Osborne v Steel Barrel Company Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 27 April 1942 |
| Year | 1940 |
| Date | 27 April 1942 |
| Court | Court of Appeal |
No. 1212-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
Income Tax, Schedule D - Profits of trade - Valuation of stock.
The Respondent Company was incorporated on 29th August, 1932, for the purpose of acquiring and carrying on the trade of engineers previously carried on by a company of the same name which was then in the hands of a receiver and manager. By a contract dated 11th August, 1932, the receiver and manager of the old company had agreed to sell the whole of its undertaking and most of its assets to B for the sum of £10,500. On 31st August, 1932, B agreed to sell the assets covered by the contract of 11th August to the Respondent Company for £10,500 in cash and the issue to him of 29,997 ordinary shares of £1 each credited as fully paid in the Company. By a deed dated 5th October, in which it was recited that B entered into the agreement of 11th August as trustee for the Respondent Company, the old company assigned all its business, goodwill, etc., by the direction of B to the Respondent Company for £500, the stock-in-trade, chattels and utensils passing by manual delivery and being agreed at the value for stamp duty purposes of £5,000. In a further deed dated 15th October between the Respondent Company and B it was agreed that in consideration of services performed by B in negotiating the purchase of the assets of the old company on behalf of the Respondent Company, and further services to be performed by him, the Respondent Company should allot to B 29,997 ordinary shares of the Company fully paid up.
The £10,500 payable under the contract of 11th August was duly paid. Of this sum land and buildings represented £5,000 and goodwill £500. The sum of £5,000 which was taken for purposes of stamp duty to be the value of stock-in-trade, plant, machinery and chattels transferred by delivery was apportioned by the Respondent Company as to £2,493 to stock-in-trade, the balance being attributed to plant, machinery, etc. The apportionment of the items other than the item for stock-in-trade was adhered to in the Company's first balance sheet as at 31st December, 1933, but in the trading account for the period from 29th August, 1932, to 31st December, 1933, the opening stock was taken "at cost" £2,493, with an addition of £19,376 described as "difference between cost and market value".
On appeal against assessments to Income Tax in estimated amounts for the years 1932-33 to 1938-39 inclusive, the Respondent Company contended that it had purchased the assets of the old company at a cost of £10,500, plus 29,997 shares of £1 each, and that the figure of £2,493 which had been attributed to the value of the stock-in-trade was an arbitrary figure and that the Company was entitled to show as the cost of the stock its true market value. The Crown contended that the Company's profits should be computed on the basis that £2,493 was the cost to the Company of stock at the commencement of its trading, and that the issue of the 29,997 shares formed no part of the purchase price of the business and assets. The Special Commissioners found that the Company paid £29,997 in the form of shares for a variety of considerations including the assignment of the benefit of B's agreement with the receiver. After hearing evidence they fixed the market value of the stock-in-trade in August, 1932, in a going concern at £10,000 and held that the Company was entitled to adopt that figure as the opening value of the stock.
Held, that there was evidence to support the conclusions of fact at which the Special Commissioners had arrived and that they had made no error in law.
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 18th June, 1937, 26th and 27th July, 1937, 2nd November, 1938, and 25th May, 1939, The Steel Barrel Co., Ltd. (hereinafter called "the Respondent Company") appealed against estimated assessments to Income Tax in respect of profits from the trade of engineers as follows:-
Year ending 5th April, 1933, in the sum of £1,000
,, ,, 5th April, 1934, ,, ,, ,, ,, £2,000
,, ,, 5th April, 1935, ,, ,, ,, ,, £2,000
,, ,, 5th April, 1936, ,, ,, ,, ,, £10,000
,, ,, 5th April, 1937, ,, ,, ,, ,, £8,000
,, ,, 5th April, 1938, ,, ,, ,, ,, £28,000
,, ,, 5th April, 1939, ,, ,, ,, ,, £18,393
The sole question before us was the value to be placed, for the purpose of computing the profits of the Respondent Company, on certain stock acquired in August, 1932, and remaining in hand in the circumstances hereinafter mentioned.
2. By an agreement dated 11th August, 1932, Mr. Henry Rupert Hood Barrs agreed with the receiver and manager of a company called The Steel Barrel Co., Ltd. (hereinafter called "the old company") to purchase the business premises, goodwill, plant, stock-in-trade and effects of the old company for the sum of £10,500 of which £5,000 was allocated to property passing by delivery. The agreement was conditional on the approval of the Court being given. A copy of this agreement is attached hereto, marked "A", and forms part of this Case(1).
