Neumann v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Tomlin,Lord Warrington of Clyffe.,Lord Wright,. |
| Judgment Date | 01 February 1934 |
| Judgment citation (vLex) | [1934] UKHL J0201-1 |
| Date | 01 February 1934 |
| Court | House of Lords |
[1934] UKHL J0201-1
House of Lords
Lord Tomlin.
Lord Warrington of Clyffe.
Lord Wright.
After hearing Counsel, as well on Tuesday the 14th, as on Thursday the 16th, Friday the 17th, Wednesday the 22d and Thursday the 23d, days of November last, upon the Petition and Appeal of Ludwig Neumann, of Salisbury House, Finsbury Circus, in the City of London, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 19th of January 1933, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, and that the Petitioner might have the relief prayed for in the Appeal, or such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the Petition and Cross Appeal of the Commissioners of Inland Revenue, of Somerset House, Strand, London, W.C.2, praying, That the matter of the Order set forth in the Schedule thereto, namely, the said Order of His Majesty's Court of Appeal, of the 19th of January 1933, so far as therein stated to be appealed against, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order, so far as aforesaid, might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of the Commissioners of Inland Revenue, and also upon the printed Case of Ludwig Neumann, lodged in the said Original and Cross Appeals; and due consideration had this day of what was offered on either side in these Appeals:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 19th day of January 1933, complained of in the said Original and Cross Appeals, be, and the same is hereby, Affirmed, and that the said Original and Cross Appeals be, and the same are hereby, dismissed this House: And it is further Ordered, That the Appellant in the Original Appeal do pay, or cause to be paid, to the said Commissioners of Inland Revenue, the Costs incurred by them in respect of the said Original Appeal, and that the Appellants in the Cross Appeal, do pay, or cause to be paid, to the said Ludwig Neumann, the Costs incurred by him in respect of the said Cross Appeal, such Costs to be set off, and the amount of the balance of the said Costs incurred in respect of the said Original and Cross Appeals respectively to be certified by the Clerk of the Parliaments.
My Lords,
This Appeal and cross Appeal arise out of an assessment to surtax for year 1929-30 made upon the Appellant by the Commissioners for the special purposes of the Income Tax Acts.
The facts can be stated shortly. A company called the Salisbury House Estate, Limited, owned and managed a block of buildings in the city of London containing numerous rooms, let unfurnished as offices to many tenants. The Company for appropriate considerations provided for the tenants who required them services in connection with the cleaning and the heating of the rooms.
For the four years ending April 5th, 1925, 1920, 1927 and 1928, the Company were assessed under Schedule A to income tax on the gross value of the building as appearing on the valuation list under the Metropolis ( Valuation) Act, 1869.
In regard to the profits and gains derived from the services rendered to the tenants the Company admitted liability to be assessed to income tax under Schedule D, but the Crown claimed that in making the assessment under Schedule D the rents, which far exceeded the annual value as assessed under Schedule A, must be included, allowance being made for tax assessed under Schedule A.
The matter came on Appeal before your Lordships House and on April 4th, 1930, your Lordships held (see Fry v. Salisbury House Estate, Limited, 1930, A.C. 432) that the rents were profits arising from the ownership of land in respect of which the assessment under Schedule A was exhaustive and that such rents therefore could not be included in the assessment under Schedule D as trade receipts of the Company.
Pending that Appeal to your Lordships House the Company distributed in dividend, (from which the appropriate amounts for income tax were deducted) sums equal to their profits in respect of services assessable under Schedule D and also sums equal to the amounts of the assessments made under Schedule A.
The Company however set aside the sum of £18,325 (representing the amount by which their net rents exceeded the amounts of the assessments under Schedule A) to the credit of an income tax reserve account to meet such liability, if any, as might be established against them in the litigation then pending.
On April 4th, 1930, immediately after the decision of your Lordships House was announced, the Company distributed the sum of £18,325 so set aside among their shareholders by way of dividend.
The Appellant, who held 85,500 shares of £1 each in the Company, received from the Company a cheque for £4,275, together with a letter from the Company, dated April 4th, 1930, informing him that the sum of £4,275 was in respect of an interim dividend of 5 per cent., free of tax, on the shares registered in his name and that it was equivalent to a gross amount of £5,343 15s.
Later the Appellant was informed by the Company that the sum of £4,275 had been erroneously described by the Company as a dividend of 5 per cent., free of tax, and that in fact it represented a sum distributed out of the untaxed income of the Company which should not have been included in any surtax return made by the Appellant.
Nevertheless the Commissioners for the Special Purposes of the Income Tax Acts in making upon the Appellant an assessment to surtax for the year 1929-30, included the sum of £5,343 15s. as being the gross amount applicable to a net dividend of £4,275.
