LONDON and NATIONAL PROPERTY Company, Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 26 November 1947 |
| Date | 26 November 1947 |
| Court | King's Bench Division |
HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
Excess Profits Tax - Property owning company deriving profits from lease of building for a term of 40 years - Increase in rent reserved after first 10 years - Provisions as to attribution of profits resulting from performance of contracts extending beyond the accounting period - Direction by Commissioners of Inland Revenue that owing to special circumstances such provisions should not be applied - Appeal against assessment - Whether direction open to review on appeal - Finance (No. 2) Act, 1939 (2 & 3 Geo. VI, c. 109), Section 21(2), Proviso (a), and Seventh Schedule, Part I, Paragraph 11.
The Appellant Company derived the bulk of its profits from a lease of a building for a term of 40 years from 1931, the rent reserved being £160,000 per annum for the first 10 years of the term and £200,000 per annum for the remaining 30 years. As from 1941, the Company was required, under the terms of a trust deed entered into for securing £2,000,000 debenture stock issued by it for the purpose of financing the construction of the building, to set aside a sum of £40,000 per annum by way of sinking fund payments, and the increase in the rent from £160,000 to £200,000 per annum had been fixed to coincide with the starting of the sinking fund.
For the chargeable accounting period ended 31st December, 1941, an assessment to Excess Profits Tax was made on the Company on the footing that the provisions of Paragraph 11 of Part I of the Seventh Schedule to the Finance (No. 2) Act, 1939, as to the attribution of profits resulting from the performance of contracts extending beyond the accounting period, should not be applied to the agreement for the lease of the building, and that the amounts of rent to be brought in as receipts in the standard period and chargeable accounting period were accordingly the amounts payable for those periods respectively.
The Company claimed that the provisions of Paragraph 11 should be applied, and gave notice of appeal against the assessment. The Commissioners of Inland Revenue, at a meeting held after such notice had been given, directed that, "owing to the special circumstance "that the rent of £200,000 payable under the said Agreement for certain "periods has no reference to any matter performed during the period "or any part thereof during which the rent of £160,000 was paid "under the said Agreement, the provisions of paragraph 11 of Part I "of the Seventh Schedule to the Finance (No. 2) Act, 1939, should "not be applied to the said Agreement in computing the liability to "Excess Profits Tax of" the Appellant Company, and at the hearing of the appeal this direction was relied on on behalf of the Crown.
On behalf of the Appellant Company it was contended, inter alia, that:-
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(i) the existence of special circumstances was a condition precedent to the exercise of jurisdiction by the Commissioners of Inland Revenue to make a direction under Paragraph 11, the question
whether there were special circumstances was a question of fact and the view of the Commissioners was open to appeal; (ii) alternatively, if the Commissioners of Inland Revenue had discretion to decide whether there were special circumstances or not, that discretion must be exercised judicially and on proper and relevant material;
(iii) the special circumstance alleged in the direction was not a fact, and the direction, being made without jurisdiction, was a nullity; and
(iv) the provisions of Paragraph 11 therefore took effect.
On behalf of the Crown it was contended, inter alia, that:-
(i) the determination of whether or not there were "special circumstances" for the purpose of the said Paragraph 11 was exclusively a matter for the Commissioners of Inland Revenue;
(ii) in the alternative, the circumstance alleged in the direction was a special circumstance;
(iii) the making of a direction that the provisions of Paragraph 11 should not be applied was a matter left to the discretion of the Commissioners of Inland Revenue, and by virtue of proviso (a) to Section 21(2), Finance (No. 2) Act, 1939, no appeal lay to the Special Commissioners on this matter; and
(iv) in the alternative, the basis on which the rents had been brought in as receipts was the proper basis of computation even if (contrary to the direction) the provisions of Paragraph 11 were applicable.
The Special Commissioners held that no appeal lay against the direction of the Commissioners of Inland Revenue, and dismissed the appeal.
Held, (a) that a decision of the Commissioners of Inland Revenue as to whether there are "special circumstances" within the meaning of the Finance (No. 2) Act, 1939, Seventh Schedule, Part I, Paragraph 11, is open to review on appeal, and
(b) that the finding as to a special circumstance in the direction relied upon by the Crown was wrong, and based on a misconstruction of the agreement.
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 20th November, 1946, the London and National Property Co., Ltd. (hereinafter called "the Company") appealed against an assessment to Excess Profits Tax for the chargeable accounting period of twelve months ended 31st December, 1941, in the estimated sum of £21,327, adjusted by reference to the provisions of Section 19 of the Finance (No. 2) Act, 1939, to the estimated sum of £11,370 5s.0d.
