Income Tax Commissioners for London (City) v Gibbs

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeThe Lord Chancellor,Lord Russell of Killowen,Lord Macmillan,Lord Wright,Lord Porter
Judgment Date20 February 1942
Judgment citation (vLex)[1942] UKHL J0220-2
Date20 February 1942

[1942] UKHL J0220-2

House of Lords

Lord Chancellor

Lord Russell of Killowen

Lord Macmillan

Lord Wright

Lord Porter

Commissioners for General Purposes of Income Tax for City of London
Gibbs and Others.

After hearing Counsel, as well on Monday the 1st, as on Thursday the 4th, Friday the 5th and Monday the 8th, days of December last upon the Petition and Appeal of the Commissioners for the General Purposes of the Income Tax for the City of London, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 2d of August 1940, except so far as the said Order relates to Costs, might be reviewed before His Majesty the King in His Court of Parliament, and that the said Order might be reversed, varied, or altered, and that the Petitioners might have the relief prayed for in the Appeal, or such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of Arthur Gibbs, Bryan Northam Gibbs, Frank Leslie John Rogerson, John Moffat and Donald Ernest West (partners in the firm of Sir R. W. Carden and Company), 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 His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 2d day of August 1940, in part complained of in the said Appeal, be, and the same is hereby, Reversed except as to Costs and that the Order of the King's Bench Division of the High Court of Justice, sitting as a Divisional Court, of the 10th day of May 1940, thereby set aside, be, and the same is hereby, Restored except as to Costs: And it is further Ordered, That no Costs be allowed to either side in respect of the said Appeal to this House: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the King's Bench Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.



My Lords,


By a document dated November 5th, 1937, the Commissioners for the General Purposes of Income Tax for the City of London gave notice to the stockbroking firm of Sir R. W. Carden & Co. of an assessment under Schedule D for the year ending April 5th, 1938. The assessment was in respect of the profits of the partnership, and by Rule 10 of the Rules applicable to Cases I and II under that Schedule, the assessment was a joint assessment made in the partnership name, and the tax was "computed and stated jointly and in one sum". The total figure upon which tax was to be charged was fixed, in the ordinary way, upon the profits made in the previous year 1936-7, and after adjustment was agreed at £69,355.


The firm of Sir R. W. Carden & Co., at the time when the assessment was made, consisted of four partners who for the present purpose may be designated A, B, C and D, and this continued to be the composition of the firm on January 1st, 1938, when the first half of the income tax resulting from the assessment became due. On February 7th, 1938, however, the composition of the firm changed owing to the taking in of a fifth partner, who may be called E. On the 27th July, 1938, the Inspector of Taxes, purporting to act in accordance with Rule 9 (1) of Cases I and II of Schedule D, certified to the General Commissioners particulars of the change which had taken place, and the Commissioners thereupon purported to adjust the assessment by charging to the firm of five persons, out of the total assessment of £69,355, the apportioned amount of £11,078, with the result that the firm of four persons would be relieved of liability for tax on this latter figure, but would be left answerable for tax on the balance of £58,277. As a matter of mathematical calculation there is no dispute that these figures are correct; they represent the fair apportionment of the total between that part of the year of assessment which lies before February 7th, 1938, and that portion which remains from that date.


But though the apportionment is correctly worked out, the Respondents have throughout insisted that no such apportionment under Rule 9 could lawfully be made, since, according to them, the change during the year of assessment in the composition of the firm does not constitute a cesser in carrying on the trade by A, B, C and D, and the succession "by another person," viz., A, B, C, D and E in that trade. It is as to the validity of this contention, and as to the proper construction and application of Rule 9, that the House has now to pronounce.


The Respondents applied on January 17th, 1940, to a Divisional Court of the King's Bench Division for an Order to prohibit the Commissioners from adjusting under Rule 9 the assessment made upon them; on May 10th, 1940, a Divisional Court, consisting of the late Mr. Justice Hawke, Mr. Justice Charles and Mr. Justice Hilbery dismissed the application; but the Court of Appeal (Scott, Clauson and Goddard L.JJ.), on August 2nd, 1940, reversed this decision and directed that the Order of prohibition should be made, taking the view, as Lord Justice Clauson expressed it, that "the condition precedent to the operation of Rule 9, namely, that a person has ceased to carry on a business and has been succeeded therein by another person, is not fulfilled by the circumstances of the case".


It may contribute to a just appreciation of the reality involved in this highly technical question if I add at this point what is the practical reason why the Respondents challenge the Crown's right to proceed under Rule 9. This was frankly stated to the Divisional Court by Mr. Grant when he applied for the Rule and was further explained to this House by Mr. King. The actual profits of this stockbroking business made in the year 1937-8 were less than its profits in the preceding year by reference to which the total assessment was made. Just before the end of the fiscal year 1937-8, viz. on March 25th, 1938, a sixth partner, who may be called F, was taken into the firm, and on April 1st all the partners joined, under the proviso to Rule 11 (1)—which was first enacted by Section 32 of the Finance Act, 1926—in sending to the Surveyor of Taxes a signed notice claiming that, in consequence of this change in the partnership, income tax should be computed as if the trade had been discontinued on March 25th and a new trade had then been set up. The result of this would be that the old trade would be treated as coming to an end in the course of the fiscal year and the assessment in respect of this broken period would be based not on the greater profits of the year before, but on the actual profits of the final period. There would, however, also be a revision of the figure for the previous year. Similarly, if a new trade is to be deemed to be set up on March 25th, 1938, income tax in respect of the opening period could not be ascertained by reference to past profits.


Apart from these considerations, which may explain the action taken by the Respondents, the Crown naturally wish to secure a final and authoritative interpretation of Rule 9, especially in view of the difficulties which now arise from comparing it with Rule 11.


Rule 9 of the Rules applicable to Cases I and II of Schedule D of the Income Tax Act, 1918, runs as follows:—

"9.—(1) If a person charged under this Schedule ceases within the year of assessment to carry on the trade, profession, or vocation in respect of which the assessment is made, and is succeeded therein by another person, the surveyor shall, within four months from the fifth day of April next after any such change, certify to the general commissioners for the division in which the assessment is made the particulars thereof, and the full name and residence of the person charged and of his successor and the date of the change, if the same be known to the surveyor.

(2) On receipt of the certificate the commissioners shall cause notice to be given to the respective persons of a meeting of the commissioners to consider it, and after examination of the said persons, if they attend, or on other satisfactory proof of the facts, the commissioners shall adjust the assessment by charging the successor with a fair proportion thereof from the time of his succeeding to the trade, profession, or vocation, and relieving the person originally charged from a like amount.

(3) The determination of the commissioners on any such certificate shall be final, and the sum apportioned to each such person shall be recoverable from him in like manner as if he had been charged under the original assessment.

(4) If either of the said persons has paid in respect of an assessment so certified more than the proportion which appears by the determination of the commissioners to be chargeable on him, the amount overpaid shall, when recovered from the person liable, be paid to the person by whom the overpayment was made."


The word "assessment" is used in our income tax code in more than one sense. Sometimes, by "assessment" is meant the fixing of the sum taken to represent the actual profit for the purpose of charging tax upon it. But in another context the "assessment" may mean the actual sum in tax which the taxpayer is liable to pay on his profits. These two things are, of course, not the same, or at any rate will not become the same unless and until income tax is charged at the rate of 20s. in the pound. It is remarkable that these two separate meanings of the word "assessment" may occasionally be found within the bounds of a single section: for example, in Rule 9, subsections (1) and (2) appear to contemplate the splitting of the assessment in the first sense (and this is the practice that was followed when an...

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