Littman v Barron (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 31 July 1952 |
| Date | 31 July 1952 |
| Court | High Court |
HIGH COURT OF JUSTICE-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D - Property held on short lease and re-let at a rent lower than that payable by lessee - Whether "loss" can be set against other income chargeable under Schedule D, Case VI - Finance Act, 1927 (17 & 18 Geo. V. c. 10), Section 27 (1); Finance Act, 1940 (3 & 4 Geo. VI. c. 29), Section 15.
The Appellant, a property dealer, held 28 properties on short leases. He re-let 23 properties at advanced rents and was assessed to Income Tax under Case VI of Schedule D in respect of "excess rents" in accordance with the provisions of Section 15, Finance Act, 1940. Three properties were unlet and the Appellant received no rent in respect thereof; two properties were re-let at a rent lower, in each case, than that payable by the Appellant to his superior landlord.
On appeal to the Special Commissioners, the Appellant contended (i) that he sustained "losses" equal to the amount of the rent payable by him (in the case of each of the unlet properties) or equal to the excess of the rent payable by him over the notional annual value of the relevant property computed in accordance with the provisions of Section 15, Finance Act, 1940, (in the case of each of the properties re-let at reduced rents); (ii) that the losses were sustained in the course of "transactions" (within the meaning of Section 27 (1), Finance Act, 1927) of such a nature that if profits had arisen therefrom, he would have been liable to be assessed under Case VI of Schedule D in respect of such profits; and accordingly (iii) that he was entitled under the provisions of Section 27 (1) to set the losses against the excess rents assessable upon him in respect of the remaining properties. For the Crown it was contended (i) that the holding of the properties by the Appellant was not a "transaction"; (ii) that if it was a transaction it was not a transaction such that, if any profits had arisen therefrom, the Appellant would have been liable to be assessed in respect thereof under Case VI of Schedule D, because such profits, if any, would have been covered by the Schedule A assessment; and (iii) that Section 15, Finance Act, 1940, did not charge to tax "profits" as such but a sum described as "the excess" of an amount calculated in accordance with the provisions of the Section over another specified amount. The Commissioners accepted the two latter contentions and dismissed the appeal. The Appellant demanded a Case.
Held, that the losses were sustained in "transactions" within the meaning of Section 27; and that the transactions were of such a nature that if
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 30th November, 1948, Mr. J.A. Littman (hereinafter called "the Appellant") appealed against assessments to Income Tax made upon him for the years and in the amounts following:-
1940-41 An original assessment of £665 and an additional assessment of £4,335.
1941-42 £5,000.
1942-43 £5,000.
2. The appeal was argued before us solely by reference to the facts as they existed in the year ended 5th April, 1943, it being agreed between the parties that our decision in principle on the 1942-43 assessment would govern the other assessments under appeal.
3. The assessment for 1942-43 under appeal was made under Case VI of Schedule D, by virtue of Section 15 of the Finance Act, 1940, in respect of excess rents arising from certain properties held by the Appellant on leases and re-let by him at advanced rents. Separate assessments under Case VI were not made in respect of each of the 23 properties concerned, but one assessment was made to cover the excess rents arising from all such properties.
It was not disputed by the Appellant (subject to his claim under Section 27 of the Finance Act, 1927, referred to below, and subject to detailed examination of the figures) that the assessment was properly made, and that a liability to Income Tax under Case VI of Schedule D arose in respect of the said 23 properties by virtue of the Finance Act, 1940, Section 15.
4. The Appellant, who is a dealer in property, claimed that he was entitled under the Finance Act, 1927, Section 27, to a deduction from, or set-off against, the amount of the profits assessed as aforesaid on account of a loss which he alleged he had sustained in the following circumstances.
