Sharkey (Inspector of Taxes) v Wernher
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE JENKINS,LORD JUSTICE HODSON,THE MASTER OF THE ROLLS |
| Judgment Date | 07 July 1954 |
| Judgment citation (vLex) | [1954] EWCA Civ J0707-4 |
| Date | 07 July 1954 |
| Court | Court of Appeal |
[1954] EWCA Civ J0707-4
In the Supreme Court of Judicature.
Court of Appeal.
The Master of the Rolls
Lord Justice Jenkins and
Lord Justice Hodson
(H. M. Inspector of Taxes)
MR L.C. GRAHAM-DIXON, Q.C., MR JOHN SENTER, Q.C., and MR PETER ROWLAND (instructed by Withers & Co., 4 Arundel Street, Strand, W.C.2) appeared for the Appellant.
THE SOLICITOR-GENERAL (Sir Reginald Manningham-Buller, Q.C., M.P.) and SIR REGINALD HILLS( Instructed by the Solicitor of Inbland Revenue, Somerset House, Strand, W.C.2.) appeared as Counsel for the Respondent.
THE MASTER OF THE ROLLS The question in this case relates to the liability of the Appellant, Sir Harold Wernher, for Income Tax for the year 1949-50 in respect of an enterprise carried on by his wife Lady Zia Wernher - namely, a stud farm. No issue of fact arises in this case; that is to say, it cannot be said that the matter depends upon a finding of fact by the Special Commissioners. The question is a short one and is a question of law, which may be stated thus. In the accounts of the farm for the year in question, which accounts are exhibited to the Case Stated and which are assumed to be the basis of assessment, what figure should be set against certain colts and fillies transferred (to use the word used in the Case Stated) or moved during the year out of and away from the stud farm for Lady Zia's own racing purposes? Should it be the figure which represents the cost of these animals up to the date of their movement? Or should it be their market value, that is to say, the sum which they would have fetched if sold in the ordinary course on the date of transfer? The Special Commissioners were of opinion that the former was the proper figure. Mr Justice Vaisey, regarding himself as bound by the decision in the case of Watson Bros. v. Hornby, 24 Tax Cases, 506, concluded for the latter view.
The facts are set out or referred to in the Case Stated, and I can briefly summarise them thus: The stud farm, known as Someries was a farm where Lady Zia carried on the enterprise of breeding racehorses. For this purpose she maintained at the farm a number of stallions and brood mares, from which she raised young stock, some of which she sold. In one or two instances she gave the animals to her daughter; in other cases - and this is the most significant fact for present purposes - the young colts and fillies were transferred (I use again the word used in the Case Stated) altogether from the stud farm to be trained and used by Lady Zia for racing. In the year in question five suchcolts and fillies were so moved from the stud farm.
For the purposes of this case certain concessions were made on the part of the Appellant and the Crown, which I must state. First, it was agreed that the enterprise of the Someries stud farm was husbandry, and therefore fell, by virtue of the joint effect of Section 10 of the Finance Act, 1941, Section 28 of the Finance Act, 1942, and Section 31 of the Finance Act, 1948, to be taxed under Case I of Schedule D. It is, I think, not out of place to refer to the relevant language of that part of the Act. Paragraph 1 of Schedule D reads: "Tax under this Schedule shall "be charged in respect of (a) The annual profits or gains arising "or accruing to any person residing in the United Kingdom … "from any trade, profession, employment, or vocation." Paragraph 2 reads: "Tax, under this Schedule shall be charged under the "following cases respectively, that is to say, Case I - Tax in "respect of any trade not contained in any other Schedule"
Secondly, it was agreed that Lady Zia's racing enterprises were purely recreational and, therefore, that she was not taxable in respect of any profits or gains which she might make thereout. Thirdly, it was agreed that the five colts and fillies moved or transferred from the farm during the year in question must be treated as having left the farm as completely and effectually for all purposes as if they had been sold outright or as if, indeed, they had died or had been destroyed. I emphasise the third point of concession because I must not be taken, in the course of this judgment, to be indicating any opinion on what the position might be for tax purposes if any of those animals had been or were thereafter sold or transferred or moved back to the farm. It will be seen that Lady Zia, at all relevant dates, was pursuing two distinct activities, both concerned with racehorses, namely (1) the taxable business of the stud farm and (2) the non-taxable activity of racing horses. The question who have todecide concerns the movement of an item of property or stock from the scope of one activity to the scope of another.