2. The Company carries on a property owning business, the bulk of its profits being derived from a lease of a building known as Shell-Mex House in London (which is the Company's chief asset). The lease is for a term of 40 years from the year 1931, the rent reserved being £160,000 per annum for the first 10 years of the term and £200,000 per annum for the remaining 30 years. After the said first 10 years the Company is under an obligation, by virtue of a trust deed entered into for securing certain debenture stock issued by it for the purpose of financing the building of the said House, to pay to the trustees (inter alia)an annual sum of £40,000 by way of sinking fund payments for the redemption of that stock, so long as any of it remains outstanding.
The question at issue is the basis upon which, having regard to the enactments and matters hereinafter mentioned, the Company's profits, in so far as they arise from this lease, fall to be computed for the purpose of Excess Profits Tax.
3. The following copy documents which were put in evidence before us accompany this Case in a separate bundle, therein numbered (1) to (9) as under, and form part of this Case(1), namely:-
(2) Memorandum and articles of association of the Company.
(3) Agreement of 6th February, 1931, made between the Company and Shell-Mex, Ltd., being an agreement for the building and lease of Shell-Mex House.
(4) Public offer, dated 6th February, 1931, of the sale of £2,000,000 five per cent. first mortgage debenture stock of the Company, and form of offer of purchase therewith.
(5) Trust deed dated 4th March, 1931, made between the Company and Alliance Assurance Co., Ltd., being the trust deed for securing above stock.
(6) Lease, dated 31st January, 1933, made between the Company and Shell-Mex and B.P., Ltd., being the lease of Shell-Mex House, and (annexed thereto) letter of 31st January, 1933, from the chairman of Shell-Mex and B.P., Ltd., to the Appellant Company, undertaking to carry out internal partitioning and other work as therein mentioned.
(7) Profit and loss accounts and balance sheets of the Company for the three years 1936, 1937 and 1941.
(8) Letter dated 15th February, 1946, from the Inland Revenue to Mr. C.G. Howard (an officer of the Company).
(9) Notice, dated 30th May, 1946, of assessment to Excess Profits Tax for the chargeable accounting period of twelve months ended 31st December, 1941, addressed by the Secretary of Inland Revenue to the Secretary of the Company.
(10) Letter dated 26th June, 1946, from the Secretary of the Company to H.M. Inspector of Taxes, City of London 17th District, being the notice of appeal against the above assessment.
The facts are as hereinafter set forth.
4. The Company was incorporated on 30th January, 1931, with a capital of £1,000,000 divided into 1000,000 shares of £1 each, for the purpose of acquiring from the Burlington Investment Co., Ltd. (which had been incorporated in the year 1913) the whole of the assets and
undertaking of that company. The assets of the Burlington Investment Co., Ltd., consisted almost entirely of property (including the site formerly occupied by the Hotel Cecil) situated between the Strand and the Embankment, practically the whole of that property being freehold.The consideration payable by the Company was £1,563,269 13s.2d. satisfied as to £1,000,000 by the allotment to the Burlington Investment Co., Ltd., of the whole of the said 1000,000 shares of £1 each credited as fully paid, and as to the balance of £563,269 13s. 2d. by the Company undertaking to discharge a debt of that amount owing by the Burlington Investment Co., Ltd., to the Anglo-Saxon Petroleum Co., Ltd., and Eagle Oil & Shipping Co., Ltd., in equal shares. The purchase of the above property by the Company was completed on 6th February, 1931.
5. On the same day (namely, 6th February, 1931) the Company entered into an agreement (document No. 2) with Shell-Mex, Ltd., for the building and lease of premises, subsequently known as Shell-Mex House. The material provisions of this agreement (in which the Company is described as "the landlords" and Shell-Mex, Ltd., as "the tenants") are as follows:-
(i) The agreement recites (inter alia) that the landlords are about to create and issue...
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London and National Property Company, Ltd v Commissioners of Inland Revenue
...costs? Atkinson, J.-Yes. Mr. Tribe.-If your Lordship pleases. [Solicitors:-Waltons & Co.; Solicitor of Inland Revenue.] 1 Reported [1947] 2 All E.R. 799. 1 Not included in the present 1 14 T.C., at pp. 76-7. 1 5 Rep. 100, a. 1 [1920] 2 K.B. 47. 2 [1927] A.C., at p. 766. 1 [1918] 1 K.B. 143. ...