Princes Investments Ltd v Commissioners of Inland Revenue; Clore v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE WILLMER,LORD JUSTICE DIPLOCK,LORD JUSTICE HARMAN |
| Judgment Date | 17 January 1967 |
| Judgment citation (vLex) | [1967] EWCA Civ J0117-2 |
| Docket Number | 1965 No. 32. |
| Court | Court of Appeal (Civil Division) |
| Date | 17 January 1967 |
[1967] EWCA Civ J0117-2
T 170
In The Supreme Court of Judicature
Court of Appeal
Civil Division
Revekue Paper
Lord Justice Willmer,
Lord Justice Harman and
Lord Justice Diplock.
Mr C. NOEL BEATTIE, Q.C., and Mr J. HOLROYD PEARCE (instructed by Messrs Titmuss, Sainer & Webb) appeared on behalf of the Appellants.
Mr W. ARTHUR BAGNALL, Q.C, Mr J. RAYMOND PHILLIPS and Mr J.P. WARNER (instructed by the Solicitor of Inland Revenue) appeared on behalf of the Respondents.
In these cases we have prepared one judgment, and I am asking Lord Justice Diplock to read it.
In one of these appeals Mr Clore personally appeals against an assessment to surtax for the year 1956/57 made on him under section 349 of the Income Tax Act 1952 in the name of New Century Finance Company Limited, which I will call New Century in the other Mr Clore, in three of his corporate manifestations other than New Century, appeals against sub-apportionments of the income of New Century, made under section 254 of the Act, which underlie and form the basis of the figure of the amount of income on which Mr Clore was so assessed.
The main point argued in these appeals related to the amount of the sub-apportionable income of New Century for the year of assessment 1956/57. New Century was an investment company within the meaning of section 257 of the Act, and therefore subject to an automatic apportionment of its income. Its only revenueproducing assets were preference and ordinary shares in Investment Registry Limited. Its liabilities included a substantial loan from its holding company, Princes Investments Limited. Its only outgoings were interest on that loan and various management expenses. Its accounting year, although ending on the 31st March, has been treated as if it coincided with the tax year ending on the 5th April.
The preference dividends received by New Century for the years 1955/56 and 1956/57 can be dismissed from further consideration. In each of these years Investment Registry paid the dividends on its preference shares in the years for which they were declared. These dividends were credited by New Century to its profit and loss accounts in the years in which they were received. The amounts of the preference dividends received by New Century in each year were insufficient to meet the annual interest payable on its loan from Princes Investments. If the dividends on the ordinary shares of Investment Registry had not been credited by New Century to its profit and loss accounts in the years 1955/56 and 1956/57 respectively, these accounts would have shown debit balances, and no profit would have been disclosed which would have justified the payment of any dividend by New Century itself.
We are accordingly concerned only with the dividends declared by Investment Registry on its ordinary shares and by New Century upon its own shares for the years 1955/56 and 1956/57, For 1955/56 Investment Registry declared an ordinary dividend of 2s. per share on the 19th October 1956 and paid it to New Century on the 24th March 1957. It amounted to £15,771 gross, and we will call it "Dividend A". For 1956/57 Investment Registry declared an ordinary dividend, again of 2s. a share, on the 31st December 1957, and paid it to New Century on the 10th February 1959. It, too, amounted to £15,771 gross, and we will call it "Dividend B".
In its accounts for its accounting year 1955/56 signed on the 1st November 1956 after Dividend A. had been declared by Investment Registry, New Century credited Dividend A. to its profit and loss account, thus showing a profit for the year of £8,321. Its balance sheet for the previous year had shown a debit balance on profit and loss account of £14,527, and in its balance sheet for 1955/56 it showed the profit for the year of £8,321 as applied to reduction of the previous year's deficit on profit and loss account. This, together with an item of loan interest waived, which was appropriated to the same purpose, reduced the debit balance on profit and loss account at the end of the accounting year 1955/56 to £61,257.
In its accounts for 1956/57, signed after Dividend B. had been declared by Investment Registry, New Century credited Dividend B. to its profit and loss account, thus showing a profit for that year of £8,280. This, together with some £10,000 capital and interest on its loan waived by Princes Investments, was appropriated by New Century to an interim dividend for the year 1956/57 upon its own shares of £8,050 net, or £14,000 gross, which was declared by New Century and paid to Princes Investments on the 28th March 1957, and to a proposed final dividend with which we are not concerned.
