Income Tax Special Commissioners v Linsleys (Established 1894) Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE JENKINS |
| Judgment Date | 06 March 1957 |
| Judgment citation (vLex) | [1957] EWCA Civ J0306-2 |
| Date | 06 March 1957 |
| Court | Court of Appeal |
[1957] EWCA Civ J0306-2
In The Supreme Court of Judicature
Court of Appeal
Lord Justice Jenkins,
Lord Justice Hodson (Not present) and
Lord Justice Sellers
The ATTORNEY-GENERAL (Sir Reginald ManninKham-Buller, Q.C.), Sir REGINALD HILLS, Mr E. BLANSHARD STAMP and Mr ALAN ORR (instructed by Solicitor of Inland Revenue) appeared on behalf of the Appellant Commissioners.
Mr CYRIL KING, Q.C. and Mr HUBERT H. MONROE (instructed by Messrs Smith & Hudson, Agents for Messrs Rollit, Farrell & Bladon, Hull) appeared on behalf of the Respondent Company.
: The Judgment I am about to read is the Judgment of the Court.
This is an appeal by the Special Commissioners from an Order of Mandamus made by the Queen's Bench Divisional Court on the 19th October, 1956, whereby the Special Commissioners were ordered and commanded to give a direction under Sections 245 and 262 of the Income Tax Act, 1952, in respect of the period from the 6th day of April, 1953, to the 7th day of May, 1953, (both dates inclusive) in relation to the Applicants (now Respondents) Linsley's (Established 1894) Ltd. (hereinafter called "the Company"), which went into voluntary liquidation on the latter date.
To begin with a broad statement of the nature of the case, the effect of such a direction (which, according to the Company, the Special Commissioners are bound to make under the mandatory provisions of Section 262) would be (a) to make the actual income of the Company from all sources for the relevant period apportionable amongst its members for sur-tax purposes; and (b) to give under the somewhat complicated provisions of Section 31 (3) of the Finance Act, 1947, a right of election exercisable jointly by the Company and any of its members other than individuals (that is to say, bodies corporate as distinct from natural persons) which if exercised would (to put the matter very shortly) operate to relieve the Company from a substantial liability in respect of profits tax, while on the other hand rendering apportionable amongst its members for sur-tax purposes the income which, but for the election, would have been absorbed by the profits tax.
The case at first sight seems to involve what Mr Justice Donovan, in delivering the Judgment of the Divisional Court, described as an unusual reversal of roles. It must be seldom that taxpayers seek to compel the Special Commissioners to tax them, and as a general rule the Special Commissioners need no compulsion in that regard. But the figures are in fact such that the liability in respect of profits tax far exceeds the amount of income which on cancellation of that liability would be apportionable for sur-tax purposes.
It is vital to the Company's contention that the Company should be held co be an "investment company" within the meaning of Section 262 of the Income Tax Act, 1952, for it is only in relation to companies of that character that the Special Commissioners are enjoined in mandatory terms to give a direction of the nature sought. The Attorney-General, for the Special Commissioners, presented a subsidiary argument to the effect that the Company was-not at the material time an investment company within the meaning of Section 262, but without prejudice to that subsidiary contention we propose to deal with the main arguments in the case en the assumption that it was, reserving for later examination the Attorney-General's submission to the contrary.
The main argument for the Special Commissioners was to the effect that even if the Company was an investment company within the meaning of Section 262 at the material time, they rre under no statutory duty, and indeed have no power, to give the direction in question, because Section 68 (1) of the Finance Act, 1952, requires them, in computing the Company's actual income from all sources for the purposes of Section 262, to make u deduction in respect of the profits tax liability which when made has the effect of reducing such actual income to a minus quantity. There is thus no income in respect of which any direction or apportionment can be given or made, and the mandatory terms of Section 262 of the Income Tax Act, 1952, cannot be construed as obliging the Special Commissioners to give a direction or make an apportionment in respect of income which amounts to nil, or in other words non-existent income; lex non cogit ad impossibilia. It follows" according to the argument fcr tEe Special Commissioners, that as no direction or apportionment can be given or made, the right of election conferred by Section 31 (3) of the Finance Act, 1947, can never be exercisable; for that right of election only arises when there has been a direction and apportionment. Thus the submission made on behalf of the Special Commissioners would, if accepted, lead inevitably to the conclusion that the liability in respect of profits tax must stand, and is not to be exchanged under the provisions of Section 31 (3) of the Finance Act, 1947, for the less onerous liability to sur-tax which the relief from the liability in respect of profits tax afforded by that sub-section would, if applicable, entail.
