THE NAVAL COLLIERY Company, Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Warrington of Clyffe,Lord Wrenbury,Viscount Sumner,Lord Atkinson,Lord Buckmaster,. |
| Judgment Date | 24 February 1928 |
| Judgment citation (vLex) | [1928] UKHL J0224-2 |
| Date | 24 February 1928 |
| Court | House of Lords |
[1928] UKHL J0224-2
House of Lords
Lord Buckmaster.
Viscount Sumner.
Lord Atkinson.
Lord Wrenbury.
Lord Warrington.
After hearing Counsel, as well on Tuesday the 31st day of January last, as on Thursday the 2d day of this instant February, upon the Petition and Appeal of the Naval Colliery Company (1897), Limited, whose registered office is situate at 38, Exchange Buildings, Cardiff, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 11th of March 1927, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed case of the Commissioners of Inland Revenue, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 11th day of March 1927, complained of in the said Appeal, be, and the same is hereby. Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
The question arising in this Appeal is whether a sum of money expended after the expiration of the last accounting period for the purposes of Excess Profits Duty in making good damages to the mines of the Appellants occasioned during that period can properly be allowed in determining the amount in that period of the profits or deficiency of the colliery business carried on in such mines.
The Appellants carry on the trade or business of coal mining in and upon certain leasehold mines and premises in the county of Glamorgan. The leases of the mines contain usual covenants for the repair and maintenance of the mines, pits, roads and so forth.
The accounting period in respect of which the question arises is the period of three months beginning the 1st April, 1921, and ending the 30th June, 1921, and it is the last period to which the charge of Excess Profits Duty applied.
Owing to the national strike of mine workers there was a complete stoppage of work in the mines from the 1st April to the 2nd July, 1921, viz., for the whole of the accounting period and two days more.
As a result of the stoppage the mines were flooded and considerable damage was done to pit props and so forth. Before work in the mines could be resumed it was necessary to pump out the water and execute extensive repairs. Immediately after the cessation of the strike the Appellants commenced and in about six weeks completed the reconditioning of the mines. They estimate their expenditure on this work at the sum of £37,808, and for the purposes of argument this estimate is assumed to be correct. No part of the money was expended in the accounting period.
The Commissioners of Inland Revenue having refused to allow the deficiency in the accounting period to be increased by the above-mentioned sum, the Appellants appealed to the Special Commissioners for Income Tax who confirmed the refusal, and at the request of the Appellants stated a case for the opinion of the Court. This was heard by Rowlatt J. who, on the 15th June, 1926, made an Order dismissing the Appeal and affirming the decision of the Special Commissioners. An appeal to the Court of Appeal was on the 15th March, 1927, dismissed by a majority—Lord Hanworth M.R. and Lawrence L.J.—Sargant L.J. dissenting.
Excess Profits Duty was imposed by the Finance (No. 2) Act, 1915. The Duty is charged upon "the profits arising from any trade or business" to which the provisions of the Act apply, and the trade or business of the Appellants is such a trade or business. Provision is made in S. 38 for the repayment of tax on account of losses or deficiency in accounting periods subsequent to those in respect of which the tax has been ascertained and paid. It was under this provision that the claim now in question was made.
The profits arising from a trade or business for the purposes of this duty are to be separately determined, but are to be determined on the same principles as the profits and gains of the trade or business are or would be determined for the purposes of Income Tax subject to certain modifications contained in Part I of the 4th Schedule to the Act. The only provision material to the present case is in Clause 1:
"The profits shall be taken to be the actual profits arising in the accounting period; and the principle of computing profits by reference to any other year or an average of years shall not be followed."
The principles upon which profits and gains of a business are to be computed for the purpose of Income Tax are familiar to us all. The tax is to be computed on the full amount of the balance of the profits or gains, and no deduction is to be made other than by the Income Tax Act is allowed. No deduction is by that Act allowed for loss or deterioration of a capital asset such as the mines in the present case.
I think there can be no doubt that, if the mines had been the property in fee simple of the Appellants, the deterioration, under the circumstances above mentioned, in the value of the mines would not have been allowed in the computation of profits for the purpose of Income Tax; in other words, though it might be a proper item in the Balance Sheet it would not be a proper debit item in the profit and loss account for tax purposes.
But it was contended that the liability under the covenants in the leases of the mines places the case upon a different footing. In my opinion this is not so. It is true that during the stoppage of work the Appellants did not perform their covenants to repair and maintain the mines, but the measure of their liability (if any) in this respect would be the damage to the reversion. No claim in this respect has been made or could now be made by the Lessors—the damage (if any) having been made good—and the claim of the Appellants is not made on the footing of any liability on their part to their Lessors, but is of a different nature.
It may well be that in the period in which the expenditure was made it may be properly made—as it was in fact made—out of revenue, but the question in this case is whether by reason of the happening, in the accounting period, of the events which occasioned the expenditure, that expenditure can be treated as having been made in that period.
When everything has been said that can be said, this claim is really for deterioration in the value of a capital asset of the business and such a claim cannot be allowed in the computation of profits for purposes of Income Tax, and therefore cannot be allowed in the computation of profits for the purpose of Excess Profits Duty.
The judgment of Moulton L.J. in re The Spanish Prospecting Company, Ltd., 1905, 1 K.B. 184, was relied on by the Appellants, but in my opinion was not in point. The learned Lord Justice was dealing not with a profit and loss account for the purpose of Income Tax but with a balance sheet intended to show the actual financial condition of a business at the end of a business year.
I am of opinion that the Appeal fails and should be dismissed with costs.
My Lords,
I agree that this...
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