Special Commissioners of Income Tax v Linsleys (Established 1894)Ltd ((in Liquidation))
| Jurisdiction | England & Wales |
| Judgment Date | 23 January 1958 |
| Date | 23 January 1958 |
| Court | House of Lords |
HIGH COURT OF JUSTICE (QUEEN'S BENCH DIVISION, DIVISIONAL COURT)-
COURT OF APPEAL-
HOUSE OF LORDS-
Surtax - Profits Tax - Company under control of not more than five persons - No estate or trading income - Income receipts less than deduction for Profits Tax in computing actual income from all sources - Whether Profits Tax "payable" - Whether Surtax direction mandatory so as to found Profits Tax exemption - Finance Act, 1947 (10 & 11 Geo. VI, c. 35), Section 31(3); Income Tax Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 10), Sections 245 and 262; Finance Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 33), Section 68.
A company to which at all material times Section 245, Income Tax Act, 1952, applied had sold its business of beer, wine and spirit merchants on 1st April, 1952, and thereafter had no trading income before going into liquidation on 7th May, 1953. An assessment to Profits Tax was made on it for the chargeable accounting period 1st April to 7th may, 1953, in an agreed figure (including a distribution charge arising from the distributions on liquidation), against which it appealed on the ground that it might not be assessable for Profits Tax for that period.
For Surtax purposes the Special Commissioners considered that for the year 1952-53 the company was an investment company and its actual income from all sources was liable to automatic direction and apportionment among the members under Section 262, Income Tax Act, 1952; for the period 6th April to 7th May, 1953, they considered that, as its income from all sources before making the deduction to be allowed under Section 68, Finance Act, 1952, for Profits Tax payable by the company did not exceed the amount of that deduction, the actual income was nil and therefore no Surtax direction should be given.
Before the determination of the Profits Tax appeal the company applied for an Order of Mandamus requiring the Special Commissioners to give a Surtax direction for the period 6th April to 7th May, 1953, in order that the company and its corporate members might be enabled to elect under Section 31(3), Finance Act, 1947, that it should not be chargeable to Profits Tax for the period 1st April to 7th May, 1953. The company contended that the Special Commissioners were bound to direct and apportion even if the actual income was nil, and, alternatively, that in the circumstances the Profits Tax for the relevant period was not "payable".
Held, that there could not be a direction unless the company had an actual income, and in determining whether it had an actual income there must be a deduction for Profits Tax which was payable and would remain payable if no direction were given.
1. The name and description of the applicant is Linsleys (Established 1894) Limited (in voluntary liquidation) whose Registered Office is situate at 2 Parliament Street in the City and County of Kingston upon Hull. Prior to the 7th day of May, 1953, when a resolution was duly passed for the voluntary winding up of the applicant, the applicant carried on business in the City and County of Kingston upon Hull and in the East Riding of the County of York as Beer, Wine and Spirit Merchants and Bottlers.
2. The relief sought is an order of mandamus directed to the Commissioners for the special purposes of the Income Tax Acts requiring them to give a direction under Sections 245 and 262 of the Income Tax Act, 1952, in respect of the period from the 6th day of April, 1953, to the 7th day of May, 1953 (both dates inclusive), in relation to the applicant.
3. The grounds of the application are:
(a) that the applicant was an investment company as defined in Section 257 of the Income Tax Act, 1952, during the said period from the 6th day of April, 1953, to the 7th day of May, 1953, being the period elapsing between the end of the year of assessment 1952-53 and the time of the commencement of the winding up of the applicant;
(b) that by virtue of sub-sections (1) and (6) of Section 262 of the Income Tax Act, 1952, the said Commissioners for the special purposes of the Income Tax Acts have a duty to give a direction under Section 245 of the Income Tax Act, 1952, in respect of the said period in relation to the applicant;
(c) that by a letter dated the 29th day of September, 1954, Messrs. Carlill, Burkinshaw & Ferguson, Chartered Accountants, on behalf of the applicant requested the said Commissioners for the special purposes of the Income Tax Acts to direct that the actual income of the applicant for the period from 1st April to 7th May, 1953, be apportioned to the members for surtax purposes;
(d) that by a letter dated the 7th day of March, 1956, the said Commissioners for the special purposes of the Income Tax Acts refused to give any direction under Section 262(1) of the Income Tax Act, 1952, for the period from the 6th day of April to the 7th day of May, 1953;
(e) that the grounds relied upon by the said Commissioners for the special purposes of the Income Tax Acts for refusing to give a direction as aforesaid are erroneous in law.
