STOTT v HODDINOTT (Surveyor of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 12 July 1916 |
| Date | 12 July 1916 |
| Court | King's Bench Division |
NO. 382.-IN THE HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
Income Tax (Schedule D). - Deduction. - Loss on realization of shares taken up to secure contracts. The Appellant carried on the business of Architect, Surveyor and Engineer at Oldham, and in order to secure contracts for the erection of mills it was necessary for him to take up shares of the Milling Companies granting the contracts. The shares taken up were subsequently sold at various dates at a loss. The sale of the shares was necessary to provide funds for securing new contracts.
Held, that the loss was a loss of capital and was not an admissible deduction in arriving at Appellant's profits for assessment.
1. At a meeting of the General Commissioners of Taxes for the Middleton Division of the County of Lancaster held at the County Court Offices, Oldham, in the County of Lancaster, on the 16th day of
November, 1910, and at an adjourned meeting held at the same place on the 17th day of March, 1911, Mr. Philip Sidney Stott of York Chambers, Yorkshire Street, Oldham appealed against an Assessment under Schedule D of the Act of 16 & 17 Vic. cap. 34 for the year ending 5th April, 1911, of £17,563 in respect of the profits of the business of an Architect, Surveyor and Engineer carried on by him at Oldham.2. The Assessment of £17,563 was based on the Appellant's average profits in his said business of the three preceding years after disallowing as a deduction a sum of £3,201 representing the average net loss in the same three years incurred by the Appellant in the realisation of shares held by him in various Companies, such shares having been acquired by him under circumstances hereinafter stated. A tabular statement is annexed (Annex No. 1) giving in detail the names of the various Companies in which these shares were held, the gain or loss on each sale, the total number of shares taken up by the Appellant in each Company and the dates on which the shares were taken up by him.
3. The above figures of £17,563 and £3,201 were not in dispute between the Appellant and the Respondent the question at issue between them being whether or no the Appellant was entitled to have the Assessment reduced by the amount of £3,201.
4. Mr. George Leach the Secretary of the Appellant appeared on his behalf and gave evidence as follows:-
(2) That the Appellant carried on an extensive business at Oldham as an Architect, Surveyor and Engineer principally in connection with the erection of cotton mills for Limited Companies and firms in Lancashire and elsewhere and in other countries.
(3) That in order to secure from the Companies hereinafter referred to and other Companies who were erecting mills the contracts for the architect's work it was necessary for the Appellant in tendering for the work to agree to take up shares in such Companies. That it would have been impossible for the Appellant to have secured the contracts and made the whole of such profits unless he agreed to take up shares. That it was part and parcel of and essential to the Appellant's business so far as these and other similar contracts were concerned to take shares and that he was bound by his contracts with the Companies to take them up.
(4) That these contracts between the Appellant and the Companies were sometimes in writing and sometimes verbal. Mr. Leach produced three letters as specimens of these contracts and copies of these letters are set out in the Annex No. 2 herewith.
(5) That in the years 1907-8-9 in which the average loss on the 3 years of £3,201 had been incurred it was absolutely necessary for the Appellant to sell the shares sold in those years in order to find funds for securing in like manner new contracts and that he could not have carried on his business without doing so.
5. By arrangement with the Commissioners, Mr. Leach produced to the Surveyor the Appellant's books to show the manner in which the Appellant's accounts in dealing with the Companies in which he had agreed to take up shares in return for getting the work were entered, and Annex No. 3 herewith is a copy of the entries taken from the Appellant's books relating to a contract with the Orb Mill Company Limited shewing the Commission paid to the Appellant for his services as Architect by the Company and the payments made by the Appellant on taking up shares in this Company and may be accepted as an example of the manner in which the books of the Appellant are kept in relation to his contracts with this and other Companies. The money paid by the Orb Mill Company to the Appellant for his services in the erection of their mill was £2,871 2s. 6d. representing 4 per cent. on £71,778 4s. 2d. the cost of buildings, engines, &c., and in accordance with his above mentioned letter to the Company the Appellant took up 5000 shares in the Company.
6. The Surveyor contended (inter alia) that the losses on the sales of the shares could not be allowed to be deducted as they were not moneys wholly and exclusively laid out or expended for the purposes of the Appellant's business within the meaning of the 1st Rule of the Rules applying to Cases 1 and 2 in Schedule D Section 100 of the Act of 5 & 6 Vic. cap. 35 and further that the shares taken up by the Appellant in the various Companies were an investment by him of capital and that any loss on realization of the shares was a loss of capital.
7. The Commissioners accepting the evidence given by Mr. Leach on behalf of the Appellant determined that the Appellant was not a dealer in shares and that it was not a part of his business to deal in shares and that the losses on sales by him of shares so taken up by him were a loss on capital and could not be allowed to be set against or deducted from the Appellant's profits or gains in his business as an Architect, Surveyor and Engineer.
8. Immediately after the determination of the said Appeal by the Commissioners the Appellant expressed his dissatisfaction therewith as being erroneous in point of law and duly required the Commissioners to state and sign a case...
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