Wilson and Garden Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Fraser of Tullybelton,Lord Russell of Killowen,Lord Lowry,Lord Roskill,Lord Brandon of Oakbrook |
| Judgment Date | 08 July 1982 |
| Judgment citation (vLex) | [1982] UKHL J0708-2 |
| Court | House of Lords |
| Docket Number | No. 10. |
| Date | 08 July 1982 |
[1982] UKHL J0708-2
House of Lords
Lord Fraser of Tullybelton
Lord Rusell of Killowen
Lord Lowry
Lord Roskill
Lord Brandon of Oakbrook
My Lords,
I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Roskill. I agree with it, and for the reasons stated in it I would dismiss this appeal.
My Lords,
I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Roskill. I agree with it and for the reasons he gives I also would dismiss this appeal.
My Lords,
I have had the advantage of reading in draft the speech about to be delivered by my noble and learned friend, Lord Roskill. I agree with his conclusions and, for the reasons which he gives, I would dismiss this appeal.
My Lords,
This is an appeal by the Commissioners of Inland Revenue from interlocutors of the First Division of the Court of Session as the Court of Exchequer in Scotland (the Lord President and Lords Cameron and Avonside) dated 19th February and 5th May 1981. By those interlocutors the First Division allowed an appeal by the respondents by way of case stated by the General Commissioners for the Division of Stirling. The respondents had appealed to the General Commissioners against a notice served on them by H.M. Inspector of Taxes under paragraph 15(1) of Schedule 16 to the Finance Act 1972. The General Commissioners had refused that appeal. On 25th March 1980, before those two interlocutors presently appealed from, the First Division had during the hearing of the appeal remitted the case to the General Commissioners on certain matters and in due course the General Commissioners reported to the First Division upon those matters.
My Lords, the principal question for determination in this appeal arises in this way. The respondents were a close company for the purposes of section 282(1) of the Income and Corporation Taxes Act 1970. The respondents had from the 1930s onwards carried on a business as manufacturers of chalkboards. They still did so at the material times giving rise to the present dispute. But in the five years from the 1st July 1972 to 30th June 1977 there was a steady fall in the number of chalkboards which they sold though it was found that that fall was not necessarily matched by a fall in the value of the respondents' sales or of their trading profit. None the less early in 1976 the respondents' board of directors came to the conclusion that it was essential for the respondents to find other means of creating profits in order to maintain their trading position. Later that year they made enquiries about the acquisition of a major motor dealership. This was an entirely new departure for the respondents since hitherto their connection with the motor trade had been only the ownership of a number of vehicles which they used in connection with their business of making and selling chalkboards.
My Lords the respondents' accounts for the year ending 30th June 1975 were approved by their directors on 8th October 1976, "the relevant date". The accompanying report recommended that out of a profit of £68,573 for that financial year dividends totalling £6,614 should be paid. Those accounts were adopted by the respondents in General Meeting on 17th November 1976. Meanwhile on 12th November 1976 the respondents had decided to acquire a Ford Retail Dealership at Glenrothes in Fife. This was later acquired at a cost of £109,000. This acquisition had been in contemplation on the relevant date and it was common ground that the transaction was intra vires the respondents.
My Lords, the notice served by H.M. Inspector, to which I have referred, showed that the sum of £51,066 was to be apportioned among participators in respect of the respondents' financial year ending 30th June 1975. As already stated it was against that notice that the respondents appealed to the General Commissioners. Whether the First Division or the General Commissioners were correct must depend on the application to the facts which I have summarised of the relevant statutory provisions upon their proper construction. It is therefore to these that I now turn.
Section 94 of the Finance Act 1972 provided that Schedule 16 of that Act should have effect instead of certain statutory provisions relating to the charge to income tax in respect of shortfall in distributions of close companies and apportionment of income of close companies among participators. It is therefore to Schedule 16 that I next turn. The most relevant provisions of that Schedule are as follows:
"SCHEDULE 16
Apportionment of Income etc. of Close Companies
Part I
Powers of Apportionment and Consequences of Apportionment
Power to apportion excess of company's relevant income over its distributions
1.—(1) Subject to sub-paragraphs ( 2) and (3) below, the income of a close company for any accounting period may, for the purposes of this Schedule, be apportioned by the inspector among the participators.
(2) Subject to paragraphs 2 and 3 below—
( a) an apportionment shall not be made under this paragraph unless the relevant income of the company for the accounting period exceeds its distributions for that period; and
( b) the amount apportioned shall be the amount of that excess, and Part II of this Schedule shall have effect for determining the relevant income and distributions of a company for an accounting period and whether or not there is any such excess. …
Manner of apportionment
4.—(1) Subject to the provisions of this paragraph, any apportionment under paragraph 1 above, including any sub-apportionment of an amount directly or indirectly apportioned to a company, shall be made according to the respective interests in the company in question of the participators. …
Consequences of apportionment: income tax
5.—(1) …
(2) Where a sum is so apportioned to an individual—
( a) it shall be treated for the purpose of computing his total income as income...
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