Re Sutherland, decd
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE UPJOHN |
| Judgment Date | 22 July 1960 |
| Judgment citation (vLex) | [1960] EWCA Civ J0722-1 |
| Court | Court of Appeal |
| Date | 22 July 1960 |
[1960] EWCA Civ J0722-1
In The Supreme Court of Judicature
Court of Appeal
The Master of the Rolls (Lord Evershed),
Lord Justice Willmer and
Lord Justice Upjohn.
SIR JOHN SENTER, Q.C., and Mr R.A. WATSON (instructed by Messrs Hyde, Mahon & Pascall, Agents for Messrs Keenlyside & Forster, Newcastle—upon—Tyne) appeared on behalf of the Appellants.
Mr R.O. WILBERFORCE, Q.C., and Mr E. BLANSHARD STAMP (instructed by Solicitor of Inland Revenue) appeared on behalf of the Respondents.
: In this case we have all reached a clear Conclusion on what I will venture to call the premise to the argument presented by the Appellants. We have therefore thought that there would be no advantage in reserving Judgment and that possibly, on the other hand, there would be an advantage in stating our view at once, in case the Appellants should desire to consider taking the case further.
The facts are set out in the report of the case in the Court below in 1960 1 Chancery at page 134. It will, I hope, be sufficient for me to say this: The problem is one of the liability for estate duty of the estate of Sir Arthur Munro Sutherland. Sir Arthur, at the time of his death which occurred on the 29th March, 1953, was the owner of 98,700 shares of 1 each in the capital of the ship—owning company B.J. Sutherland & Company Limited, and during the five years immediately preceding his death he had such control over that company that, for the purposes of estate duty, the shares in the company which were part of his estate had to be valued in accordance with the provisions of Sections 50 and 55 of the Finance Act 1940. The result, if the learned Judge was (as I think he was) correct in his conclusion, may no doubt be said to work a little hardly on the estate. It is conceivable that in other cases the advantage or hardship might be the other way; but, acknowledging the hardship, It is nevertheless our duty to interpret as best we can the obligations imposed by the statute to which I have alluded.
I turn therefore at once to the relevant sections in the 1940 Act; and, as did the learned Judge, it is convenient to read them in the reserve order. Section 55, as amended, provides that where for the purposes of estate duty there pass, on the death of a person dying after the commencement of the Act, shares in a company to which this section applies — and I have said that is the fact here — then if the deceased had the control of the company at the period stated, the principal value of the shares, Instead of being estimated In accordance with the provisions of sub-section (5) of Section 7 of the Finance Act, 1894, "shall be estimated by reference to the net value of the assets of the company in accordance with the provisions of the next succeeding sub—section". Then sub-section (2) continues: "For the purposes of such ascertainment, the net value of the assets of the company shall be taken to be the principal value thereof estimated in accordance with the said sub—section (5)". —that is sub-section (5) of Section 7 of the Finance Act — "less the like allowance for liabilities of the company as is provided by sub-section (l) of section 50 of this Act in relation to the assets of a company passing on a death", etc.
It is convenient to have in mind what sub-section (5) of Section 7 of the Finance Act, 1894, says. It is as follows: "The principal value of any property shall be estimated to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the deceased".
So far then, the matter stands thus, If I can correctly summarise it: Having regard to the nature of the deceased's shareholding in this company, for the purposes of estate duty you must value not the shares but the assets of the company —here, in particular, five ships — and you value them by estimating the price which those ships would fetch if sold in the open market on the 29th March, 1953.
Having done that, the second sub—section of Section 55 of the 1940 Act proceeds, it will be recalled, to go on to provide that you then deduct the allowances intimated in Section 50 of the 1940 Act, and it is only necessary, I think, to read the latter part of sub—section (1) of that section: "the Commissioners shall make an allowance from the principal value of those assets for all liabilities of the company (computed as regards liabilities which have not matured at the date of the death, by reference to the value thereof at that date, and as regards contingent liabilities, by reference to such estimation as appears to the Commissioners to be reasonable)".
