Morley v Tattersall
| Jurisdiction | England & Wales |
| Year | 1935 |
| Date | 1935 |
| Court | Court of Appeal |
NO. 1078-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
Income Tax, Schedule D - Firm of auctioneers - Unclaimed balances transferred from vendors' accounts to partners' accounts - Whether assessable as trading receipts.
The Respondent firm, which carried on the business of auctioneers of horses, had as one of the conditions of sale that no purchase money would be paid or remittance sent by post without a written order. Unclaimed balances amounting in course of time to considerable sums remained in the firm's hands; at all times the firm considered itself liable to pay such balances as and when claims were made. Under the partnership deed by which the existing firm was constituted part of the unclaimed balances was transferred to the credit of the partners and provision was made for subsequent annual transfers. The deed provided also that any payments which might be claimed and made in respect of the balances should be borne by the partners in proportion to their shares of profits at the date of payment.
Held, that the unclaimed balances so transferred to the partners were not trading receipts in respect of which the firm was assessable to Income Tax under Case I, Schedule D.
Stated under 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 27th October, 1936, Messrs. Tattersall (hereinafter called "the Firm") appealed against the following assessments to Income Tax made upon them under Case I of Schedule D to the Income Tax Act, 1918, namely:-
(a) An additional assessment in the sum of £2,000 for the year ending 5th April, 1930;
(b) An additional assessment in the sum of £6,878 for the year ending 5th April, 1936.
2. The Firm carry on business at London, Newmarket and Doncaster as auctioneers under the style of Messrs. Tattersall. They also carry on business as owners of an establishment for the training of race horses, but the profits of this business are separately assessed and these activities of the Respondents are not material for the purposes of this Case.
The Firm, consisting of three partners, namely, Edmund Somerville Tattersall, Gerald Henry Deane and Robert Needham, is at present governed by a deed of partnership dated 23rd March, 1936, relevant extracts from which (marked "A") are attached hereto and form part of this Case(1). It is agreed that the deed itself may, if necessary, be referred to at the hearing as part of this Case.
Prior to the said deed of 23rd March, 1936, Mr. E.S. Tattersall and Mr. G.H. Deane had been carrying on the said business in partnership under deeds of partnership dated 23rd February, 1922, and 21st October, 1931, and certain supplemental documents not material to the question raised in this Case.
3. The profits of the Firm so far as material for the purposes of this Case consist mainly of commissions earned on the sale by the Firm as auctioneers of horses at London, Newmarket and Doncaster. The said commissions have been duly brought into computation for Income Tax purposes and the Firm has been assessed thereon under Case I of Schedule D to the Income Tax Act, 1918.
4. A copy of the conditions governing the sales conducted by the Firm is attached hereto (marked "B") and forms part of this Case(1).
Condition 7 provides as follows:-
The vendor shall be entitled to receive the purchase-money "of each lot sold on the Monday week following the "sale, provided that the Auctioneers shall then have received "the purchase-money, or delivered the lot out of their custody, "but not before. Delivery of a lot by the owner or his agent "without a written order from the Auctioneers shall not be "deemed delivery by the Auctioneers within the meaning of "this condition.
It is further provided by the said conditions as follows:-
No money paid, or remittance sent by post, without a "written order.
This condition has been in force and has appeared in the Firm's conditions of sale since 1847.
5. For various reasons vendors have from time to time neglected to send a written order to the Firm for payment over to them of purchase money received on their behalf by the Firm on the sale
of horses, and consequently moneys (hereinafter called "unclaimed "balances") have remained in the hands of the Firm to the credit of the said vendors.The amount of each unclaimed balance is arrived at by crediting to the vendor the amount of the purchase money received by the Firm on effecting a sale on his account and deducting therefrom the amount of commission due to the Firm, together with any sums due for advertising or other expenses, such as keeping horses on the Firm's premises.
A statement containing examples of unclaimed balances taken at random from the ledgers of the Firm was produced in evidence and a copy thereof is attached hereto (marked "C"(1) ).
