Madras Electric Supply Corporation Ltd v Boarland
| Jurisdiction | England & Wales |
| Judge | Lord Oaksey,Lord MacDermott,Lord Reid,Lord Tucker,Lord Keith of Avonholm |
| Judgment Date | 11 March 1955 |
| Judgment citation (vLex) | [1955] UKHL J0311-1 |
| Date | 11 March 1955 |
| Court | House of Lords |
[1955] UKHL J0311-1
House of Lords
Lord Oaksey
Lord MacDermott
Lord Reid
Lord Tucker
Lord Keith of Avonholm
Upon Report from the Appellate Committee, to whom was referred the Cause the Madras Electric Supply Corporation Limited (in liquidation) against Boarland (Inspector of Taxes), that the Committee had heard Counsel, as well on Monday the 31st day of January last, as on Tuesday the 1st, Wednesday the 2d and Thursday the 3d, days of February last, upon the Petition and Appeal of The Madras Electric Supply Corporation Limited (in liquidation), of 1 Queen Victoria Street in the City of London, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 9th of December 1953 might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the printed Case of Harold Victor Boarland (Her Majesty's Inspector of Taxes), lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 9th day of December 1953, 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 Appellants 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.
My Lords,
This is an appeal from an Order of the Court of Appeal (Singleton, Birkett and Hodson, L.JJ.) dated the 9th December, 1953, dismissing an appeal by the Appellant Company from an Order of the High Court (Upjohn, J.) dated the 18th June, 1953, whereby an appeal by the Respondent from a determination of the Commissioners for the Special Purposes of the Income Tax Acts upon a Case stated by those Commissioners was allowed and the decision of the Commissioners was reversed.
The matter arises upon an assessment to income tax for the year of assessment 1947/48 for balancing charges made in the estimated sum of £850,000 upon the Appellant Company under section 17 of the Income Tax Act, 1945, in respect of the sale by the company of its undertaking and the machinery and plant belonging to it to the Government of Madras on the 29th August, 1947. The undertaking was sold as a going concern, and was taken over and carried on as previously by the purchaser, and it is agreed that the purchaser succeeded to the trade of the Appellant Company on the 29th August, 1947.
It is agreed that in these circumstances the company was liable to balancing charges in respect of the sale of its plant and machinery and further that such balancing charges were correctly assessed for the year of assessment 1947/48 if the purchaser of the company's undertaking was a "person" within the meaning of Rule 11 (2) of the Rules of Cases I and II of Schedule D of the Income Tax Act. 1918. If, however, the purchaser was not a "person" within the Rules, such balancing charges could not be assessed for the year 1947/48 as, unless Rule 11 (2) applied, the basis of assessment for that year would be the profits of the previous year which would not include the said balancing charges. The point in issue in the appeal is, therefore, whether the purchaser, the Government of Madras, being for this purpose (as is admitted by the Respondent) a branch of the Crown, was a "person" within the meaning of Rule 11 (2), the contention for the Appellant Company being that neither the Crown nor any person exercising the functions of the Crown is a "person" within the meaning of the Rule so that no "person" succeeded to the undertaking of the company.
There is no dispute as to the construction and effect of the provisions of the Income Tax Act, 1945, which impose balancing charges. The balancing charge is to be made for the year of assessment in the "basis period" for which the disposal of the machinery or plant takes place, and the "basis period" for the year of assessment 1947/48 in the present case is the period on the profits of which income tax for that year falls to be computed under the directions contained in the Rules of Cases I and II of Schedule D of the Income Tax Act, 1918, and in subsequent amending enactments.
These directions (so far as they affect the question in dispute) are as follows:—
( a) Section 31 (1) ( a) of the Finance Act, 1926, provides that where in any year of assessment a trade is permanently discontinued the profits of the trade for the period from the beginning of the year (6th day of April) to the date of discontinuance shall be the profits to be charged to income tax under Cases I and II of Schedule D for that year.
b) By section 32 of the Finance Act, 1926, the present Rule 11 was introduced by amendment into the Rules of Cases I and II of Schedule D and was substituted for the previous Rule 11 contained in those Rules. Paragraph (1) of the Rule deals with successions to a trade as the result of the formation of a partnership or a change in a partnership in circumstances which admittedly do not apply to the facts of the present case.
Paragraph (2) of Rule 11 (in which the meaning of the word "person" is the issue in this appeal) is in the following terms:—
"(2) If at any time after the said fifth day of April any person succeeds to any trade, profession or vocation which until that time was carried on by another person and the case is not one to which paragraph (1) of this Rule applies, the tax payable for all years of assessment by the person succeeding as aforesaid shall be computed as if he had set up or commenced the trade, profession or vocation at that time, and the tax payable for all years of assessment by the person who until that time carried on the trade, profession or vocation shall be computed as if it had then been discontinued.
In this paragraph references to a person include references to a partnership."
If the succession by the Government of Madras to the trade of the Appellant Company was the succession of a "person" within the meaning of Rule 11 (2) of the Rules of Cases I and II of Schedule D, the "basis period" for the year of assessment 1947/48 will admittedly be the period from the 6th April, 1947, to the 29th August, 1947, in which said period the sale of the machinery and plant took place, and the assessment for that year in respect of the balancing charges will admittedly be competent, the joint effect of Rule 11 (2) if it applies and section 31 (1) ( a) of the Finance Act, 1926, being that the year of assessment in which the sale takes place is its own "basis period".
If, however, Rule 11 (2) was not applicable to the succession by the Government of Madras, the "basis period" for the year of assessment 1947/48 would, according to the rule for computing profits in the normal case when not displaced by Rule 11 (2), be the preceding accounting year, namely, the year to 31st December, 1946. As the sale of the plant and machinery did not take place in that period no assessment could be made for a balancing charge on account of it for the year of assessment 1947/48, and the assessment for that year which was made would not be competent. An assessment for the year 1948/49 would also not be competent, as in that year the Appellant Company was not carrying on a trade. Accordingly, if Rule 11 (2) was not applicable, the balancing charges which would otherwise have been assessable for 1947/48 escape assessment.
The Income Tax Act, 1945, enacted a revised and extended general code of capital allowances in the taxation of the profits of business undertakings, and in Part II thereof made special provisions as regards machinery and plant. A new feature of these allowances was the provision, upon the acquisition by a trader of machinery or plant, of an initial allowance in respect of a percentage of its cost as well as an annual allowance of a specified amount representing the annual depreciation in value of the machinery or plant as previously provided by Rule 6 of the Rules of Cases I and II of Schedule D.
Where the machinery or plant is disposed of by a trader before the initial and annual depreciation allowances in respect of it have amounted to its full cost and upon its disposal the value received falls short of the balance of its cost, it is provided by section 17 of the Act that a balancing allowance shall be claimable by the trader in respect of such balance in reduction of his chargeable profits. Conversely, in the event of the value received upon such disposal being in excess of the written down value of the machinery and plant a balancing charge may be imposed upon the trader, so as in effect to restore to the public revenue the amount in respect of past allowances for income tax which is shown in the result to have been excessive.
The Appellant Company was assessed to income tax for the year of assessment 1947/48 in an estimated amount of £850,000 in respect of balancing charges claimed to be due upon the sale of its plant and machinery on the 29th August, 1947, to the Government of Madras.
The company appealed to the Special Commissioners against the assessment.
It was common ground between the parties at the hearing of the appeal—
(1) that by reason of section 17 (1) of the Income Tax Act, 1945, the balancing charges forming the subject of the assessment under...
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