Income Tax Special Commissioners v Linsleys (Established 1894) Ltd
| Jurisdiction | England & Wales |
| Judge | Viscount Simonds,Lord Morton of Henryton,Lord Reid,Lord Somervell of Harrow,Lord Denning |
| Judgment Date | 23 January 1958 |
| Judgment citation (vLex) | [1958] UKHL J0123-1 |
| Date | 23 January 1958 |
| Court | House of Lords |
[1958] UKHL J0123-1
House of Lords
Viscount Simonds
Lord Morton of Henryton
Lord Reid
Lord Somervell of Harrow
Lord Denning
Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners for the Special Purposes of the Income Tax Acts against Linsleys (Established 1894) Limited, that the Committee had heard Counsel, as well on Tuesday the 12th, as on Wednesday the 13th, Thursday the 14th, Tuesday the 19th and Wednesday the 20th, days of November last, upon the Petition and Appeal of the Commissioners for the Special Purposes of the Income Tax Acts, of Lynwood Road, Thames Ditton, in the County of Surrey, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 6th of March 1957, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the printed Case of Linsleys (Established 1894) Limited, 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 Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 6th day of March 1957, complained of in the said Appeal, be, and the same is hereby, Reversed: And it is hereby Declared, That the Respondents are not entitled to obtain exemption from Profits Tax in respect of the profits of their trade or business for the accounting period 6th April 1953 to 7th May 1953, and that the Appellants ought not, pursuant to the mandatory provisions relating to surtax on the income of investment companies, to give such a surtax direction as is required by section 262 of the Income Tax Act, 1952, in respect of the period 6th April 1953 to 7th May 1953: And it is further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Queen's Bench Division of the High Court of Justice: And it is further Ordered, That each party do bear and pay their own Costs in the Court of Appeal, and also their own Costs of the Appeal to this House: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Queen's Bench Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.
My Lords,
I have had the advantage of reading the Opinion which my noble and learned friend, Lord Reid, is about to deliver, and I agree so fully in his reasoning and conclusions that I do not think it necessary to add anything. In accordance with it I move that the appeal be allowed and the appropriate declaration made: the Respondents must pay the Appellants' costs in the Divisional Court: each party will bear their own costs in the Court of Appeal and in this House.
My Lords,
I have had the privilege of reading in print the opinion which is about to be delivered by my noble and learned friend Lord Reid. That opinion sets out fully the facts leading up to this appeal, and the relevant statutory provisions, and I agree with it; but as your Lordships are differing from the unanimous conclusion of the Court of Appeal and of the Divisional Court, I shall state shortly, in my own words, my reasons for thinking that the appeal should be allowed.
For the purpose of stating the respective contentions of the parties, I borrow, with only trifling alterations, the language of Donovan, J. in delivering the judgment of the Divisional Court.
Counsel for the Crown contend that the Special Commissioners are not obliged to give a direction under section 262 (1) of the Income Tax Act, 1952, followed by an apportionment, because—
(1) a necessary preliminary to a direction and apportionment is the computation of the Respondent Company's actual income from all sources in accordance with the terms of section 255 (3) of the same Act;
(2) in computing that income, any prolits tax payable by the company for the relevant period (6th April to 7th May, 1953) "grossed-up" in accordance with section 68 of the Finance Act, 1952, must be deducted under the mandatory provisions of the same section;
(3) the amount of the profits tax so payable is £16,421, and the gross sum to be deducted is £29,856;
(4) when this sum is deducted, the result is that the actual income from all sources of the company for the relevant period is reduced to nil;
(5) there is no obligation under section 262 to make a direction in regard to non-existent income and no possibility of "apportioning" nothing;
(6) therefore section 262 (1) imposes no duty upon the Special Commissioners for the relevant period.
Counsel for the company attack the third stage in this reasoning. They submit that the sum there mentioned is not "payable" within the meaning of section 68 of the Finance Act, 1952, because profits tax is not "payable" within the meaning of that section unless the amount thereof has been finally determined and must ultimately be payable, having regard to all relevant sections of the taxing statutes, including section 31 of the Finance Act, 1947; and no profits tax will ever be payable by the company if, after a direction under section 262 of the Income Tax Act, 1952, and a consequent apportionment, the company and the corporate member thereof exercise their right to "elect" under section 31 (3) of the Finance Act, 1947.
To this argument Counsel for the Crown reply that profits tax is now "payable" within the meaning of section 68 of the Finance Act, 1952, because the distributions made by the company in liquidation attracted profits tax under the charge imposed by section 30 (3) of the Finance Act, 1947; and the amount of tax payable has been particularised by an assessment made upon the company. Thus the decision of this appeal turns upon the question whether this sum of tax is or is not "payable", within the meaning of section 68 of the Finance Act, 1952, in the circumstances of the present case.
My Lords, I express no opinion upon the question whether a particular sum of profits tax can be said to be "payable" within the meaning of section 68 before there has been an assessment, but in the present case I am of opinion that the contentions of Counsel for the Crown are well founded. In the case of an investment company, to which section 262 of the Income Tax Act, 1952, applies, it may not be necessary for the Special Commissioners to make any computation of the actual income from all sources of the company before giving a direction, because the direction is to be given under section 262 (1) "without considering whether or not the company has distributed a reasonable part of its said income". To this extent the position under section 262 differs from the position under section 245; but it seems to me impossible for the Commissioners to apportion the actual income from all sources of the company among the members of the company without first computing what that actual income is. This computation must be carried out in accordance with the provisions of section 255 (3) of the Income Tax Act, 1952, and section 68 of the Finance Act, 1952, and no election under section 31 (3) of the Act of 1947 can take place until there has been an apportionment of the income. Thus the order of events is first, computation, secondly, apportionment, and thirdly, election, and in my view the provisions of section 68 compel the Commissioners to deduct, at the first stage, the sum of £29,856 already mentioned. The reasons which lead me to this result are as follows:—
( a) This sum has already been assessed upon the company and is, I think "payable", in any ordinary sense of the word. This view is supported by the observations of Lord Dunedin in Whitney v. C.I.R. 10 T.C. at p. 110, and by members of your Lordships' House in C.l.R. v. John Dow Stuart, Limited, 31 T.C. 274 at p. 287 fin, and 296 ad fin.
( b) The words "the amount payable" appear in subsection (4) of the same section 68 and in that subsection the word "payable" cannot mean "finally determined", because it is contemplated that the amount "payable" may be reduced by reason of a deficiency of profits for a subsequent period. It seems to me that the same meaning should be given to the word "payable" in subsections (1) and (4). If so, the possibility of a subsequent election under section 31 (3) of the Act of 1947 would not relieve the Commissioners from the duty to deduct the sum now in question in accordance with section 68 (1) of the Act of 1952.
( c) The contention of Counsel for the company would result in section 68 (1) having a very limited application, whereas it appears to me to be intended to be a general relieving section for the benefit of the taxpayer.
( d) It might well happen in many cases that the company would have paid the sum assessed by way of profits tax before the Commissioners came to make their computation under section 68, and it would seem strange if a sum which had actually been paid, and properly paid, should be held not to be "payable" within the meaning of the section.
( e) Although both sides could point to certain anomalous results if their contention were rejected, the most striking anomaly arises from the argument on behalf of the Respondent Company. For if that argument were correct, an investment company having an investment income of (e.g.) £10, and being liable for profits tax amounting to a very large sum, could get rid of the liability for profits tax by insisting upon a direction being given by the Commissioners under...
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