Pickford v Quirke (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 27 October 1927 |
| Date | 27 October 1927 |
| Court | Court of Appeal |
NO. 647.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
COURT OF APPEAL.-
Income Tax, Schedule D - Excess Profits Duty - Profits of trade - Series of transactions by individual as member of different syndicates - Time limit for making additional Income Tax assessment - Income Tax Act, 1918 (8 -9 Geo. V, c. 40), Section 125.
In 1919 there was a boom in the Lancashire cotton spinning trade. Many mills were changing ownership and many transactions took place of a kind known locally as "turning over a mill". The transaction commonly involved the purchase by a syndicate of the shares of a mill-owning company, the liquidation of the company, and the formation of a new company to purchase the old company's assets at a profit to the syndicate. The Appellant, who was at the time a manager of one spinning company and director of another, was approached by certain interested parties with a view to forming a syndicate for the purpose described above. The transaction was successfully carried through and resulted in a profit to the Appellant who was also appointed a director of the new company. The success of the Appellant and his associates in this venture became common knowledge in the district and proposals for similar transactions were made to him in some twenty other cases, but after enquiry he rejected all but three. In these three cases syndicates were formed, not always consisting of the same persons, and in each case the transaction resulted in a profit to the Appellant and his appointment as a director of the new company.
The Appellant was assessed to Income Tax and Excess Profits Duty in respect of the profits resulting from these four transactions, and on appeal the Special Commissioners confirmed the assessments. They found that the Appellant's main object was to establish himself in a position of power as a director of new companies; that it was necessary for this purpose that the transactions should be financially
profitable; that the transactions considered separately were capital transactions and that any one by itself would not have constituted a trade, but that considered together they did constitute a tradeThe Special Commissioners further held that the Income Tax assessment for the year 1919-20 which had been signed by the Additional Commissioners on the 24th March, 1923, had been made in due time.
Held, that the Appellant's participation in the four transactions constituted a trade and that he was assessable to Income Tax and Excess Profits Duty in respect of his share of the profits; and that the additional assessment to Income Tax had been made within the time allowed by Section 125 of the Income Tax Act, 1918.
1. Pickford v. Quirke (H.M. Inspector of Taxes).
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 the 13th November, 1924, for the purpose of hearing appeals, G. Pickford (hereinafter called "the Appellant") appealed against an assessment to Income Tax (Schedule D) in the sum of £15,000 for the year ending the 5th April, 1920, made upon him in respect of promotion profits by the Additional Commissioners for the Division of Middleton in the County of Lancaster, under the provisions of the Income Tax Acts.
2. The assessment was an estimated assessment made in the absence of a return. The book of assessments in which this assessment was included was signed by the Additional Commissioners on the 24th March, 1923, but was not delivered to the General Commissioners until the 18th April, 1923. Notice of the said assessment was not sent to the Appellant until the 5th May, 1923, and the assessment was not signed by the General Commissioners until the 5th September, 1923.
3. In the year 1919 there was a boom in the Lancashire cotton spinning trade. Many spinning mills were being sold by their old proprietors or were passing from one set of shareholders to another. When the shares in a spinning company changed hands it often happened that the old mill-manager was dismissed by the new Board of Directors and a new one engaged who was personally known to the group of men who had obtained control of the business. As a consequence of this the position of mill-managers in 1919 tended to become insecure and their future prospects uncertain.
