Ormond Investment Company v Betts
| Jurisdiction | UK Non-devolved |
| Judge | Lord Warrington of Clyffe,Lord Wrenbury,Lord Atkinson,Viscount Sumner,Lord Buckmaster |
| Judgment Date | 24 February 1928 |
| Judgment citation (vLex) | [1928] UKHL J0224-3 |
| Court | House of Lords |
[1928] UKHL J0224-3
Lord Buckmaster.
Viscount Sumner.
Lord Atkinson.
Lord Wrenbury.
Lord Warrington.
House of Lords
After hearing Counsel as well on Thursday the 2d, as on Friday the 3d, days of this instant February, upon the Petition and Appeal of the Ormond Investment Company, Limited, whose registered office is situate at Lloyds Bank Chambers, Hustlergate, Bradford, in the County of York, 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 2d of February 1927, might be reviewed before His Majesty the King, in His 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 His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of F. Betts (His 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 His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal of the 2d day of February 1927, complained of in the said Appeal, be, and the same is hereby, Reversed, and That the Judgment of the Honourable Mr. Justice Rowlatt, of the 24th day of November 1926, thereby set aside, be, and the same is hereby, Restored: And it is further Ordered, That the Respondent do repay, or cause to be repaid, to the said Appellants the sums of one hundred and fifty thousand four hundred and twenty-nine pounds five shillings (£150,429 5s. 0d.) and eight thousand eight hundred and thirteen pounds one shilling and seven pence (£8,813 1s. 7d.), together with interest at the rate of 4 1/2 per centum per annum, on the said sum of one hundred and fifty thousand four hundred and twenty-nine pounds five shillings (£150,429 5s. 0d.), from the 3d day of March 1927 until the date of repayment: And it is further Ordered, That the Respondent do pay or cause to be paid to the said Appellants the costs incurred by them in the Court of Appeal, and also the costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned costs to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the King's Bench Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.
My Lords,
The question in this case is as to the mode in which the tax on certain income of the Appellants representing a dividend of a foreign Company ought to be computed under Rule 1 of the Rules applicable to Case V of Schedule D of the Income Tax Act, 1918, and turns on the true construction of that Rule.
The result of the Respondent's contention upheld in the Court below is somewhat startling, for under it the Appellants have in two successive years of assessment been assessed in the full amount of a dividend received in the first of those years, which is thus taxed twice over.
The years of assessment in question are the years 1922-3 and 1923-4.
The Appellant Company was incorporated in June, 1922, under the Companies (Consolidation) Act, 1908. It carries on business as an investment Company.
In August, 1922, the Company acquired a large interest in Joseph Benn & Sons, a Company incorporated in the United States of America. In December, 1922, the Company received a dividend of £601,717 on its shares in the American Company. It received no further dividend or income from this or any other foreign possession during the year ending the 5th April, 1923.
The Commissioners of Inland Revenue, purporting to act under rules hereinafter mentioned, assessed the Appellants for the year 1922-23 in respect of the above-mentioned sum at the sum of £859,596, treating the £601,717 as the earnings for seven months out of a business year of 10 months, dividing it by 7 and multiplying the result by 10. For the year 1923-24, which was a full business year of 12 months, they multiplied 1/7th of the same £601,717 by 12 and assessed the Appellants at £1,031,372.
The Company appealed to the Special Commissioners who reduced the assessment for each year to £601,717, but held that with this variation the assessment should be confirmed. The Commissioners stated a case for the opinion of the Court, and by an Order of Rowlatt J. dated the 24th November, 1926, the assessment was discharged as to the year 1922-3 and reduced to £200,572 as to the year 1923-4. This Order was on the 2nd February, 1927, reversed by the Court of Appeal who restored the assessment made by the Special Commissioners for each of the two years in question.
The question turns on the true construction of Rule 1 of the Rules applicable to Case V. It is in the following terms:—
"The tax in respect of income arising from stocks and shares or rents in any place out of the United Kingdom shall be computed on the full amount thereof on an average of the three preceding years as directed in Case I."… The remainder of the rule is immaterial.
The only rule applicable to Case I in which a direction as to an average of three years is given is the following:—
" Rule applicable to Case I.—The tax shall extend to every trade carried on in the United Kingdom or elsewhere … and shall be computed on the full amount of the balance of the profits or gains upon a fair and just average of three years ending on that day of the year immediately preceding the year of assessment on which the accounts of the said trade have been usually made up, or on the 5th April preceding the year of assessment."
A similar rule is applicable to Case II except that the three years are referred to as "ending as in Case I."
So far there is in my opinion little difficulty in arriving at the true construction of the Rule 1 applicable to Case V. It is dealing with income arising from stocks, &c., and directs that the tax is be computed on an average of the three preceding years. If the rule had stopped there, there might have been a question what years were meant—were they the preceding years in which a dividend had been received, or were they calendar years, or years of assessment. This question is settled by the words "as directed in Case I." The preceding years are there defined as ending on one of two alternative days, and, as there is under Case V no trade in question, the second alternative is alone appropriate, and the three preceding years are those ending on the 5th April preceding the year of assessment.
It is true that applying the rule thus interpreted to the present case, no income having been received in any one of the three years preceding the first of the two years of assessment, the assessment for that year would be nil, but in the next year inasmuch as in the year immediately preceding there was a sum of £601,717 the assessment would be one-third of that sum, viz., £200,572, the amount fixed by the Order of Rowlatt J., and so on in succeeding years taking into account any further profits received.
But the Respondent says there is another "direction in Case I" referred to in the Rule applicable to Case V, viz., R. 1 (2) of the Rules applicable to Cases I and II "Where the trade profession employment or vocation has been set up and commenced within the said period of three years, the computation shall be made on the average of the profits or gains for one year from the period of the first setting up of the same, and when it has been set up and commenced within the year of assessment the computation shall be made according to the rules applicable to Case VI."
The material rule applicable to Case VI is Rule 2:—
"The computation shall be made either on the full amount of the profits or gains arising in the year of assessment or according to an average of such period being greater or less than one year as the case may require or as may be directed by the Commissioners."
It is on the view that these provisions apply to Case V that the Special Commissioners and the Court of Appeal have proceeded.
I cannot with all respect adopt their view. I am not affected by the fact that the rule in dispute is applicable to Case II as well as to Case I. What does impress me is that the rule refers only to a trade, profession, employment or vocation and gives directions for computation depending on the time when the trade, &c., was set up or commenced, and there are no directions for making the very considerable changes necessary if it is to apply to dividends on securities.
The Commissioners and the Court of Appeal have assumed that the acquisition of the securities is the equivalent date, but this is a mere assumption and not justified by anything in the Act of Parliament. Moreover if the securities were acquired at different dates there would be extraordinary complications in the application of the Rule under Case VI.
The same expression as in Rule 1 of the Rules under Case V "as directed in Case I" is used in Rule 2 under Case V under which it would be if anything still more difficult so to mould the rule in dispute as to make it workable.
Moreover the Rule gives no directions for computation on an average of three years but on certain other averages substituted in certain events for that of three years.
A further point was made by the Respondents founded on S. 26 of the Finance Act 1924. It was said that the effect of this section is to declare that the construction of the Income Tax Act for which the Crown now contends is and always has been the true construction. Much reliance was placed on this point by Sargant L.J., but with all respect to that learned Judge I cannot concur in his view....
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