Townsend (HM Inspector of Taxes) v Grundy
| Jurisdiction | England & Wales |
| Judgment Date | 14 July 1933 |
| Date | 14 July 1933 |
| Court | King's Bench Division |
NO. 891.-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION).-
Income Tax, Schedule D - Profits from transactions in cotton futures.
The Respondent, a manufacturer of agricultural implements, arranged with a firm of cotton brokers that he should have facilities for dealing in cotton futures, and over a period of years he engaged in a series of such transactions. Contracts in ordinary form were entered into by him for the purchase and sale of cotton at future dates, but the Respondent had no intention of either taking up or delivering cotton and only differences on settlement were either received or paid. The brokers were aware that no cotton was to be delivered and that the transactions were of a speculative character, but the merchants with whom the brokers dealt were unaware of the terms of the contracts between the brokers and the Respondent. Between February, 1919, and February, 1923, there were sixteen such transactions, and, in addition, the Respondent entered into a number of joint transactions of a similar nature between December, 1926, and April, 1928.
The Respondent was assessed to Income Tax under Schedule D for each of the years from 1921-22 to 1928-29, inclusive, in respect of profits from these transactions. On appeal, he contended that the transactions were entirely disconnected with his business and were purely betting transactions on the prices of cotton, the profits of which were not assessable either under Case I or Case II, as from a trade or vocation, or under Case VI.
The General Commissioners decided that the transactions were not part of the Respondent's trade and not a trade in themselves and were not liable under Case I or Case VI of Schedule D.
Held, that the profits arising from the transactions were annual profits or gains assessable to Income Tax under Case VI of Schedule D.
Cooper v. Stubbs, 10 T.C. 29, followed.
Stated under the Income Tax Act, 1918, Section 149, by the Commissioners for the General Purposes of the Income Tax for the Division of Kettering, in the County of Northampton, for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the said Commissioners held at 11, Market Street, Kettering, in the County of Northampton, on the 28th July, 1932, Mr. J.P. Grundy (hereinafter called "the Respondent") appealed against the following estimated assessments to Income Tax which had been made upon him under Schedule D of the Income Tax Act, 1918, namely :-
(a) An assessment in the sum of £3,000 for the year ending 5th April, 1922.
(b) An assessment in the sum of £3,000 for the year ending 5th April, 1923.
(c) An assessment in the sum of £3,000 for the year ending 5th April, 1924.
(d) An assessment in the sum of £1,500 for the year ending 5th April, 1925.
(e) An assessment in the sum of £1,500 for the year ending 5th April, 1926.
(f) An assessment in the sum of £1,500 for the year ending 5th April, 1927.
(g) An assessment in the sum of £1,000 for the year ending 5th April, 1928.
(h) An assessment in the sum of £1,000 for the year ending 5th April, 1929.
2. The assessments under appeal were made upon the Respondent under Schedule D of the Income Tax Act, 1918, in respect of profits from transactions in cotton futures entered into by him through brokers on the Cotton Exchange.
3. The Respondent is a manufacturer of agricultural implements, but was some time ago casually introduced by a friend to a Mr. Hanmer, who was a member of a firm of cotton brokers (Messrs. Mellor and Fenton of Liverpool) and decided, although he knew nothing whatever about cotton, to have a gamble on the rise and fall of cotton prices.
4. Mr. Hanmer was called as a witness before us and we accepted his evidence. He stated that he was introduced to the Respondent shortly before the commencement of the transactions, and the usual enquiries were made of the Respondent, and he (Mr. Hanmer) was aware at the time that the Respondent knew nothing at all of the cotton business and the transactions were simply a case of "having a flutter".
5. During the material years, the Respondent, in pursuance of the decision to which he had come as described in paragraph 3 hereof, entered into contracts for the purchase or sale of cotton at future dates. These contracts provided for the delivery of actual cotton, but the Respondent never had any intention of either taking up or delivering the cotton, as the case might be. The merchants with whom the brokers dealt were unaware of the terms of the contract between the brokers and the Respondent. Mr. Hanmer, whose evidence we accepted, said that there was no difference between the form of the contracts between Mr. Grundy and his firm and the ordinary future contracts entered into with other persons where there were real transactions, but that, in Mr. Grundy's case, although the forms of the contracts were the same, both he and Mr. Grundy knew that no cotton was to be delivered and that the transactions were merely gaming ones. A specimen form of contract, marked...
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