Young & Company v Inland Revenue
| Jurisdiction | Scotland |
| Judgment Date | 28 October 1925 |
| Date | 28 October 1925 |
| Docket Number | No. 6. |
| Court | Court of Session |
Lord President (Clyde), Lord Skerrington, Lord Cullen, Lord Sands.
RevenueExcess profits dutyComputation of profitsDeductionsLossesLoss not occurring in accounting periodArtificial transactionFall in value of forward purchases of raw materialsCancellation of contracts and ascertainment of lossLoss entered in books as debt due to sellersNew contracts for supply of undelivered materials at current priceFinance (No. 2) Act, 1915 (5 and 6 Geo. V. cap. 89), sec. 40 (1), Fourth Sched., Part I., pars. 1 and 5.
In estimating their profits and losses for the purpose of excess profits duty, a firm of muslin manufacturers, who had bought yarn on forward contracts, claimed to be entitled to deduct as a loss the difference between the contract price and the market price current at the close of the accounting period in respect of the yarn then undelivered. Near the close of the accounting period they had arranged with the yarn-spinners to cancel the contracts, on the footing that the difference in price should be ascertained as a lump sum and charged against them as a debt, and that the spinners should give fresh sale-notes for the undelivered quantities at the price then current, the muslin manufacturers undertaking to pay on each delivery the price as thus fixed with a corresponding proportion of the ascertained debt.
Held that the deduction was inadmissible, in respect that it was an attempt to include among the ascertained losses for the accounting period a loss which had not actually been incurred during the accounting period. Opinions that it was also inadmissible, in respect that the arrangement was an artificial transaction in the sense of the Fourth Schedule, Part I., par. 5, to the Finance (No. 2) Act, 1915.
At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts, held on 28th February 1924, at Glasgow, for the purpose of hearing appeals, J. H. Young & Company, of 53 Mill Street, Bridgeton, Glasgow, hereinafter called the appellants, appealed against an assessment to excess profits duty made upon them by the Commissioners of Inland Revenue, for the accounting period of one year ending the 25th of March 1921, in the sum of 3253,16s., under the provisions of the Acts relating to that duty.*
The Commissioners refused the appeal, and, at the request of the appellants, stated a case for appeal.
The case set forth:
I. The following facts were admitted or proved:1. The appellants carry on a partnership business as muslin manufacturers at Bridgeton. For the purpose of this business it is necessary for the appellants to obtain a supply of yarn from spinners of yarn, and to make contracts with spinners of yarn (hereinafter called forward contracts) under which the spinners agree to supply,
and the appellants agree to accept, yarn of descriptions and quantities set forth in the contracts. 2. On 23rd December 1919, 6th and 14th January 1920, 9th, 11th, and 16th March 1920, and 12th April 1920 the appellants entered into forward contracts with Messrs Maclaurin Brothers, 16 South Frederick Street, Glasgow, for the supply of yarn. The delivery of yarn under these contracts was to be as required. In the usual course of the appellants' trade, deliveries under contracts of this kind begin to be made one month or so after the dates of the contracts, and, while they are sometimes completed within a period of six months, they very seldom extend beyond a year. 3. In March 1921 the deliveries under the said contracts were not yet complete. Owing to depression in trade and a fall in prices in the muslin-manufacturing industry during the accounting period, it had become apparent to the appellants by that date that they were under a liability, by reason of the contracts, to pay a sum of some 6000 for the undelivered yarn in excess of the prices at which yarn was obtainable at that time. As the appellants did not consider that there was any likelihood of any rise of the price of yarn in the near future, and desired to determine...
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