Dated the Third day of July, 1956.
(Signed) J. Wood.
I, John Wood, of 2 Parliament Street in the City and County of Kingston upon Hull, Chartered Accountant, make oath and say as follows:-
1. I am the liquidator of the above named applicant (hereinafter called "the Company"), having been duly so appointed by a Special Resolution passed by the Company on the 7th day of May, 1953.
2. I am duly authorised to make this Affidavit on behalf of the Company.
3. The Company was incorporated under the Companies Acts, 1862 to 1890, on the 7th day of May, 1894, under the name of T. Linsley & Company Limited having an authorised and issued capital of £8,000 divided into 800 shares of £10 each which was subsequently increased to £40,000 divided into 2000 ordinary shares of £10 each and 2000 preference shares of £10 each. Until the 31st day of March, 1952, the Company carried on business as Beer Wine and Spirit Merchants and Bottlers. On the 1st day of April, 1952, the Company sold its said business. By Special Resolution dated the 14th day of March, 1952, the Company changed its name to Linsleys (Established 1894) Limited.
4. At all material times the Company was under the control of not more than five persons within the meaning of Section 256(1) of the Income Tax Act, 1952, and accordingly was a Company to which Section 245 of the Income Tax Act, 1952, applied. Between 6th April and 7th May, 1953, some (but not all) of the persons who were "members" of the Company within the meaning of Section 255(2) of the Income Tax Act, 1952, and to whom the income of the Company could be apportioned under Section 248(1) of the Income Tax Act, 1952, were individuals.
5. During the year of assessment 1952-53 the Company was an investment company within the meaning of Section 257 of the Income Tax Act, 1952, and has been treated as such by the Commissioners for the special purposes of the Income Tax Acts (hereinafter called "the Special Commissioners") who by letter dated the 7th day of March, 1956, indicated their intention to give a direction under Section 262(1) of the Income Tax Act, 1952, in respect of the actual income of the Company from all sources for that year. The said letter is now produced and shown to me marked "J.W.1"(1).
6. During the period from the 6th day of April, 1953, to the 7th day of May, 1953, the Company remained an investment company and its actual income from all sources for that period computed in accordance with Section 255(3) of the Income Tax Act, 1952, amounted to £6,782 calculated without reference to the provisions of Section 68(1) of the Finance Act, 1952.
7. By a Special Resolution passed at an Extraordinary General Meeting of the Company duly convened and held on the 7th day of May, 1953, it was resolved that the Company be wound up voluntarily.
8. By a letter dated the 29th day of September, 1954, Messrs. Carlill, Burkinshaw & Ferguson, Chartered Accountants, acting on behalf of the Company, formally requested the Special Commissioners to direct that the actual income of the Company for the period for 1st April to 7th May, 1953, be apportioned to the members for surtax purposes. This request was in fact intended to refer to the actual income of the Company for the period from 6th April to 7th May, 1953. A copy of the said letter is now produced and shown to me marked "J.W.2"(1).
9. By the said letter dated the 7th day of March, 1956, the Special Commissioners indicated that they did not propose to give any direction under Section 262(1) of the Income Tax Act, 1952, for the period from the 6th April to the 7th May, 1953. The ground relied upon by the Special Commissioners for refusing to give a direction was that, according to the view taken by the Special Commissioners, the Company was liable to profits tax for the chargeable accounting period from the 1st April, 1953, to the 7th May, 1953, in the sum of £18,987 (which sum arose mainly from distribution charges on liquidation distributions) and that by virtue of Section 68(1) of the Finance Act, 1952, a deduction should be allowed in computing the actual income of the Company for the period from the 6th April to the 7th May, 1953, of such an amount as would, after deduction of income tax at the standard rate for the year 1953-54, be equal to so much of the sum of £18,987 as was apportionable to the period from the 6th April to the 7th May, 1953, and that the effect of this deduction was that the Company had no actual income during the said period and there was nothing in respect of which a direction could be given under Section 262(1) of the Income Tax Act, 1952.
10. It is contended by the Company that the ground relied upon by the Special Commissioners for refusing to give a direction is...
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