Wilsons (Dunblane)Ltd v Commissioners of Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 25 January 1954 |
| Date | 25 January 1954 |
| Court | Court of Session (Inner House - First Division) |
COURT OF SESSION (FIRST DIVISION)-
HOUSE OF LORDS-
Income Tax, Schedule D-Initial and annual allowances-Sale of plant and machinery to a person over whom vendor had control-Income Tax Act, 1945 (8 & 9 Geo. VI, c. 24), Section 59.
W, who carried on a wool spinning business, took his two sons into partnership on 16th November, 1944, bringing into the firm the whole of the business assets. The starting figure in the firm's books for the machinery and plant taken over was £8,000, this being the written-down figure in W's books. The partners elected under Rule 11 (1) of the Rules applicable to Cases I and II of Schedule D, that the assessments to Income Tax under Case I of Schedule D should be computed as if the trade carried on by W had been discontinued and a new trade had been set up.
On 16th November, 1945, the business was acquired by the Appellant Company, the whole of the issued share capital of which had been allotted to the former partners. The price paid by the Company for the machinery and plant was £17,554, being the price which it would have fetched if sold in the open market.
Assessments to Income Tax under Case I of Schedule D on the profits of the Company for the years 1946-47 to 1950-51 inclusive were made on the footing that the sale was one to which Section 59 (1) (a), Income Tax Act, 1945, applied, and that this Section required the initial and annual allowances in respect of the machinery and plant to be computed as if the price paid had been £8,000, this being the sum taken to be the "limit of re-charge" on the partnership.
On appeal to the Special Commissioners against these assessments it was contended on behalf of the Company that Section 59, Income Tax Act, 1945, did not apply because the sale had taken place before 6th April, 1946, the "appointed day" under that Act. Alternatively, it was contended that as the machinery and plant had been sold at the price which it would have fetched if sold in the open market, Sub-section (2) of Section 59 did not apply, and that Sub-section (3) (b) of that Section did not modify Sub-section (2) so as to make it apply to the sale. It was also contended that the "limit of re-charge" in relation to the partnership which sold the machinery and plant was not £8,000, but was its cost to W.
The Special Commissioners dismissed the appeal.
The only matter argued before the Court of Session and the House of Lords was that relating to the application of Section 59 (2) and it was held that the Sub-section had no application in the present case.
Stated for the opinion of the Court of Session as the Court of Exchequer in Scotland under the Income Tax Act, 1952, Section 64.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held at Edinburgh on 11th April, 1951, for the purpose of hearing appeals, Wilsons (Dunblane), Ltd., hereinafter called "the Company", appealed against assessments to Income Tax made upon the Company under Case I of Schedule D, Income Tax Act, 1918, for the following years and in the amounts shown:-
£ |
||||
additional assessments |
||||
1946-47 |
… |
… |
2500 |
|
1947-48 |
… |
… |
600 |
|
1948-49 |
… |
… |
1000 |
|
1949-50 |
… |
… |
16,000 |
less £2,000 capital allowances |
1950-51 |
… |
… |
15,190 |
less £3,500 capital allowances |
195 |
balancing charge |
The question before us turned on the proper deductions in respect of wear and tear of machinery and plant to be allowed in the several years under Rule 6 of the Rules applicable to Cases I and II of Schedule D. The issue arose under Section 59 of the Income Tax Act, 1945, which contains special provisions regarding deductions in respect of wear and tear following on certain sales, including sales of machinery or plant.
I. The following facts were admitted or proved:-
(2) The Company at all material times carried on the business of wool spinners.
(3) For some thirty years up to 15th November, 1944, the business now carried on by the Company had been conducted by Mr. Alexander B. Wilson, as sole proprietor, trading as Alexander Wilson & Co.
(4) On 16th November, 1944, Mr. Alexander B. Wilson, hereinafter referred to as "Mr. A.B. Wilson" took his two sons into partnership, Mr. A.B. Wilson taking a one-half share and each son taking a one-quarter issue in the profits. A copy of the contract of co-partnery is annexed and forms part of this Case(1).
(5) Mr. A.B. Wilson brought into the partnership firm on 16th November, 1944, the whole assets of the business, including the machinery and plant then belonging to him which had been acquired by him from time to time in the course of business. These assets were taken into the accounts of the partnership firm at the figures at which they appeared in the accounts of Mr. A.B. Wilson immediately before the partnership firm acquired them. The aggregate figure for these assets was £28,764 15s. 8d. and Mr. A.B. Wilson's capital and current accounts in the partnership books were credited with the sums of £25,000 and £3,764 15s. 8d., respectively, in respect of the said assets.
