Nash (Inspector of Taxes) v Tamplin & Sons Brewery Brighton Ltd ; Davies (Inspector of Taxes) v Webbs (Aberbeeg) Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 25 October 1951 |
| Date | 25 October 1951 |
| Court | King's Bench Division |
NO. 1480-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D - Deductions - Brewery company letting tied houses.
(1) The Appellant Company was lessee of a number of licensed houses which it sublet to tied tenants. In Income Tax assessments made upon the Company under Schedule D, deductions were allowed in respect of the difference between the rents payable by the Company and the rents receivable from the tied tenants. Some time after the passing of the Finance Act, 1940, the Inspector of Taxes took the view that the Company's lease was a "long lease" within Section 17 of that Act, and that after that Act no deduction in respect of the rent payable was admissible in computing the Company's liability to Income Tax under Schedule D. The Company did not contest this view.
On appeal against additional assessments, the Company contended (a) that the difference between the rents which it could have obtained by letting the houses free of ties and the rents which it actually received from the tied tenants was an expense wholly and exclusively laid out for the purpose of the trade, and therefore an admissible deduction, and (b) that in any event there had been no "discovery" within Section 125 of the Income Tax Act, 1918, to justify the making of additional assessments. The Special Commissioners held that the deduction claimed was not admissible; and that on the question of discovery they were bound by the decision in the King's Bench Division in the case of Vestey's Executors and Vestey v. Commissioners of Inland Revenue,31 T.C. 1. They accordingly dismissed the appeal.
(2) The Appellant Company was the lessee of a number of licensed houses which it sublet to tied tenants. In every instance the Company's lease was a "long lease" within the meaning of Section 17, Finance Act, 1940.
In the computation of its profits for the purposes of assessment under Schedule D, the Company claimed (i) as regards one house, deduction of the difference between the rent which it could have received by letting the house free of ties (measured by the rent payable by the Company) and the rent received from the tied tenant, and (ii) as regards 17 other houses, deduction of the difference beween the gross Schedule A assessment on the house (which exceeded the rent payable by the Company) and the rent received from the tied tenant. On appeal the Special Commissioners rejected the first claim and admitted the second.
Held, that, nothwithstanding the passing of Section 17 of the Finance Act, 1940, deductions in accordance with the decision in Usher's case, 6 T.C. 399, for "rent forgone" remained admissible.
(1) Tamplin and Son's Brewery (Brighton), Ltd. v.Nash
CASE
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 meetings of the Commissioners for the Special Purposes of the Income Tax Acts held on 19th November, 1946 and 26th February, 1947, Tamplin & Son's Brewery (Brighton), Ltd. (hereinafter called "the Appellant Company") appealed against additional first assessments, for the year 1942-43 in the sum of £32,033, and for the year 1943-44 in the sum of £32,791, raised upon it under the provisions of Case I, Schedule D, and Section 125 of the Income Tax Act, 1918, in respect of its profits as brewers.
2. The points for our determination were, and for the opinion of the Court are;
(2) whether on the facts hereinafter stated and in view of Section 17 of the Finance Act, 1940, the Appellant Company was or was not entitled, in computing the profits of its trade as brewers as aforesaid, to a deduction of a sum equal to the difference between the rents received by the Appellant Company from certain leasehold tied houses and the rents which would have been received from the houses, had they been let separately, free of the burden of the tie;
(3) whether in any event there had been such discovery within the meaning of Section 125 of the Income Tax Act, 1918, as would justify the making of the additional assessments for the said years 1942-43 and 1943-44.
3. The following documents and statements were put in evidence before us and may be referred to as Exhibits(1):
I. Agreement for lease dated 1st June, 1938, between Tamplins Licensed Properties, Ltd., the Law Debenture Corporation, Ltd. and the Appellant Company.
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II. Specimen tenancy agreement between the Appellant Company and its tied tenants.
III. Directors' report and statement of accounts of the Appellant Company for the year ended 30th April, 1941.
IV. Directors' report and statement of accounts of the Appellant Company for the year ended 30th April, 1942.
V. The Appellant Company's computation of its profits for the purposes of assessment to Income Tax, Schedule D, for the year 1942-43, based on the figures in the accounts (as adjusted) for the year ended 30th April, 1941.