4. In 1919 John William Wroe was manager of the Commercial Mills Spinning Company, Limited (hereinafter called "the old Company"), which owned a spinning mill in Oldham, Lancashire. It was within his knowledge that many mills in the neighbourhood were passing to new proprietors, and that another local spinning company had been considering the desirability of purchasing the shares in the Old Company with a view to working the two mills with one manager. These things made Mr. Wroe anxious about his position, foreseeing as he did that if the Commercial Mill passed under the control of men who were strangers to him he would be very likely to lose his situation. With this in his mind he approached Mr. Charles Henry Pickford, the Chairman of the directors of the Old Company and put the position before him. Mr. C.H. Pickford, who was about 70 years old and prepared to sell his shares and retire from business, appreciated Mr. Wroe's position and suggested to him that he might join forces with his son Mr. George Pickford (the Appellant) and buy out the shareholders of the Old Company. Mr. George Pickford was manager of one spinning company in the neighbourhood and the director of another and his father was desirous that in the event of a change in the proprietorship of the Old Company his son should have a chance of succeeding him.
5. Mr. Wroe then sought out the Appellant, (who had already been spoken to by his father on the subject), broached the matter to him, and enlisted his support for the enterprise. They were joined by Mr. Thomas Norcliffe, one of the directors of the Old Company, who wanted to remain on the Board even if the shares in the Old Company changed hands. The combined resources of these three (G. Pickford (the Appellant), J.W. Wroe and T. Norcliffe) proving insufficient for a transaction of the size contemplated, they decided to invite two other men engaged in the cotton trade to join with them. These were Mr. J.S. Higham, proprietor of a cotton mill in Oldham, and Mr. Frank Partington, manager and director of another company owning a mill in the same locality. These five persons were able between them to command sufficient funds or credit to undertake the purchase of all the shares in the Old Company.
6. Negotiations were opened with the Old Company with the result that Messrs. G. Pickford (the Appellant), J.S. Higham, T. Norcliffe, F. Partington, and J.W. Wroe, (hereinafter called "the five associated persons") bought, in August, 1919, all the shares in the Old Company for the sum of £118,770, which included a sum of £6,600 paid to the directors of the Old Company for loss of office. They then determined to liquidate the Old Company and to form a new company to be named "Commercial "Mills Spinning Company (1919), Limited" (hereinafter called "the New Company"), which should buy from the liquidator all the assets and liabilities of the Old Company at a net price of £150,000. They also determined that the capital of the new company should be £150,000 divided into 150,000 ordinary shares of £1 each and that 10s. only per share should be paid up upon allotment. The five associated persons anticipated that upon the issue of the shares in the new company the said shares would be saleable at a price in excess of the 10s. per share which was to be paid on allotment.
7. The Appellant and J.S. Higham, acting for the five associated persons then entered into an agreement dated the 10th November, 1919, with an agent on behalf of the proposed new company which, after reciting (a) that the Appellant and J.S. Higham had purchased all the shares in the Old Company, (b) that the New Company was to be formed to buy, for a net sum of £150,000, all the assets of the Old Company subject to the liabilities of the Old Company, and (c)that it was anticipated that the shares in the New Company would immediately after issue be bought and sold at a premium, provided (inter alia) as follows:-
(2) The said George Pickford and John Samuel Higham "shall keep and retain for their own benefit and without "being liable to account therefor to anybody whomsoever "all profit which they may have made or may make by "reason of their purchase of the shares in the Old Company "and the said sale to the New Company.
(3) The Directors of the New Company may allot the "shares in the New Company at par to any person or persons "whomsoever including themselves notwithstanding that a "premium may be obtainable therefor and if any of them "shall make any profit by selling the said shares at a "premium he shall not be liable to account therefor to the "New Company or to anybody whomsoever.
A copy of this agreement is attached to and forms part of this Case.
8. The Old Company went into voluntary liquidation, the New Company was duly incorporated on the 13th November, 1919 the five associated persons being the directors of the New Company, and the agreement referred to in paragraph 7 of this Case was adopted by the New Company on the 8th December, 1919. The five associated persons received £150,000 from the liquidator of the Old Company in their capacities as shareholders in the Old Company, and they allotted to themselves all the shares (150,000 of £1 each, 10s. paid up) in the New Company. Having been allotted all the shares in the New Company the five associated persons retained 2000 shares each as directors' qualification shares and sold the...
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