McLellan, Rawson & Company, Ltd v Newall (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 13 May 1955 |
| Date | 13 May 1955 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income Tax, Schedule D-Profits of trade-Timber merchants-Purchase and sale of woodlands.
The Appellant Company, which carried on business as timber merchants, became interested in 1948 in the purchase of three lots of woodland on an estate as a source of supply of timber. Following the sale of the whole estate by private treaty the Company entered into negotiations with the purchaser for the purchase of these lots. In the course of the negotiations it became apparent to the Company that the price it would have to pay would be much higher than that originally contemplated, and it would have been uneconomical to lock up so much capital for the five years or so it would have taken to clear the timber. The Company therefore, while the negotiations were proceeding, arranged to sell the woodlands to two other timber merchants. The carrying out of these transactions was delayed owing to the making of a Tree Preservation Order, but arrangements were eventually made enabling the timber to be felled. The Company completed the purchase of the three lots in May, 1949, and later that year resold them to the other timber merchants at a net profit of £4,846. The transaction was the only one of its kind undertaken by the Company and a separate account of it was kept in the Company's books.
The Company was assessed to Income Tax under Case I of Schedule D for the year 1951-52 on the basis that the profit on the transaction was part of its trading profits. On appeal to the General Commissioners the Company contended that the transaction was an isolated one and that there was no evidence that it formed part of the Company's trade of timber merchants. The Commissioners found that the purchase and sale of the woodlands was part of the general trade of the Company and that the profits were assessable under Case I of Schedule D accordingly. The Company demanded a Case.
Held, that there was no evidence upon which the Commissioners could properly reach their decision.
Stated under the Income Tax Act, 1952, Section 64, by the Commissioners for the General Purposes of the Income Tax for the Division of Nottingham Town in the County of Nottingham for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the General Purposes of the Income Tax for the Division of Nottingham Town in the County of Nottingham on 3rd November, 1953, for the purpose of hearing appeals, McLellan, Rawson & Co., Ltd., whose registered office is situate at 36, Regent Street, Nottingham (hereinafter called "the Appellant Company"), appealed against an assessment to Income Tax made upon it under Case I of Schedule D in the sum of £11,000 (less £1,800 capital allowances) in respect of the profits of its trade as timber merchants.
2. The question for the determination of the Commissioners was whether the profit arising to the Company from the purchase and resale of certain woodlands in the circumstances hereinafter appearing were profits of the Appellant Company's said trade assessable to Income Tax.
3. Mr. Barnacle, a director of the Appellant Company, and Mr. Worth, the Company's solicitor, gave evidence before us which we accepted and which is incorporated in the statement of facts admitted or proved set out in the next paragraph.
4. The following facts were admitted or proved.
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(a) The Appellant Company was incorporated on 30th July, 1947, to take over and carry on the business of timber merchants hitherto carried on by the partnership firm of McLellan, Rawson & Co. (hereinafter called "the firm"). The partners in the firm became the directors of the Appellant Company.
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(b) The Appellant Company has a share capital of £35,000, divided into 35,000 shares of £1 each, 32,845 of which had been issued as fully paid. Of these shares the directors held 31,845 between them.
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(c) The objects for which the Appellant Company was incorporated, so far as now material, were to carry on the business of timber merchants, growers, importers, brokers, factors, agents and dealers, wood merchants and dealers in hard and soft woods, etc. Also, to purchase for investment or resale and to traffic in land and property of any tenure, and generally to deal in, traffic by way of sale, lease, exchange or otherwise, with land and any other property.
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(d) A copy of the memorandum and articles of association of the Appellant Company was put in evidence before us, and is annexed, marked "A", and forms part of this Case(1).
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(e) Until the war the firm had carried on its business by buying and importing timber, processing it and selling it. During the war imports ceased and the firm had to depend on home-grown timber. To this end they bought land with timber growing on it or acquired the right to cut standing timber. When the timber merchanting and sawmilling business of the firm was taken over by the Appellant Company, the firm retained its unsold land and woodlands and had continued to be assessed on profits from this source.
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(f) It has become a normal incident in the trade of timber merchants to enter into such transactions and to acquire and deal in land with growing timber upon it for the purpose of obtaining a source of supply of timber.
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(g) Apart from the transaction recorded in the succeeding sub-paragraphs, the Appellant Company's activities from the time of its incorporation consisted in the importing of foreign-grown timber, the conversion of such timber in its sawmills and the subsequent sale of the same. The Appellant Company also carried on a comparatively small trade in the purchase, conversion and sale of home-grown cut timber.
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(h) The transaction recorded in the succeeding sub-paragraphs was the only transaction of its kind undertaken by the Appellant Company.
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(i) The Appellant Company in or about August, 1948, became interested in the purchase of three lots of woodland of a total area of 218 acres on the Burley estate in Rutland, but before the Appellant Company could make a definite move the whole estate was purchased by the Society of Merchant
Venturers of Bristol (hereinafter called "the Society") by private treaty a few days before the date (namely 8th September, 1948) upon which the woodlands were to have been offered for sale by public auction. The Appellant Company entered into negotiations with the purchasers, the Society, for the purchase of the three lots they required. It was the object and intention of the Appellant Company in so doing to acquire the property for the purpose of felling the timber and dealing with it in the ordinary course of their business. The Appellant Company was not interested in the land as such. -
(j) During the course of the...
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