Jay's - The Jewellers Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Year | 1940 |
| Date | 1940 |
| Court | King's Bench Division |
HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
Excess Profits Tax - Pawnbrokers - Computation of profits - Treatment of unclaimed surpluses on sale of pledges.
The Company carried on business as jewellers and pawnbrokers, and in the course of its pawnbroking business sold unredeemed pledges. In the case of a pledge sold which had been pawned for a sum exceeding 10s. but not exceeding £10 the pawner was entitled, under the Pawnbrokers Act, 1872, or the terms of his special contract with the Company, to demand payment within three years of the sale of any surplus of the proceeds of the sale over the amount due to the Company. In the case of loans over £10, the Pawnbrokers Act, 1872, did not apply, but the borrower's right to claim any surplus arising on sale became barred after six years by virtue of the Statute of Limitations.
On appeal against an assessment to Excess Profits Tax for the chargeable accounting period ended 31st March, 1943, it was contended on behalf of the Company that the profit on sale of pledged goods was at no time a receipt of its trade for Excess Profits Tax purposes. On behalf of the Crown it was contended that the surplus on the sale of pledges sold was a receipt of the Company's trade at the time it was received, any sum repaid on demand to a pawner being an admissible expense when and only when it was incurred; and in the alternative that the surplus on sale of pledged property became a receipt of the trade when, at the end of 3 or 6 years, as the case might be, the Company became absolutely entitled to retain such surplus for its own use. The Special Commissioners decided that the surplus became a taxable receipt of the trade when the Company's contingent right to retain all the proceeds of the sale became absolute on the failure of the borrower to demand payment of the surplus within the statutory time limit.
Held, that the decision of the Special Commissioners was correct.
Stated under the Finance (No. 2) Act, 1939, Section 21(2), and the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 8th January, 1946, Jay's - the
Jewellers, Ltd. (hereinafter called "the Company") appealed against an assessment to Excess Profits Tax for the chargeable accounting period commencing on 1st April, 1942, and ending on 31st March, 1943, raised by the Commissioners of Inland Revenue in respect of the profits from its business as jewellers and pawnbrokers, on the ground that, in computing the profits for the said chargeable accounting period, the said Commissioners had wrongly included the profit on sale of pledged goods in the circumstances set out in the following paragraphs numbered 2 to 9 inclusive.2. Evidence was given before us by Mr. Ernest A. Stock, a director of the Company, and the facts found by us on that evidence are as follows. The Company carries on the business of pawnbrokers and the separate business of jewellers at 366 Essex Road, Islington, and Charlotte Street, London, and the business of jewellers only at 56 King's Road, Brighton, where its registered office is situate. No issue arose before us in regard to the jewellers' business and the facts and contentions hereinafter set forth in paragraphs 3 to 11 inclusive relate exclusively to the pawnbrokers' business carried on at the two first named branches of the Company as aforesaid.
3. The Company in carrying on its separate business of pawn-brokers as aforesaid makes loans to pawners of three classes, viz., (a)pledges pawned for a sum of ten shillings, or under; (b)pledges pawned for a sum exceeding ten shillings and not exceeding ten pounds; (c) pledges pawned for a sum exceeding ten pounds. The said business of the Company is carried on subject to the conditions imposed by the Pawnbrokers' Act, 1872, an Act consolidating with amendments the Acts relating to pawnbrokers in Great Britain and hereinafter referred to as the Pawnbrokers Act.
4. Under Section 17 of the Pawnbrokers Act it is provided that a pledge pawned for ten shillings or under, if not redeemed within the year of redemption and days of grace shall, at the end of the days of grace, become the pawnbroker's absolute property. No issue arises in regard to class (a) mentioned in paragraph 3 above, viz., the sale by the Company of property pledged for a sum of ten shillings or under, the Company admitting that any profit realised by it on the sale of such property is a taxable receipt of its trade on Income Tax principles, which, under the provisions of Section 14(1), Finance (No. 2) Act, 1939, would also render such profit a taxable receipt of its trade or business for purposes of the Excess Profits Tax Acts.