In addition to the properties mentioned in paragraph 3 above, the Appellant held on lease the following five properties, all of which were held by the Appellant on "short leases" as defined in the Finance Act, 1940, Section 13 (1).
| Rent paid | Rent received | |
| by Appellant | by Appellant | |
| £ | £ | |
| (1) 220, Edgware Road | 550 | 100 |
| (2) 28-30, Wigmore Street | 400 | 175 |
| (3) 50, Oxford Street | 2500 | nil |
| (4) 63-66, Central Arcade, Great Yarmouth | 300 | nil |
| (5) 31, Upper Street, Islington | 100 | nil |
In the case of each of the above properties, the rent paid by the Appellant exceeded the net annual value for the purpose of Schedule A to the Income Tax Act, 1918. The properties numbered (1) and (2) were re-let by the Appellant at the annual rents shown above, and the properties numbered (3), (4) and (5) remained unlet. The Appellant had made endeavours to let the latter but had been unable to do so. A statement showing the profit rentals and loss rentals of the Appellant for 1942-43 is annexed hereto, marked A, and forms part of this Case(1).
5. Section 27 (1) of the Finance Act, 1927, provides as follows:-
Where in any year of assessment a person sustains a loss in any "transaction, whether he was engaged therein solely or in partnership, "being a transaction of such a nature that, if any profits had arisen "therefrom, he would have been liable to be assessed in respect thereof "under Case VI of Schedule D, he may claim that the amount of "the loss sustained by him shall, as far as may be, be deducted from "or set off against the amount of any profits or gains arising from "any transaction in respect of which he is assessed for that year "under the said Case VI, and that any portion of the loss for which "relief is not so given shall, as far as may be, be carried forward "and deducted from or set off against the amount of any profits or "gains arising from any transaction in respect of which he is assessed "under the said Case VI for any of the six following years of "assessment.
6. It was contended on behalf of the Appellant;
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(2) that the Appellant was engaged in a transaction within Section 27 of the Finance Act, 1927, namely, the acquisition and management of the properties listed in paragraph 4;
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(3) alternatively, that the Appellant was engaged in five such transactions, namely, in respect of each of the said properties;
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(4) that in respect of each of the first two of the said properties the Appellant sustained a loss in an amount represented by the excess of the rent paid by him over the supposed annual value computed according to Section 15 of the Finance Act, 1940;
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(5) that in respect of each of the remaining said properties the Appellant sustained a loss in an amount equal to the rent paid by him;
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(6) that if sums in excess, in each instance, of the net Schedule A assessments had been received by the Appellant in respect of the said properties, those sums would have been profits in amounts computed in accordance with Section 15 of the Finance Act, 1940 (there called an excess), and those profits would, by the express terms of the said Section 15, have been assessable under Schedule D, and under Case VI thereof;
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(7) that the sums in question in this appeal were the amounts of losses sustained by the Appellant in transactions of such a nature that, if profits had arisen therefrom, the Appellant would have been liable to be assessed in respect thereof under Case VI of Schedule D;
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(8) that the Appellant was entitled to carry forward the sums in question in this appeal, and to deduct them from, or set them off against, the amounts of the profits or gains forming the subjects of the assessments under appeal;
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(9) that the appeal should be allowed.
7. It was contended on behalf of the Inspector of Taxes;
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(2) that the holding by the Appellant of the properties described in paragraph 4 hereof some of which he sub-let and some of which remained void was not a transaction or transactions;
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(3) that even if there were in this case any such transactions they were not of such a nature, as is described in Section 27 (1) of the Finance Act, 1927, that "if any profits had arisen therefrom he would "have been liable to be assessed in respect thereof under Case VI of "Schedule D…" because such profits, if any, would have been covered by the Schedule A assessment;
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(4) that Section 15 of the Finance Act, 1940, did not charge profits as such, but a sum described as the excess of an amount calculated in accordance with the provisions of the Section, and was therefore inapplicable in considering what relief should be given under Section 27 of the Finance Act, 1927.
8. We, the Commissioners who heard the appeal, gave our decision as follows.
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(1) The Appellant appeals against assessments made under Case VI of Schedule D by virtue of Section 15 of the Finance Act, 1940, in respect of excess rents on a number of...
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