On the other hand, it is argued for the Company that upon the true construction of the relevant legislation and in particular Section 68 (1) of the Finance Act, 1952, any deduction in respect of profits tax enjoined by Section 68 (1) only falls to be made, at earliest, when a direction has been given; that apart from such deduction there is actual income from all sources of the Company for the relevant period in respect of which a direction can, and in view of the mandatory terms of Section 262 of the Income Tax Act, 1952, must, be given; and that when a direction has been given and the earliest time at which it may be proper to make any deduction enjoined by Section 68 (1) of the Finance Act, 1952, has consequently arrived, the question of deduction must still remain in suspense, inasmuch as Secti.on 68 (1) only enjoins the deduction in respect of any amount "payable" by way of profits tax, and the amount here in question does not answer that description, because it is not an amount certainly payable, but an amount which will become payable in one contingency, that is to say, the non-exercise of the right of election conferred by Section 31 (3) of the Finance Act, 1947 but which will not become payable in another contingency, that is to say, in the event of such right rf election being exercised.
The argument for the Company is also put on the more general ground that, apart from the submission made in regard to the necessity of a direction by the Special Commissioners as a condition precedent to any deduction in respect of profits tax under the provisions of Section 68 (1) of the Finance Act, 1952, the amount claimed by the Special Commissioners to be deductible was not "payable" within the meaning of that sub-section, in view of the potential right of election conferred by Section 31 (3) of the Finance Act, 1947, which if exercised would prevent it from ever becoming payable, and also in view of a pending appeal by the Company against the relevant assessment or assessments to profits tax.
It Is further submitted on the Company's side, though somewhat faintly, that it is not impossible for the Special Commissioners to give a direction and make an apportionment in respect of a nil amount of income.
The Company also puts forward an argument rather in the nature of a plea ad misericordiam, to the effect that the Special Commissioners ought not to manipulate the legislation so as to defeat the right of election conferred in clear terms by Section 31 (3) of the Finance Act, 1947. This argument may perhaps be regarded as offset by the retort made by Mr Stamp for the Special Commissioners to the effect that the broad intention of Section 31 (3) of the Finance Act, 1947, and Section 68 (1) of the Finance Act, 1952, is to protect persons who suffer sur-tax under the legislation taxing the undistributed profits of companies from suffering profits tax as well, rather than to enable persons on whom no liability to sur-tax would otherwise fall to exchange a liability to profits tax for a less onerous liability to sur-tax.
The decision of the Divisional Court in favour of the Company was, as we understand the Judgment of the Court delivered by Mr Justice Donovan, founded wholly upon the view that the amount of profits tax in respect of which the Special Commissioners claimed to maKe the deduction prescribed by Sectiou 68 (1) of the Finance Act, 1952, was not "payable" within the meaning of that sub-section, in view of the right of election conferred by Section 31 (3) of the Finance Act, 1947. We may note that without deciding the point the Judgment of the Court expressed the opinion that there were "formidable difficulties" in the way of the argument submitted by Mr King for the Company to the effect that the Special Commissioners were bound to "direct" even if the income was nil, and to make an apportionment of nil.
We hope that this outline of the nature of the case, in which we have referred in general terms to the more relevant statutory provisions, will aid appreciation of the bearing upon the question to be decided of the various enactments to which we must next refer in some detail. The law relating to sur-tax on the undistributed profits of companies was consolidated by the Income Tax Act, 1952, and accordingly the earlier enactments so consolidated require no more than a brief reference.
As is well-known, this line of legislation began with Section 21 of the Finance Act, 1922, which may perhaps be described as the ancestor cf Section 245 of the Income Tax Act, 1952. The short effect of sub-section (1) of the former section...
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