Jones v Leeming

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Buckmaster,Viscount Dunedin,Lord Warrington of Clyffe,Lord Thankerton,Lord Macmillan,.
Judgment Date18 Mar 1930
Judgment citation (vLex)[1930] UKHL J0318-1

[1930] UKHL J0318-1

House of Lords

Lord Buckmaster.

Viscount Dunedin.

Lord Warrington of Clyffe.

Lord Thankerton.

Lord Macmillan.

Jones (Inspector of Taxes)

After hearing Counsel for the Appellant on Tuesday, the 18th day of February last, upon the Petition and Appeal of Richard Henry Burnard Jones, of Mostyn Hall, Friar Street, Penrith, in the County of Cumberland, one of His Majesty's Inspectors of Taxes, 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 24th of June, 1929, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioner might have 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 James Leeming, lodged in answer to the said Appeal; and Counsel appearing for the Respondent, but not being called upon; and due consideration being had this day of what was offered for the said Appellant:

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 24th day of June, 1929, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.

Lord Buckmaster .

My Lords,


To examine the question raised on this appeal it is necessary to follow closely its history before the Commissioners and Rowlatt J. The following is a summary of the facts as stated in the special case. Mr. James Leeming, the Respondent, joined with a Limited Company, a business firm, and a solicitor named Carruthers in acquiring two options to purchase certain rubber estates in Malay. The option on the first estate and presumably on both, though it is not so stated, was taken in the name of Mr. Carruthers but on behalf of all four participants.


It appears, though again it is not definitely found, that the intention throughout was to acquire the rights for the purpose of resale "to a company for public flotation," and to carry this scheme into effect Mr. Carruthers transferred the joint rights to a Company known as the Oceanic Investment Company, who thereupon promoted another Company called Ipoh Rubber Estate Limited, to whom the properties were re-sold. The transaction resulted in a profit, of which Respondent's share was £623, and in respect of this sum he was assessed to income tax. Upon appeal to the Commissioners this assessment was reduced to £608 10s. 0d., and so reduced was confirmed. Upon appeal from the Commissioners to Rowlatt J., he was of opinion that the Commissioners had not found sufficient facts to enable him to decide the question, and he ordered that the case be remitted to them to find whether there was or was not a concern in the nature of trade.


The learned Judge was clearly right in the course he took. There were no findings whatever in the special case to enable the Court to know whether the Respondent was a company promoter and whether this transaction stood alone, or was one of a series of transactions capable of being linked together so as to constitute a business or to produce income. Nor was the original purpose of the transaction ever set out—it was only to be inferred by the subsequent dealings.


In obedience to the order of the learned Judge the Commissioners in a supplementary case found that the transaction "was not a concern in the nature of trade" and thereupon Rowlatt J., following, as he stated, his own decision in Pearse v. Miller, 11 Tax Cas., 611. allowed the appeal. His judgment was affirmed by the Court of Appeal from whom the Crown has brought the case before this House.


The decision necessarily depends upon the construction of certain sections in the Income Tax Act. These sections are few in number and short in terms, but none the less they are not easy to construe.


Sec. 1 of the Act is well known; it provides that income tax shall be charged "in respect of all property, profits or gains described or comprised in the schedules marked A, B, C, D and E and contained in the first schedule to this Act, and in accordance with the rules respectively applicable to those Schedules".


This, which is the governing section of the Act, needs no comment beyond that which has often been made before, namely that the tax is an income tax and charged on income as distinct from capital.


Schedule D, the only one suggested as applicable to the present case, opens by saying the tax is charged on "the annual profits or gains" arising or accruing to certain named classes of persons from any trade, profession, employment or vocation within the United Kingdom", and "all interest on moneys, annuities and other annual profits or gains not otherwise charged and not specially exempted from tax." By s.s. 2 it is provided that tax shall be charged under this schedule under the following cases:—

"2. Tax under this Schedule shall be charged under the following cases respectively; that is to say:—

Case I.—Tax in respect of any trade not contained in any other Schedule.

Case II.—Tax in respect of any profession, employment, or vocation not contained in any other schedule.

Case III.—Tax in respect of profits of an uncertain value and of other income described in the rules applicable to this Case.

Case IV.—Tax in respect of income arising from securities out of the United Kingdom, except such income as is charged under Schedule C.

Case V.—Tax in respect of income arising from possessions out of the United Kingdom.

Case VI.—Tax in respect of any annual profits or gains not falling under any of the foregoing Cases, and not charged by virtue of any other Schedule.

And subject to and in accordance with the rules applicable to the said Cases respectively".


Rules applicable to Case III state that the tax shall extend to any interest of money whether yearly or otherwise or other annual payment … and to "all discounts", while sec. 237 declares that Trade includes every trade, manufacture, adventure or concern in the nature of trade.


It is necessary to set out these familiar provisions in order to give full weight to the contention of the Crown. The supplementary finding of the Commissioners excludes Case 1 of rule 2, but that leaves open the possibility of the claim being included under Case VI, and it is under that case that it is sought to establish the appeal. The word "annual," it is said, must be either disregarded or so limited as to enable a solitary isolated transaction such as that in the present case to be within the phrase. It is unnecessary to consider what is the right interpretation of this word, but I am not prepared to disregard a word designed to qualify the burden of taxation and I cannot see how on any interpretation of its meaning it can cover the present case. The words of the rule relating to interest on which the Attorney General relied as showing that any receipt under that head for any period was taxable do not seem to me to advance the argument; they apply to a totally different case. All interest is expressly taxed by the words of the rule, and discount is in reality only interest in another form and under another name. Further, Case III itself contemplates in accordance with the scheme of the Act that it is as "income" that the moneys are made liable.


This brings the argument back to the original position. Can the profits made in this case be described as income? Were the Respondent a Company promoter or was his business associated with purchase and sale of estates, wholly different considerations would apply, but this is negatived, the transaction in this case stands isolated and alone. It is to my mind, in the circumstances, purely an affair of capital. I can see no difference between it and what might have happened had the Respondent bought shares in two Companies which were going to be amalgamated, and then sold equivalent shares in the amalgamated Company at a profit; an accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value; if it does so rise, its realisation does not make it income. If the Crown's contention were sound the same result would have arisen had the Respondent taken shares in the Company instead of cash, even though unrealised.


No authority could be quoted in support of the appeal; the nearest was the case of Cooper v. Stubbs, (1925) 2 K.B., and its distance away, were such computation possible, could be measured in miles. Although the Commissioners there found that the man sought to be charged did not carry on a trade his profits were none the less held liable to tax under 2, VI. The reasons for this conclusion are clearly stated by Lord Warrington, who was then sitting in the Court of Appeal, in these words (see p. 769):—

"The question therefore is simply this, were these dealings and transactions entered into with a view to producing, in the result, income or revenue for a person who entered into them? If they were, then in my opinion profits arising from them were annual gains or profits within the meaning of paragraph I (b) of Schedule D. On the findings of the Commissioners themselves they were contracts entered into with a view to making a profit on a rise or fall, as the case might be, in the market price of the contracts. They extended over a considerable number of years. There were large numbers of transactions in each of those years, from which in some years the...

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