It is not in dispute that the value of these ships, estimated according to the method prescribed by sub-section (5) of Section 7 of the Finance Act, 1894, on the 29th March, 1953, was 1,150,000. It is the fact that the ships were at a later date sold for approximately that figure; but I think Sir John Senter did, in the course of the attractive argument (if he will allow me to say so) he put forward for the Appellants, concede that the fact of the sale Is for present purposes irrelevant. His argument would be Just as good if in truth the ships were still sailing the seas under the flag of the same company, and even if the ships never were sold at all.
The question raised is thus put In the Originating Summons in the case: "Whether on the true construction of" the sections which I have already read "and in the events which have happened any and if so what allowance falls to be made in valuing for estate duty the shares of the company on the basis" therein stated "and in particular whether allowance falls to be made at such date" — that is the 29th March, 1953 — "by taking into account balancing charges (giving rise to income tax and profits tax) attaching to a sale of the ships in question by reason of and up to the amount of capital allowances previously received by the company in respect of the said ships".
I shall not go into figures; but it is again not in doubt that by reason of the depreciation allowances for tax purposes which had been made to the company B.J. Sutherland & Company Limited in respect of these ships, they had at the relevant date a written—down value considerably less than the figure of 1,150,000 which I have mentioned. It therefore follows that, had the ships been sold on the 29th March, 1953, for that price, there would have arisen (and I can now speak in terms of certainty because all relevant subsequent Finance Acts have, of course, been passed) liability for the company to be charged income tax in respect of a balancing charge, that charge arising from the fact that the sale price was considerably in excess of the written—down value; and similarly there would have arisen an obligation to pay profits tax arising from the same circumstances.
I shall come back presently to deal with an argument put by Sir John in the course of his reply but which I will for present purposes summarise as follows: He said that if you looked as a business man at the affairs of the company as they stood on the 29th March, 1953, and if you realised that the ships then were worth a sum considerably in excess of their writtendown value, then you would have to acknowledge (and as a prudent man you would have to make provision accordingly) that you had received remissions in respect of tax from the Revenue which were greater than you should have received, and that there was therefore an obligation to restore those excessive allowances to the Revenue which would arise if and when the ships were sold at or anything like at the price which I have mentioned. So, said Sir John, looking broadly at it in that way, would it not be right to say that, as things then stood, there was a contingent liability then upon the company to restore those excessive allowances to the Revenue, the contingency being the event (likely enough it may well be) of a sale in due course?
I have stated that to that argument I will presently return because it is, I think, distinct from the argument which Sir John put in the forefront of his case in opening and, of course, in reply. I cannot do better justice to the argument than by referring to the proposition as Sir John was good enough to formulate it to us in writing: "The sole and express statutory hypothesis on which the valuation falls to be made under Section 55 and Section 50 of the Finance Act, 1940, is a notional sale of the assets at their open market price at the time of the death, making allowance for liabilities, including, it is submitted, those attaching, or crystallizing, as a matter of low, on the sale". If I do not therefore do the proposition an injustice, it is to this effect, that since for the purpose of arriving at the value of the ships at the relevant date you have to assume a sale, therefore you must for all purposes of the application of the two sections proceed upon the basis that this notional sale took place, and took place on the 29th March, 1953. If that premise is right, then, as it seems to me, there is much to be said for the argument which proceeds from the premise. If you are, so to speak, to treat the ships as having in fact been sold, then can you avoid the inevitable consequence of the sale that you must also take account, as having then arisen, of liability in respect of the balancing charge for income tax and profits tax?
Still accepting the premise, the argument further proceeds to point out that in a case of balancing charge you must look at Section 292 of the Income Tax Act, 1952. Sub-section (1) of that section is as follows: "Subject to the provisions of this section, where any of the following events occurs in the case of any machinery or...
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