6. Over the course of years these unclaimed balances have amounted to considerable sums and have been dealt with by the Firm in the following manner:-
(i) When the partnership (which took effect as from the 1st January, 1921) was constituted under the said deed of the 23rd February, 1922, it was agreed that the amount standing in the accounts of the business at 31st December, 1920, in respect of unclaimed balances for the years prior to 1908 should as on the 1st January, 1921, be transferred to Mr. E.S. Tattersall's capital account. The amount so transferred was £13,022 6s. 4d.
(ii) When the existing partnership (which took effect as from the 1st January, 1935) was constituted by the said deed of the 23rd March, 1936, the amount standing in the accounts of the Firm at 31st December, 1934, in respect of unclaimed balances (arising in the period 1908 to 1928 inclusive), namely, £10,406 10s. 1d., was dealt with as set out in the recitals to the said partnership deed, that is to say:-
£9,088 2s. 1d. was transferred to Mr. E.S. Tattersall's current account as on 31st December, 1934, and £1,318 8s. 0d. was transferred to Mr. G.H. Deane's current account as on 31st December, 1934.
A copy of the accounts of the Firm for the year ending 31st December, 1934, is attached hereto (marked "D") and forms part of this Case(1).
7. By the said articles of partnership, dated 23rd March, 1936, the following provisions are made for dealing with unclaimed balances:-
Clause 5-
-
(2) Such liability as subsists in respect of the said unclaimed "balances amounting to the sums of £13,022 6s. 4d. and "10,406 10s. 1d. respectively as hereinbefore recited
"shall be assumed by the partnership and any payments "actually made in respect thereof shall be borne by the "partners in proportion to their shares of profits at the "time when the payment is made. -
(3) "As regards all unclaimed balances that have arisen in the "course of the business as carried on by the old partnership "since the 31st day of December 1928 or which "may arise in the carrying on of the business by the "partnership hereunder the following provisions of this "sub-clause shall have effect that is to say:-
(i) "On the taking of the annual general account for "each year of the partnership (beginning with "the year ending the 31st day of December "1935) all such unclaimed balances existing "on the 31st day of December in the year of "account as first arose not less than six years "previously to that day and shall not already "have been transferred in accordance with this "provision shall be transferred to the credit of "the partners in the proportions in which on "the 31st day of December in the year of "account they are entitled to share in the "profits of the business.
(ii) "Sums transferable under the last foregoing paragraph "to the credit of any partner shall be "transferred to the credit of his capital account "with the partnership unless and until the "amount for the time being standing to the "credit of that account is equivalent to £1,000 "for every hundredth share for the time being "taken by him in the profits of the partnership. "Subject as aforesaid the sums so transferable "shall be transferred to the credit of "such partner's current account with the "partnership.
(iii) "Notwithstanding any such transfer as aforesaid "all liability subsisting in respect of the said "unclaimed balances shall continue to be borne "by the partnership.
(4) "As regards the said sums of £13,022 6s. 4d. and "£10,406 10s. 1d. and all sums from time to time transferred "to the credit of the partners or any of them "under the foregoing provisions of this clause the "liability assumed by or otherwise incumbent upon the "partnership shall not appear in the annual general "account or otherwise be taken into account for any "purpose as between the partners or the representatives "of a deceased partner except so far as claims or payments "shall actually have been made in respect "thereof.
8. Mr. E.S. Tattersall gave evidence before us and stated (inter alia) as follows:-
(a) He was the senior partner in the Firm, having been admitted as a partner in 1885;
(b) At all times the Firm considered itself liable in respect of unclaimed balances and would pay the said balances as and when a claim was made;
(c) The Firm did not send statements of account to clients after a sale had taken place. Most of their clients were present at the sales;
(d) He could not say for certain why clients failed to claim moneys due to them. He thought that in some cases the failure to claim was due to forgetfulness. In other cases clients liked to keep a balance due to them with the Firm;
(e) Unclaimed balances were sometimes claimed at a subsequent date and if in order were of course paid by the Firm;
(f) While it was not the practice of the Firm to volunteer information to their clients, on rare occasions the Firm had informed clients...
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