I now turn to the accounts, which I have mentioned, and which consist of a balance sheet, capital account, profit and loss account, and horse account. On the left-hand side of the horse account appear, by name, the various animals - stallions, brood mares and young stock - which, at the beginning of the year covered by the accounts, formed the stock of the stud farm. The first item is the stallion "Precipitation", against which appears the figure of £40,000, representing (I take it) its value at the beginning of the year. Under the heading "Yearlings" appear, amongst others, the five colts and fillies with which we are concerned. I take one to illustrate them all. A chestnut colt, by "Hyperion" out of "Doubleton", appears at the opening of the account with the figure of £572. 12s. against it. That figure represents, as I understand, the cost to Lady Zia of that colt up to the 1st January, 1948.
At the end of the account on the left-hand side is a reference to certain other animals bred during the year, which appear with no figure against them because they were non-existent at the opening of the year.
Then, on the right-hand side, appear the animals in existence and forming the stock at the close of the accounting period. The account opens again with the stallion "Precipitation", which, I take it, at this date was ageing, because its value is shown there at the reduced sum of £30,000. Going down the page to the animals with which we are concerned, which appear under the heading "Animals transferred to training", the chestnut colt I have mentioned, by "Hyperion" out of "Doubleton", appears with the figure of £692 against it, the difference between that and the former figure representing the added cost or expenditure on the animal from the 1st January up to the period of its movementfrom the stud farm. In order to illustrate the nature of the amount involved in this dispute there also appears in the account, set against this young animal a further figure of £3,900, that being, for the purposes of this argument, the figure which should appear against the colt if its market value were appropriate to be there inserted.
Upon the accounts as they stood the total of the figures on the right-hand side - that is, the value of the stock at the close of the period - was less than that of the corresponding figures at the beginning of the period, by the sum of £10,375. That balance figure is then brought into the profit and loss account. I do not wish to take up too much time on those figures, but a word or two is not out of place on the profit and loss account. That really consists of two parts. The first part, on the left-hand side, consists of the various items of expenditure in the ordinary course - wages, forage, horse keep, veterinary charges and so forth, including rates, telephone and the usual expenses of any industry or enterprise. On the right-hand side the main item consists of service fees, and it is a fact that in addition to breeding horses on the farm the stallions - and particularly the stallion "Precipitation" - were made use of by serving mares belonging to other owners, for which services fees were received. In the year in question Precipitation" earned £15,540 in this way.
So far, the service foes and other receipts exceed the wages, upkeep and so forth, by £4,851. There is, however, then brought in the adverse balance on horse account and certain other items - "Reserve for Taxation" and so on - so that, in the end, for the year in question there is shown an adverse balance, transferred to capital account, of £10,423. Again, so that the figures involved may be borne in mind, if there had been substituted for the cost figures on the right-hand side of the horse account thefigures, the adverse balance on the horse account would have been reduced by approximately £7,000, and the adverse balance on the profit and loss account would likewise have been reduced by that figure, or thereabouts.
I have now stated sufficiently the facts and the figures, and I can restate the question for our determination. The five colts and fillies which I have mentioned were part of the farm stock at the beginning of the period covered by the account. They had been bred, not bought. It was a principal object of the farm so to brood them. They had been brought into the horse account at figures representing their cost up to the beginning of the accounting period. Having been moved out of the stock before the end of the accounting year some corresponding figure, admittedly, has to be placed on the right-hand side of the appropriate account, What figure? Should it be the cost figure up to the date of removal or the market value?
The argument of the Crown, in a sentence is this Since the stud farm is a business and, moreover, is a business largely or substantially carried on for the purpose of providing Lady Zia with racehorses, in order to form a realistic view of the result of the business carried on, in fact the relevant figure should be the true value of the stock produced and disposed of, that is to say, the market value. The solicitor-General denies that he is seeking to introduce any...
To continue reading
Request your trial
-
Chetwode (Lord) v Commissioners of Inland Revenue
...to the difference between the sale price and the open market value of the asset disposed of at the time of disposal on the principle of Sharkey v. Wernher, 36 Tax Cases, 275" 41 The contention on this point of the Commissioners was as follows: "By section 16(8) and the 10th Schedule, Financ......
- Jacgilden (Weston Hall) Ltd v Castle
-
Mason v Innes
...4 I start with the elementary principle of income tax law that a man cannot be taxed on profits that he might have, but has not, made: Sharkey v. Wernher, 1956 Appeal Cases, page 68. At first sight that elementary principle seems to cover this case. Mr Hammond Innes did not receive anything......
- Skinner v Berry Head Lands Ltd