5. By Section 10 of the Pawnbrokers Act the provisions of the said Act apply -
(2) To every loan by a Pawnbroker of forty shillings or "under:
(3) "To every loan by a Pawnbroker of above forty shillings "and not above ten pounds, except as in this Act otherwise "provided in relation to cases where a special contract "respecting the terms of the loan (as authorised "by this Act) is made between the pawner and the "Pawnbroker at the time of the pawning. Nothing in "this Act shall apply to a loan by a Pawnbroker of "above ten pounds, or to the pledge on which the loan "is made, or to the Pawnbroker or pawner in relation "to the loan or pledge; and, notwithstanding anything "in this Act, a person shall not be deemed a Pawnbroker "by reason only of his paying, advancing, or "lending on any terms any sum or sums of above ten "pounds.
6. A specimen (marked "B") of the pawn-ticket issued to a pawner in the case of goods pawned for a sum exceeding ten shillings and not exceeding forty shillings is attached to and forms part of this Case(1). On the back of this ticket is printed, for the information of the pawner, the relevant provisions of the Pawnbrokers Act.
A specimen (marked "C") of the pawn-ticket issued to a pawner in the case of goods pawned for a sum exceeding forty shillings but not exceeding ten pounds is attached to and forms part of this Case(1). In such cases the pawnbroker is empowered by Section 10(2) and Section 24 of the Pawnbrokers Act to make a special contract with the pawner. Such special contracts were in fact made by the Company with persons in the common form, which is printed on the back of the said pawn-ticket (exhibit "C" as aforesaid).
In all other cases, viz., cases of property pledged for sums over ten pounds, a special contract was made in the form shown in exhibit "D", which is attached to and forms part of this Case(1). Such cases are outside the Pawnbrokers Act and are covered by Section 14 of the Moneylenders Act, 1927, hereinafter referred to in paragraph 8 below.
7. The Sections of the Pawnbrokers Act relevant to pledges pawned for sums exceeding ten shillings and not exceeding ten pounds, not previously mentioned, are as follows:-
"18. A pledge pawned for above ten shillings shall further "continue redeemable until it is disposed of, as in this "Act provided, although the year of redemption and days "of grace are expired.
"19. A pledge pawned for above ten shillings shall, when "disposed of by the Pawnbroker, be disposed of by sale "by public auction, and not otherwise; and the regulations "in the Fifth Schedule to this Act shall be observed "with reference to the sale.
"A Pawnbroker may bid for and purchase at a sale "by auction, made or purporting to be made under this "Act, a pledge pawned with him; and on such purchase "he shall be deemed the absolute owner of the pledge "purchased.
"21. At any time within three years after the auction at which "a pledge pawned for above ten shillings is sold, the "holder of the pawn-ticket may inspect the entry of the "sale in the Pawnbroker's book, and in the filled-up "catalogue of the auction (authenticated by the signature "of the auctioneer) or in either of them.
"22. Where a pledge pawned for above ten shillings is sold, "and appears from the Pawnbroker's book to have been "sold for more than the amount of the loan and profit "due at the time of sale, the Pawnbroker shall, on demand, "pay the surplus to the holder of the pawn-ticket
"in case the demand is made within three years "after the sale, the necessary costs and charges of the "sale being first deducted"If on any such demand it appears from the Pawnbroker's "book that the sale of a pledge or pledges has "resulted in a surplus, and that within twelve months "before or after that sale the sale of another pledge or "other pledges of the same person has resulted in a "deficit, the Pawnbroker may set off the deficit against "the surplus, and shall be liable to pay the balance only "after such set-off.
"24. Notwithstanding anything in this Act, a Pawnbroker "may make a special contract with a pawner in respect "of a pledge on which the Pawnbroker makes a loan of "above forty shillings, provided always, that - "
"(1) The Pawnbroker at the time of the pawning shall "deliver to the pawner a special contract pawnticket, "signed by the Pawnbroker:
"(2) A duplicate of the special contract pawn-ticket "shall be signed by the pawner.
"The provisions of this Act, save as far as the application "thereof is excluded by the terms of the special "contract, shall apply thereto.
"A special contract pawn-ticket, or the duplicate "thereof, shall not be subject to stamp duty. "
8. Under the provisions of the Pawnbrokers Act, cited above, the Company was able in the case of pledges pawned for sums exceeding ten shillings and not exceeding...
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