Trinidad Petroleum Development Company, Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 24 November 1936 |
| Date | 24 November 1936 |
| Court | King's Bench Division |
NO. 1023-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-
COURT OF APPEAL-
Income Tax - Annual payment - Interest paid in year for which assessable profits exceeded by losses carried forward - Whether paid out of profits brought into charge to tax - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), General Rules 19 and 21; Finance Act, 1926 (16 & 17 Geo. V, c. 22), Section 33; Finance Act, 1927 (17 & 18 Geo. V, c. 10), Section 26.
The Appellant Company's assessable profits under Case I, Schedule D, for the year 1933-34 (after allowance for wear and tear) exceeded the amount of interest paid in that year under deduction of tax, but such profits were more than covered by the set-off of losses carried forward under Section 33, Finance Act, 1926.
On appeal against an assessment raised on the Company for the year 1933-34 under General Rule 21 in respect of the interest paid in that year, the Company contended that the full amount of its profits as computed for Income Tax purposes for the year 1933-34 had been brought into charge by assessment for that year, notwithstanding the set-off for losses carried forward, and that, as the amount of such profits exceeded the amount of interest paid, such interest was wholly payable out of profits or gains brought into charge and was not assessable under General Rule 21.
Held, that the Appellant Company had been rightly assessed to Income Tax under General Rule 21 in respect of the interest paid
Stated by the Commissioners for the Special Purposes of the Income Tax Acts under the Finance Act, 1927, Section 26, and the Income Tax Act, 1918, Section 149, for the opinion of the King's Bench Division of the High Court of Justice.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held at York House, Kingsway, London, on 31st October, 1935, the Trinidad Petroleum Development Company, Limited, of River Plate House, Finsbury Circus, in the City of London, hereinafter called "the Company", appealed against
an assessment made upon it under Rule 21 of the General Rules, All Schedules, Income Tax Act, 1918, as amended by Section 26 of the Finance Act, 1927, for the year 1933-34 in the sum of £46,032 in respect of interest paid out of profits and gains not brought into charge.1. For the year 1933-34 the Company paid interest under deduction of tax to the British Controlled Oilfields, Limited, as follows:-
£ |
s. |
d. |
|
31st July, 1933, on current account |
11,065 |
4 |
6 |
1st December, 1933, on debentures |
26,586 |
3 |
9 |
31st December, 1933, on current account |
8,380 |
12 |
9 |
46,032 |
1 |
0 |
2. The profits of the Company as computed for purposes of Income Tax for the year to 31st July, 1932, to which date its accounts in the year previous to 1933-34 had been made up,
were |
… |
£160,718 |
Less wear and tear brought forward |
||
from previous years |
£48,715 |
|
Less wear and tear for 1933-34 |
£42,095 |
|
£90,810 |
||
£69,908 |
3. The Company had claimed under the Finance Act, 1926, Section 33, Sub-section (1), to carry forward losses of £26,473 and £55,612 attributable to the years 1927-28 and 1928-29 respectively, and to set such losses off against profits on which it might be assessable under Schedule D for subsequent years.
The relief thus claimed fell under Sub-section (3) of the same Section to be given to the extent of £69,908 against the assessment for 1933-34, as follows:-
Assessable profits, 1933-34 |
… |
£69,908 |
Loss for 1927-28 |
£26,473 |
|
" " 1928-29 |
£55,612 |
|
… |
£82,085 |
|
Balance loss (attributable to 1928-29) carried |
||
forward |
£12,177 |
A copy of the Income Tax computations as affecting the Company from 1926-27 to 1933-34 inclusive is attached to and forms part of this Case(1).
4. On behalf of the Company it was contended:-
(2) That the amount of profits or gains on which the Company was assessed under Schedule D for the year 1933-34 was £69,908;
(3) That the fact that the Company had a right under Section 33 of the Finance Act, 1926, to have losses of previous years deducted from or set-off against the amount of the profits on which it was assessed for the year 1933-34 did not prevent such profits from being brought into charge to tax;
(4) That £69,908 was the amount of the Company's profits or gains brought into charge to Income Tax for the year 1933-34;
(5) That, as the Company's profits or gains brought into charge to tax exceeded the amount of the interest paid, such interest was wholly payable out of profits or gains brought into charge and was not assessable under Rule 21.
5. On behalf of the Commissioners of Inland Revenue it was contended:-
(2) That the interest in question came within Rule 21 of the Rules applicable to Schedules A, B, C, D and E of the Income Tax Act, 1918;
(3) That the profits and gains for 1933-34 against which losses had been set-off by virtue of Section 33 of the Finance Act, 1926, were not profits and gains which had been brought into charge to tax for the purposes of Rule 19 of those Rules;
(4) That the assessment should be confirmed.
6. We, the Commissioners who heard the appeal, confirmed the assessment appealed against.
7. Immediately upon our so determining the appeal, dissatisfaction was expressed on behalf of the Company with our determination as being erroneous in point of law and in due course it required us to state a Case for the opinion of the High Court pursuant to the Finance Act, 1927, Section 26, and the Income Tax Act, 1918, Section 149, which Case we have stated and do sign accordingly.
W.J. BRAITHWAITE, R. COKE, Commissioners for the Special Purposes of the Income Tax Acts.
York House,
23, Kingsway,
London, W.C.2.
12th March, 1936.
The case came before Lawrence, J., in the King's Bench Division on the 15th and 18th May, 1936, and on the latter date judgment was given in favour of the Crown, with costs.
Lawrence, J.-This case involves the construction of Rule 19 of the General Rules applicable to All Schedules, and the construction of Section 33 of the Finance Act of 1926, the point being: what is the meaning in Rule 19 of the words "payable wholly "out of profits or gains brought into charge to tax"?
The Appellant Company has been assessed under Rule 21 in the sum of £46,032 in respect of interest paid to the British Controlled Oilfields, Limited, which it is alleged by the Crown was not paid out of profits or gains brought into charge to tax. The Company had made losses in years previous to the year 1933-34 and was entitled to carry forward those losses under Section 33 of the Finance Act, 1926, and thus, although the Company had a net assessable profit, after allowance for wear and tear, in the year 1933-34 of £69,908, it paid no tax in that year, because it brought forward losses from 1927-28 and 1928-29 of £82,085 which more than absorbed the profit of £69,908.
The argument for the Appellant Company is that the payment of interest to the British Controlled Oilfields of £46,032 was wholly paid out of profits or gains brought into charge to tax because it was paid out of, or is deemed to have been paid out of, the £69,908 which was assessed for the year 1933-34 before the...
To continue reading
Request your trial
-
SRLY loss temp. regs. offer significant planning opportunities.
...T's SRLY NOL, because S's capital loss cannot be offset against T's capital gain in the "without" computation. Under Temp. Regs. Sec. 1.1502-21T(c)(1)(i)B, a member's contribution to CTI is based on its items of income, gain, deduction and loss; thus, the SRLY loss that may be absorbed in a......