Royal Insurance Company Ltd v Stephen
| Jurisdiction | England & Wales |
| Judgment Date | 15 June 1928 |
| Date | 15 June 1928 |
| Court | King's Bench Division |
NO. 681.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
Income Tax, Schedule D - Profits and losses of insurance company from realisation of investments - Whether exchange of securities under amalgamation scheme (Railways Act, 1921) constitutes realisation.
The Appellant Company for the purpose of its fire, accident and general insurance business held large investments including a variety of British railway stocks. The Company admitted that any profit made on the realisation of an investment was part of its profits for Income Tax purposes, and the Crown admitted that any loss was an admissible deduction from the Company's profits. Under the Railways Act, 1921, the Company was required to accept new stocks in the amalgamated companies in exchange for the stocks previously held in the companies which under the Act were either amalgamated or absorbed. The new stocks received had a definite market value on the date of exchange and this value was less than the original cost to the Company of the stocks surrendered. The Company claimed that the difference should be allowed as a deduction in computing its profits assessable under Case I of Schedule D. The Crown contended that the Company had not realised any loss and that its claim was in effect a claim to write down the book value of investments still held. The Special Commissioners, on appeal, upheld the Crown's contentions.
Held, that the surrender of the old stocks enabled the result of the Company's holding of those investments to be definitely ascertained and was equivalent to a realisation.
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 24th September, 1926, for the purpose of hearing appeals, The Royal Insurance Co., Limited (hereinafter called the Company) appealed against additional assessments to Income Tax (Schedule D) in the sum of £38,123 for the year ending 5th April, 1924, in the sum of £276,328 for the year
ending 5th April, 1925, and in the sum of £354,790 for the year ending 5th April, 1926, made upon the Company by the Additional Commissioners for the Division of Liverpool in the County of Lancaster under the provisions of the Income Tax Acts in respect of the Company's profits other than profits arising from life insurance.2. In addition to their life insurance business (which for Income Tax purposes is separately dealt with and is not material to this Case) the Company carry on the business of fire, accident, and general insurance, and in the course of this business have occasion to make large investments, which are varied from time to time. These investments at all material times included a great variety of stocks of Railway Companies. Any profit made by the Company on the realisation of an investment was admitted by the Company to be part of the Company's profits, and any loss made by the Company on the realisation of an investment was admitted by the Respondent to be a deduction from the Company's profits for the purposes of Income Tax. The Company claim to have made in the years 1922 and 1923 losses amounting to £753,971 on the alleged realisation of certain investments in the circumstances set out in this Case, and claim that these losses, namely £39,414 in the year 1922, and £714,557 in the year 1923, should be allowed as deductions from the Company's profits for the years 1922 and 1923 respectively in computing their Income Tax liability under Case I of Schedule D for the years ending 5th April, 1924, the 5th April, 1925, and the 5th April, 1926, inclusive. The only question for the Court is whether or not these two sums of £39,414 and £714,557 are properly allowable as deductions from the Company's profits for the purposes of Case I of Schedule D.
3. In the year 1921 there was passed the Railways Act, 1921 (11 & 12 Geo. V, Ch. 55), under which the railways of Great Britain were formed into four groups, the principal railway companies in each group (in the Act referred to as "constituent companies") being amalgamated, and other smaller companies (in the Act referred to as "subsidiary companies") being absorbed by one or other of the amalgamated concerns, the amalgamation and absorption taking effect under the provisions of schemes formulated...
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