Mr. Justice Finlay held that in respect of the dividend in question nothing at all ought to have been included in the assessment, and the Court of Appeal have held that the sum of £4,275, and not the sum of £5,343 15s., ought to have been so included.
The case is a difficult one, and the difficulty in part arises from the fact that the amendments from time to time made to the Income Tax Acts, directed as they frequently are to stopping an exit through the net of taxation freshly disclosed, are too often framed without sufficient regard to the basic scheme upon which the Acts originally rested.
The relative positions of a Company and the shareholders of the Company in relation to income tax, under the Income Tax Acts have always been recognised as special in character.
It was never, I think, doubted that under the Act of 1842 the profits of a business carried on by a Company were taxable against the Company under Schedule D, and were not taxable again after distribution in the hands of the shareholders under Schedule D or any other Schedule.
At the same time it was permissible to the Company under Section 54 of the Act of 1842 to deduct from the dividend the proportionate part of the tax paid to the tax collector and the shareholders entitled to exemption from or abatement of income tax could upon the footing of the deduction obtain the necessary return of tax.
I cannot but think that the position under the Act of 1842 upon its proper construction is correctly described in the following passage from the speech of Lord Phillimore in Bradbury v. English Sewing Cotton Company, 1923, A.C. 744, at p. 769:—
"A joint stock Company is under the Income Tax Act, 1842, treated as a person and is directed to make a return of its profits or gains according to Schedule D upon a conventional figure arrived at by taking an average of the three preceding years and is liable to be assessed and taxed thereupon.
If this principle of its being a distinct person distinct from its shareholders or the aggregate of its shareholders had been carried to a logical conclusion there would have been no reason why each shareholder should not in his turn have to return as part of his profits or gains under Schedule D the money received by him in dividends.
Their taxation would seem to be logical, but it would be destructive of joint stock Company enterprise so the Act of 1842 has apparently proceeded on the idea that for revenue purposes a joint stock Company should be treated as a large partnership so that the payment of income tax by a Company would discharge the quasi partners. The reason for their discharge may be the avoidance of double taxation, or, to speak accurately, the avoidance of increased taxation. But the law is not founded upon the introduction of some equitable principle as modifying the statute; it is founded upon the provisions of the Statute itself, and the Statute carries the analogy of a partnership further, for it contemplates a Company declaring a dividend on the gross gains and then on the face of the dividend warrant making a proportionate deduction in respect of the duty so that the shareholder whose total income is so small that he is exempt from income tax or pays at a lower rate can get the income tax which has been deducted on the warrant returned to him."
In practice the matter did not work out quite so simply. It has to be remembered that the amount distributable in dividend in any year might, in view of the assessment of profits or gains under Schedule D being upon the basis of the average of the three preceding years as it then was, be much more or much less than the amount of the assessment for that year, so that if this proportionate deduction was...
To continue reading
Request your trial
-
Cull v Commissioners of Inland Revenue
...the General Rules was substituted for Section 54 of the Act of 1842 (see per Lord Tomlin in Neumann v. Commissioners of Inland Revenue,18 T.C. 332, at page 360; Gold Fields American Development Co., Ltd. v. Consolidated Gold Fields of South Africa, Ltd., [1926] Ch. 338 , at page 347; F.......
-
Canadian Eagle Oil Company, Ltd v The King
...is, strictly speaking, no tax upon dividends at "all": cited with approval by Lord Tomlin in Neumann v. Commissioners of Inland Revenue,[1934] A.C. 215, at page 228; 18 T.C. 332, at page 362. But in the case of the foreign company's dividend the Act imposes tax in unambiguous terms. It is i......
-
Cenlon Finance Company, Ltd v Ellwood (HM Inspector of Taxes)
...Ltd. v. Birrell, TAX16 T.C. 200.Commissioners of Inland Revenue v. Sneath, TAX17 T.C. 149.Neumann v. Commissioners of Inland Revenue, TAX18 T.C. 332.Rex v. Special Commissioners of Income Tax (ex parte Elmhirst),TAX20 T.C. 381.Hughes v. Bank of New Zealand, TAX21 T.C. 472.Patuck v. Lloyd, T......
-
Cenlon Finance Company Ltd v Ellwood
...Ltd. v. Birrell, TAX16 T.C. 200.Commissioners of Inland Revenue v. Sneath, TAX17 T.C. 149.Neumann v. Commissioners of Inland Revenue, TAX18 T.C. 332.Rex v. Special Commissioners of Income Tax (ex parte Elmhirst),TAX20 T.C. 381.Hughes v. Bank of New Zealand, TAX21 T.C. 472.Patuck v. Lloyd, T......