(6) At 15th November, 1944, the machinery and plant appeared in the balance sheet of Mr. A.B. Wilson's said business at a written down figure of £8,000, and this figure formed the starting figure in the firm's books for machinery and plant for the partnership year commencing on 16th November, 1944.
-
(7) Following the transfer of Mr. A.B. Wilson's business to the said partnership as aforesaid, application was made under Section 32 of the Finance Act, 1926, requiring that the tax payable for all years of
assessment should be computed as if the trade carried on by Mr. A.B. Wilson had been discontinued at 16th November, 1944, and a new trade had then been set up or commenced. The assessments on Mr. A.B. Wilson down to 15th November, 1944, and those on the partnership from 16th November, 1944, were respectively dealt with under the "cessation" and "new business" provisions of the Income Tax Acts. (8) For the partnership year commencing on 16th November, 1944, and ending on 15th November, 1945, the allowances in respect of wear and tear of machinery and plant continued to be calculated on the written down values appearing in the computations of Mr. A.B. Wilson's liability. For the year of assessment 1944-45 the allowances so calculated were apportioned between Mr. A.B. Wilson and the partnership on a time basis.
(9) For Income Tax purposes the written down value of the machinery and plant was £8,822 at 15th November, 1944, and £7,956 at 15th November, 1945.
(10) On 16th November, 1945, the business was taken over from the partnership by the Company, which had been incorporated for this purpose on 4th October, 1945, the whole of the issued shares of the Company being allotted to the former partners, in the proportion of 50 per cent. to Mr. A.B. Wilson and 25 per cent. to each of his said sons.
(11) The assets of the partnership business as at 16th November, 1945, were bought by the Company in accordance with an agreement of sale, under which the price paid for machinery and plant was £17,554.
(12) The said price was the price which the machinery and plant would have fetched if sold in the open market on 16th November, 1945.
(13) "The buyer", i.e., the Company, was "a body of persons over whom the seller", i.e., the partnership, had "control", in terms of paragraph (a) of Section 59 (1) of the Income Tax Act, 1945.
(14) The Company's accounts were made up to 15th November in each year and the Company's liability to Income Tax was computed on the basis of such accounts. In accordance with Section 29 (1) of the Finance Act, 1926 (which was made applicable to trades, professions, or vocations by Section 23 of the Finance Act, 1927) the gross assessments to be made on the Company under Schedule D for the years 1945-46 and 1946-47 were computed by reference to the Company's accounts for the trading year ended 15th November, 1946. For the year 1945-46 the Company was only liable to Income Tax for the period from 16th November, 1945 (the date on which it commenced trading) to 5th April, 1946, and the gross assessment under Schedule D for that period was calculated by making an apportionment on a time basis of the profit for the said year ended 15th November, 1946.
(15) From the gross assessment for 1945-46 as so computed, there was allowed a deduction in respect of wear and tear in the sum of £569 which was also for the period from 16th November, 1945, to 5th April, 1946, being the day before "the appointed day" referred to in the Income Tax Act, 1945 (which "appointed day" was by Section 18 of the Finance (No. 2) Act, 1945, declared to mean 6th April, 1946). The said deduction of £569 in respect of wear and tear was calculated by reference to the sum of £17,554 paid by the Company as aforesaid for the machinery and plant.
(16) For the year 1946-47 there was allowed a deduction in respect of wear and tear in the sum of £709 and an initial allowance under Section 15 of the Income Tax Act, 1945, in the sum of £1,631. Both the said wear and tear allowance of £709 and the initial allowance of £1,631 were calculated by reference to a figure of £7,431 which was the aforesaid sum of £8,000 (which formed the starting figure in the books of the firm for machinery and plant for the year commencing on 16th November, 1944, and which was taken to represent the limit of re-charge under Section 59 (3) of the said Act) less the aforesaid sum of £569 allowed as wear and tear for the period from 16th November, 1945, to 5th April, 1946.
(17) In the computation for the following years also under appeal from 1947-48 to 1950-51, the allowances in respect of wear and tear had been made by reference to the aforesaid sum of £8,000, less the wear and tear allowances granted since 16th November, 1945, and the initial allowance granted for the year 1946-47.
II. The provisions of the aforesaid Section 59, Sub-section (1) to (3) and (5) of...
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