It is common ground (and also found as a fact by the Special Commissioners) that these accounts were properly drawn up in accordance with current principles of commercial accounting. The profit and loss accounts for each year show what we will call the "commercial profit" for the year, and the balance sheets, together with a separate appropriation account for 1956/57, show what was done with it.
But the income of a company, which for surtax purposes is to be apportioned among its members under Chapter III of the Income Tax Act 1952, is Its "actual income from all sources" (see section 245) for the year of assessment in the case of an investment company (section 262, subsection (1)), and in computing the actual incomefrom any source it has to be estimated in accordance with the provisions of the Act relating to the computation of income from that source (section 255, subsection (3)). The relevant difference between the computation of "actual income" from dividends in respect of shares for a year of assessment, and the method of dealing with dividends for the purpose of ascertaining the commercial profit for the year, is that dividends do not become "actual income" until they are actually received, whereas they may be credited to the profit and loss account of the payee in the year in respect of which they are declared if it is reasonably certain that they will in due course be received. The latter was what was done on its accounts by New Century in respect of both Dividend A and Dividend B.
It is common ground that the "actual income from all sources" of New Century for the year 1956/57 fell to be apportioned among its members under sections 262 and 245 of the Act, and that the amount so apportioned to Princes Investments, namely, £14,290, was correctly computed by including in the computation Dividend A. which was actually received by New Century in the year 1956/57, but excluding Dividend B. which was not actually received until the following year.
It then became the duty of the Commissioners under section 254, subsection (1), to sub-apportion among the members of Princes -Investments "the excess of… (£14,290) … over the amount if any which has been received by… (Princes Investments) … out of the income as aforesaid', that is, the actual income from all sources of New Century for the year 1956/57. The question in dispute is whether the dividend of £14,000 gross declared in respect of the year 1956/57, and paid to Princes Investments on the 27th March 1957, was received by Princes Investments "out of the actual income from all sources of New Century for the year 1956/57".
In stating the problem thus we are conscious of having tacitly rejected a contention of Mr Beattie that "actual income from all sources" for a year out of which a distribution must be received does mean the "commercial profit' for that year as shown in the accounts of the company paying the dividend, for it is the commercial profit which determines the amount available for distribution to members in the form of a dividend payable out of income. He contends that the only relevance of the provision in section 255, subsection (3) that, "in computing, for the purpose of this Chapter, the actual Income from all sources for any year… the income from any source shall be estimated in accordance with the provisions of this Act relating to the computation of income from that source", is to provide a figure which is to be substituted for the actual figure of 'commercial profit" appearing in the company's profit and loss accounts in order to determine the sum of money to be apportioned among the members under section 245 or section 262, subsection (1).
We are unable so to construe the relevant sections of the Act. We think that section 254, subsection (1), directs the Commissioners, first, to ascertain what the various sources of income of New Century were, secondly, to compute by applying income tax principles the amount of the income of New Century from each source for the year of assessment, and thirdly, to ascertain how much (if any) of the total amount of such income was applied by New Century to the payment of its own dividend for the same year of assessment.
Dividend A. received by New Century on the 24th March 1957 was its only source of "actual income" for the year 1956/57 apart from preference dividends, which for reasons already stated can be ignores. As we see it, and as the learned judge saw it, the only question to be answered is. "Was the dividend of £14,000 declared by New Century to Princes...
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Princes Investments Ltd v Commissioners of Inland Revenue
...Sainer & Webb; Solicitor of Inland Revenue.] 1 Reported (Ch. D.) [1966] 1 W.L.R. 1186; 110 S.J. 585; [1966] 2 All E.R. 832; (C.A.) [1967] 2 W.L.R. 1433; 111 S.J. 356; [1967] 2 All E.R. 1 Not included in the present print. 1 Not included in the present print. 1 [1959] 1 W.L.R. 948. 1 38 T.C.......
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Princes Investments Ltd v Commissioners of Inland Revenue; Clore v Commissioners of Inland Revenue
...Sainer & Webb; Solicitor of Inland Revenue.] 1 Reported (Ch. D.) [1966] 1 W.L.R. 1186; 110 S.J. 585; [1966] 2 All E.R. 832; (C.A.) [1967] 2 W.L.R. 1433; 111 S.J. 356; [1967] 2 All E.R. 1 Not included in the present print. 1 Not included in the present print. 1 [1959] 1 W.L.R. 948. 1 38 T.C.......
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