The said agreement was approved by the Court on 7th September, 1932. A copy of the Order of Court is attached hereto, marked "B", and forms part of this Case(1).
3. On 29th August, 1932, the Respondent Company was incorporated with a capital of £30,000 divided into 30,000 shares of £1 each, with the name of The Steel Barrel Co. (of Uxbridge), Ltd. The Respondent Company's name was changed to The Steel Barrel Co., Ltd. on 28th October, 1933. A copy of the memorandum and articles of association of the Respondent Company is attached hereto, marked "C", and forms part of this Case(1).
4. On 29th August, 1932, at a meeting of the directors of the Respondent Company the following resolutions (as recorded in the minutes) were passed:-
(2) It was resolved that the Company do hereby approve the purchase "of the assets at Phoenix Wharf, Uxbridge, for the sum of "£10,500 in accordance with the terms of the Contract entered "into by Mr. Hood Barrs;
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(3) "The Secretary produced to the meeting a draft of an agreement "intended to be entered into between the Company and Mr. Hood "Barrs by which it was agreed that in consideration for the "Contract entered into by Mr. Hood Barrs with the receiver, "G.B. Manley, Esq., for the purchase of the assets of the old "company, The Steel Barrel Company, Limited, 29,997 shares "of £1 each fully paid shall be allotted to Mr. Hood Barrs and
"it was resolved that the Company do enter into the Agreement "with Mr. Hood Barrs on the terms of the above referred to draft "and the Secretary be instructed to return the draft to the Company's "Solicitors with instructions to prepare an Engrossment "(in duplicate) for completion at a subsequent meeting.
The minutes record that Mr. Hood Barrs expressed the hope that it would be possible for the Respondent Company on completion of its purchase from him to make him some cash payment to cover his expenses during the period from 16th July to 12th August, 1932 (being the period during which Mr. Hood Barrs had been allowed in possession of the business premises by the receiver), in addition to the shares allotted to him as part of the purchase price.
By a letter dated 30th August, 1932, the Respondent Company confirmed to Mr. Hood Barrs the purchase from him of the assets covered by the contract dated 11th August, 1932, entered into between Mr. Hood Barrs and the old company through the receiver for the sum of £10,500 in cash and 29,997 ordinary shares of £1 each fully paid in the Respondent Company.
By a letter dated 31st August, 1932, to the Respondent Company, Mr. Hood Barrs agreed the terms set out in the letter of 30th August, 1932, for the purchase from him of the assets of the old company.
Copies of these two letters are attached hereto, marked "D", and form part of this Case(1).
5. By an agreement dated 5th October, 1932, the old company assigned its goodwill, contracts, engagements, benefits and advantages to the Respondent Company for the sum of £500. A copy of this agreement is attached hereto, marked "E", and forms part of this Case(1).
Mr. Hood Barrs paid to the receiver the sum of £10,500, and he was subsequently reimbursed by the Respondent Company.
6. By an agreement dated 15th October, 1932, between the Respondent Company and Mr. Hood Barrs reciting:-
(2) that Mr. Hood Barrs on behalf of the Company then about to be formed lately contracted to purchase from the old company its business, premises, goodwill, stock-in-trade and effects at the price of £10,500;
(3) that the entire negotiations for the said purchase covering a lengthy period entailing great personal attention and the expenditure of much time were carried through by Mr. Hood Barrs who had also incurred expenses in connection therewith;
(4) and (4) that Mr. Hood Barrs had also been instrumental in making for the Company the necessary financial arrangements to enable the Company to complete the purchase and for re-establishing the business, and to obtain further advances and had agreed to serve the Company as managing director;
it was agreed in pursuance and consideration of the premises and of the said agreement the Respondent Company should forthwith allot to Mr. Hood Barrs or his nominees 29,997 shares of £1 each in the Company as fully paid up.
A copy of this agreement is attached hereto, marked "F", and forms part of this Case(1).
In pursuance of this agreement the Respondent Company allotted 29,997 shares of £1 each, fully paid, out of its capital of £30,000 to Mr. Hood Barrs.
The freehold properties of the old company were duly conveyed to the Respondent Company and the...
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