Johnson (Inspector of Taxes) v Prudential Assurance Company Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 13 February 1998 |
| Date | 13 February 1998 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Nourse and Brooke LJJ and Sir Brian Neill.
Peter Whiteman (instructed by Lovell White Durrant) for the Prudential.
Christopher MCCall QC (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Farrell v AlexanderELR [1977] AC 59
Pepper (HMIT) v Hart TAXELR[1992] BTC 591; [1993] AC 593
Wilcock (HMIT) v Frigate Investments Ltd TAXTAX[1982] BTC 49; 55 TC 530
Corporation tax - Management expenses - Life assurance business - Deduction of expenses - Company computed corporation tax under Sch. D, Case I - Relief claimed for expenses - Revenue assessed corporation tax for same accounting period on income minus expenses basis - Claim for relief for expenses disallowed - Whether expenses deductible under Sch. D, Case I were also deductible from profits assessed on income minus expenses basis - Income and Corporation Taxes Act 1988 section 75Income and Corporation Taxes Act 1988, s. 75,Income and Corporation Taxes Act 1988 section 7676.
This was an appeal by the taxpayer ("Prudential") against a decision of Robert Walker J ([1996] BTC 375) that, in computing corporation tax, expenses of management could not be deducted in respect of life assurance business both under Income and Corporation Taxes Act 1988Case I of Sch. D and on the income minus expenses ("I-E") basis.
For many years before 1989 the Crown had elected to tax Prudential on the "I-E" basis pursuant to the Income and Corporation Taxes Act 1988 section 75Income and Corporation Taxes Act 1988 s. 75,enacted in relation to investment companies and applied to life assurance companies by Income and Corporation Taxes Act 1988 section 76s. 76. During those years its Case I computations produced profits, though of lesser amounts than those produced on the I-E basis. However, in 1989, the Case I computation showed a loss amounting to some £290m.
The business of a life assurance company was a trade taxable underIncome and Corporation Taxes Act 1988Case I of Sch. D.For that purpose its expenses of management were deductible in computing its profits. The computation had also to take account of the actuarial measure of the liabilities of the trade at the beginning and end of the year of assessment. Under the I-E basis, expenses other than expenses of management were excluded.
In assessing Prudential for 1989 on the I-E basis, the Revenue took the view that its expenses of management, being deductible in the computation under Case I, were caught by the words "except any such expenses as are deductible in computing profits apart from this section" ("the statutory exception") contained in the Income and Corporation Taxes Act 1988 section 75 subsec-or-para (1)Income and Corporation Taxes Act 1988, s. 75(1) and could not be deducted in the I-E computation as well.
Prudential contended that if management expenses were deducted in a computation which resulted in a loss they could not be said to be deductible "in computing profits". "Profits" could not include "losses". There was no general rule in tax law that "profits" meant "profits or, as the case may be, losses". Losses were dealt with by a separate sub-code of statutory provisions.
The question was whether the expenses of management included in the computation which established Prudential's loss under Case I were caught by the statutory exception. That required a consideration of what was meant, first, by "deductible" and, secondly, by "in computing profits".
Held, dismissing Prudential's appeal:
The combined effect of Income and Corporation Taxes Act 1988 section 75 subsec-or-para (1) section 76 subsec-or-para (1)ss. 75(1) and 76(1) was to allow a life assurance company, in computing its profits, to deduct any sums disbursed as expenses of management "except any such expenses as are deductible in computing profits apart from this section". The words "in computing profits" were, together with the word "deductible", intended to be descriptive of a particular category of expenses of management which were not to be deducted in a computation of profits on the I-E basis. If such expenses were, as they were here, deductible in an actual computation made underIncome and Corporation Taxes Act 1988Case I of Sch. D,then they were comprehended within the description, irrespective of whether the computation resulted in a profit or a loss. Expenses that had been deducted were fairly described as being deductible in computing profits. "Deductible" included "deducted".
Nourse LJ: This appeal arises out of an assessment to corporation tax in the estimated sum of £200m made in respect of the life fund of the Prudential Assurance Co Ltd ("Prudential") for the calendar year 1989, the assessment having been made on the income minus expenses ("I E") basis pursuant to Income and Corporation Taxes Act 1988 section 75 section 76ss. 75 and 76 of the Income and Corporation Taxes Act 1988. Prudential claims that in computing its profits for the purposes of those sections it is entitled to deduct management expenses which are also deductible by it underIncome and Corporation...
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