulzer looms and accessories, there should be excluded from the consideration taken into account in that computation such part of the net proceeds of sale of the looms as was taken into account as "disposal value" under Finance Act 1971 section 44sec. 44 of the Finance Act 1971 on the disposal of the looms.

The facts are agreed and they are as follows. The company at all material times has carried on the trade of manufacturing fabric and processing yarns and synthetic fibres. The company bought the looms after 6 April 1965, when capital gains tax was introduced, at a total cost of £545,930. It received writing down allowances on the looms underFinance Act 1971 section 44sec. 44 of the Finance Act 1971 as the company bought, owned and used the looms for the purposes of its trade. It sold the looms on 8 February 1980 for £715,967. The inspector of taxes claims that the company realised a chargeable gain of £170,037 (proceeds of sale less cost of acquisition). The company contends that in computing the chargeable gainCapital Gains Tax Act 1979 section 31 subsec-or-para (1)sec. 31(1) of the Capital Gains Tax Act 1979 requires that the sum of £545,930 must be excluded from the consideration for the disposal of the looms since that amount is,

money or money's worth … taken into account as a receipt in computing income or profits or gains of the person making the disposal for the purposes of the Income Tax Acts.

(Which the inspector agrees includes corporation tax). It was taken into account as such a receipt because it was brought into account as "disposal value" within the meaning of Finance Act 1971 section 44 subsec-or-para (5)sec. 44(5) of the 1971 Act in computing the balancing charge made on the company under Finance Act 1971 section 44 subsec-or-para (3)sec. 44(3) for the year ending on 31 December 1980. The total "disposal value" for that year was £578,430. The pool of "qualifying expenditure" as defined by Finance Act 1971 section 44 subsec-or-para (4)sec. 44(4) brought forward was £99,453. As this was less than the "disposal value" of £578,430 a balancing charge of the difference, £478,977, was made on the company. The computation made by the company is as follows:

Common sense suggests that there is a chargeable gain as the inspector claims; the company contends that the...

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5 cases
  • Drummond v HM Revenue and Customs
    • United Kingdom
    • Chancery Division
    • 23 July 2008
    ...amounts taken into account as receipts in computing the tax payer's income by reference to the decision of Mr Justice Vinelott in Hirsch v Crowthers Cloth Ltd (1989) 62 TC 759. 12 Mr Way and Miss McCarthy submit that the Special Commissioner erred in law in so holding. Their argument procee......
  • Felixstowe Dock and Railway Company Ltd v HM Revenue and Customs
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    ...anomalous results (R (on the application of Edison First Power Ltd) v CVO [2003] UKHL 20 at [116], [117]; Hirsch v Crowthers Cloth Ltd TAX[1990] BTC 64 at p 72). 69.There was no dispute that Income and Corporation Taxes Act 1988 section 410s 410 is an anti-avoidance provision. But Mr Baker ......
  • Jason Drummond v Her Majesty's Revenue & Customs, SPC 00617
    • United Kingdom
    • First-tier Tribunal (Tax Chamber)
    • 5 July 2007
    ...account as receipts in computing his income was recognized in the decision of Vinelott J in the decision in Hirsch v Crowthers Cloth Ltd 62 TC 759. In that case the taxpayer had sought to argue (unsuccessfully, as it turned out) that sums that had been brought into account to ascertain whet......
  • Drummond v HM Revenue and Customs
    • United Kingdom
    • Special Commissioners (UK)
    • 5 July 2007
    ...taken into account as receipts in computing his income was recognised in the decision of Vinelott J in Hirsch v Crowthers Cloth LtdTAX[1990] BTC 64. In that case the judge held that the sums taken into account in relation to the capital allowances computation were too far removed from the i......
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