VI. The Appellant Company's computation of its profits for the purposes of assessment to Income Tax, Schedule D, for the year 1943-44, based on the figures in the accounts (as adjusted) for the year ended 30th April, 1942.
VII. Statement showing the licensed and unlicensed properties comprised in the agreement for lease with Tamplin's Licensed Properties, Ltd. (Exhibit I), with rents receivable by the Appellant Company, for the year ended 30th April, 1941, and gross and net Schedule A assessments for the same period.
VIII. Letter of 1st February, 1947, from the Solicitor of Inland Revenue to Messrs. Godden Holme & Co., solicitors to the Appellant Company, setting out the facts, admitted on behalf of the Crown as material to the issue of "discovery", under Section 125 of the Income Tax Act 1918.
IX. Letter dated 10th February, 1947, from Messrs. Godden Holme & Co. to the Solicitor of Inland Revenue agreeing the facts contained in Exhibit VIII, and intimating that in view of the admission therein no evidence would be called on behalf of the Appellant Company on the "discovery" point.
X. Statements put in on behalf of the Crown illustrating, by the use of token figures, the computation of the Company's profits as brewers for Income Tax purposes (A) before the enactment of Section 17 of the Finance Act 1940: (B) after the enactment of the said Section 17, as contended on behalf of the Crown: (C) after the enactment of the said Section 17, as contended on behalf of the Appellant Company.
4. Evidence was given before us by Mr. A.F. Huggons, secretary of the Appellant Company, and the facts found by us on that evidence, or as agreed between the parties, are as stated in the following paragraphs, numbered 5 to 13 inclusive.
5. The licensed houses, which gave rise to the first issue in this appeal, were owned by a company called Tamplin's Licensed Properties, Ltd., hereinafter called "T.L.P." which is a wholly owned subsidiary company of the Appellant Company. T.L.P. was formed in the year 1926 to acquire and hold property, with a capital of £100,000, later increased to £200,000. The object of forming T.L.P. was entirely financial. The Appellant Company wanted to raise further debenture capital for the purpose of its business as brewers, as aforesaid, but its financial structure in the year 1926 was such that it could not readily do so on its own account. It therefore formed T.L.P. which took over from the Appellant Company properties of sufficient value to provide cover for the issue of £200,000 6 per cent. redeemable debenture stock. The said properties were mainly licensed houses. The stock was secured by a trust deed providing for redemption in 35 years, with a provision for a cumulative sinking fund at one per cent. per annum. T.L.P. having acquired the said properties leased them to the Appellant Company, and the rent received by T.L.P. from the latter was sufficient to provide cover for the annual interest on the debenture stock, and for the sinking fund. In the year 1929, T.L.P. took over further properties from the Appellant Company, and the total block rent for all the said properties was increased to £40,000, which was the total lease rent paid by the Appellant Company to T.L.P. in the material years. At the same time the debenture stock issued was increased to £350,000. In the year 1933, T.L.P. redeemed the whole of the said debenture stock issue, and replaced it by a 41/2 per cent. issue redeemable in 60 years, with a provision for an annual sinking fund contribution of one quarter of one per cent. In view of this alteration in the period fixed for the redemption of the debenture stock, a new lease was necessary, and the agreement for lease dated 1st June, 1938 (Exhibit 1) (1) was therefore executed. Under clause 4 of the said agreement, T.L.P. and the Law Debenture Corporation as trustees, bound themselves, when required by the Appellant Company, to execute a lease of the said properties in the form of lease scheduled to the said agreement. In the meantime however, all the said parties bound themselves under clause 5 of the said agreement by the covenants and provisions contained in the said form of lease in all respects "as if the same were "actually executed". The Appellant Company never has required the other said parties to execute a lease, but it is common ground between the parties in this appeal that nothing turns upon such omission.
6. By the said agreement for lease (Exhibit 1) T.L.P. agreed to grant a lease to the Appellant Company of the properties, set out in the schedule to the form of lease therein referred to. The said schedule sets out, in the first part thereof, particulars of freehold properties and in the second part thereof, particulars of leasehold properties comprised in the...
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Fitzleet Estates Ltd v Cherry
... ... (Appellants) and Cherry (Inspector of Taxes) (Respondent) [1977] ... Lord Edmund-Davies ... Lord Keith of Kinkel ... [1939] A.C. 215, and Nash v. Tamplin & Sons Ltd. [1952] A.C. 231) resulted ... ...