Watson Bros. v Hornby

JurisdictionEngland & Wales
Date1942
CourtKing's Bench Division

NO. 1228-HIGH COURT OF JUSTICE (KING'S BENCH DIVISION)-

(1) WATSON BROS
and
HORNBY (H.M. INSPECTOR OF TAXES

Income Tax, Schedule D - Poultry farming - Farm assessed under Schedule B and hatchery under Schedule D - Valuation, in assessing profits of hatchery, of chicks transferred to farm.

The Appellants carried on the business of poultry breeders and dealers. In addition to keeping birds on their farm for laying purposes, they had a hatchery which produced chicks primarily for sale as "day-old chicks", although some were transferred to brooder houses and became part of the stock on the farm. In accordance with the decision in Thornber Bros., Ltd. v. Macinnes, 21 T.C. 221, the Appellants were assessed to Income Tax for the years 1931-32 to 1934-35 under Schedule D in respect of the profits of the hatchery part of their business, and under Schedule B in respect of the profits of the farm.

On appeal against the assessments under Schedule D, the Appellants contended that, in computing the profits of the hatchery, the day-old chicks transferred to the farm should be credited as stock at the average price at which they were sold, and could have been bought, in open market, viz., 4d. per chick, and that the difference between that price and the admitted cost of production of each saleable day-old chick, 7d., was an allowable loss. The Crown contended that the hatchery and the farm were two activities of the same person who could not make a loss by transferring from one department to the other; that no allowance could be given for an unrealized loss, and that the chicks should be credited to the hatchery account at production cost. The General Commissioners accepted the Crown's contention.

Held, that in the notional sale between the hatchery and the farm, which should be treated for this purpose as separate entities, the price to be credited was the "reasonable price" laid down by Section 8 of the Sale of Goods Act, 1893, and that on the admitted evidence this reasonable price must be the market price of 4d. per chick.

CASE

Stated under Section 149 of the Income Tax Act, 1918, by the Commissioners for the General Purposes of the Income Tax for the Division of West Morley, in the County of York, for the opinion of the King's Bench Division of the High Court of Justice.

1. At a meeting on 13th December, 1940, held at 28 Prescott Street, Halifax, the Commissioners for the General Purposes of the Income Tax Acts acting for the West Morley Division, in the County of York, continued the hearing of an adjourned appeal by Messrs. Watson Bros. (hereinafter called "the Appellants") against assessments upon them for the years 1931-32 to 1934-35, as poultry dealers. The appeal was originally before the Commissioners on 26th July, 1935.

A Case was stated on the demand of the Appellants with regard to our decision at that hearing, but the Appellants subsequently consented to the withdrawal of the case from the file of the Court, following on the decision in Thornber Bros., Ltd. v. Macinnes, 21 T.C. 221. The facts proved or admitted and our decision on that occasion appear from the Case Stated, a copy of which is annexed hereto, marked "A"(2).

2. The issue submitted for the Commissioners' further decision at the adjourned hearing was the value which was to be placed in computing the profits of the hatchery on day-old chicks unsold and transferred to the brooders; the brooders being...

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