TUCKER, L.J. - This is an appeal from a judgment of Atkinson, J., whereby he dismissed an appeal by way of case stated by the General Commissioners for the Finsbury District. The General Commissioners had confirmed five additional assessments made under Schedule A on the taxpayers, Commercial Structures, Ltd., in purported pursuance of Section 125 of the Income Tax Act, 1918.
The taxpayers were the owners of the upper part of a warehouse in Clerkenwell which was in the course of erection at the outbreak of war. In September, 1939, the building was not finished, but it was taken possession of by the Minister of Works under the Defence Regulations, and, accordingly, what is called a compensation rent became payable under the provisions of the Compensation (Defence) Act, 1939. The actual amount of the payment was arrived at by agreement, and fixed at Pound 4,940 per annum. The relevant section is Section 2 of that Act, which reads as follows :-
'(1) The compensation payable under this Act in respect of the taking possession of any land shall be the agreegate of the following sums, that is to say - (a) a sum equal to the rent which might reasonably be expected to be payable by a tenant in occupation of the land, during the period for which possession of the land is retained in the exercise of emergency powers, under a lease granted immediately before the beginning of that period, whereby the tenant undertook to pay all usual tenants rates and taxes and to bear the cost of the repairs and insurance and the other expenses, if any, necessary to maintain the land in a state to command that rent, and (b) a sum equal to the cost of making good any damage to the land which may have occurred during the period for which possession thereof is so retained (except in so far as the damage had been made good during that period by person acting on behalf of His Majesty), no account being taken of fair wear and tear or of damage caused by war operations.'
Then there are other provisions which are not material to this appeal. Having fixed the sum payable under Section 2(1)(a), which is called a compensation rent, at Pound 4,940 gross, the Inspector made the statutory deduction of one-sixth from that sum, leaving Pound 4,113 as the figure for tax purposes on which Schedule A tax would be payable. The taxpayers went on paying on that basis until April 5, 1945, and then the Inspector, I will use neutral words, ascertained or became aware of the fact that he had proceeded on an erroneous basis in assenting to the figure of Pound 4,940 as being the correct gross figure for tax purposes before the one-sixth deduction was made. He had, apparently, regarded this compensation rent as if it was a rack rent payable under a lease and had dealt with it accordingly, and he had overlooked the provisions of para. (b) of that sub-section providing for the payment of a lump sum in certain circumstances. Accordingly, he caused additional assessments to be made in which he added to the figure of Pound 4,940 a figure of 10 per cent., representing repairs, producing a gross figure of Pound 5,434, and from that figure he made the statutory deduction, arriving at a net assessment of Pound 4,525. The five additional assessments in questioning this appeal were made on that basis. In so proceeding the Inspector purported to act in pursuance of Section 125(1) of the Income Tax Act, 1918, which, so far as material, reads as follows :-
'If the Surveyor discovers that any properties or profits chargeable to tax have been omitted from the first assessment, or that a person chargeable has not delivered any statement, or has not delivered a full and proper statement, or has not been assessed to tax, or has been undercharged in the first assessments... then and in every such case - (i) where the tax is chargeable under Schedule A, B or E........(b) if the first assessments have been signed and allowed, the Surveyor shall certify the particulars to the General Commissions, who shall singe and allow an additional first assessment in accordance therewith : Provided that any such additional first assessment shall be subject to appeal and other proceedings as in the case of a first assessment.'
The words in that section which are immediately applicable to the present case, are : 'If the Surveyor discovers that a person chargeable has been undercharged in the first assessment.'
It is said here on behalf of the tax payers that the Inspector, who stands for these purposes in the position of the Surveyor referred to in Section 125, has not discovered anything within the meaning of that section. All he has done, it is argued, is to alter his mind or to take a different view with regard to the law applicable to the facts and circumstances, all of which were originally before him. It is common ground that no new fact or circumstance had been ascertained by the Inspector at the time when the certified the particulars pursuant to the discovery which he said he had made. For the Crown the argument is that, on the plain reading of the section without introducing any additional words, the Inspector has discovered that a person chargeable has been undercharged, and it is immaterial whether the discovery is based on the ascertainment of the correct law applicable to the facts and circumstances or whether it is the ascertainment of some new fact or circumstance.
This section has been considered in several cases, but the matter comes before this Court without any authority binding on us. I do not propose to refer to the first case which was cited in argument, namely, R. v. Kensington Income Tax Commissioners, because, in my view, the facts of that case were so entirely difference from those of the present that any observations made there with regard to the meaning to be attached to the word 'discovery' really lend no assistance whatever in the solution of the problem with which we are now confronted. I pass, accordingly, to Anderton and Halstead, Ltd. v. Birrell, which is the case principally relieds on by counsel for the taxpayers. In that case the taxpayers were assessed under Schedule D for the years 1921-22 and 1922-23 on the basis of a writing down in two years successively of a doubtful debt. That was done by agreement with the Inspector of Taxes, who had all the facts before him. Subsequently, by additional first assessments, the writing down of the doubtful debt was disallowed on the ground that it had come to the Surveyors knowledge that the taxpayers had permitted the debtors to increase their indebtedness to them. That had come to his knowledge several years after the time when he agreement had been made. One of the questions which arose in that case was whether in those circumstances the Surveyor had made a discovery which entitled him to certify the particulars which would lead to an additional assessment. Rowlatt, J., in giving his judgment, shows that was the real basis of his decision. He quotes Rule 3 of the Rules Applicable to Cases I and II of Schedule D (relating to the point in question), and goes on : 'What the statue requires, therefore, is an estimate to what extent a debt is bad, and this is for the purpose of a profit and loss account. Such an estimate is not a prophecy to be judged as to its true by after events, but a valuation of an asset de praesenti upon an uncertain future to be judged with regard to is soundness as an estimate upon he the facts and probabilities. It is no overthrown as an estimate in 1923 and 1925 by coming to the conclusion, as he General Commissioners have done, the in 1930 it had not been proved that the debts were to any extent bad. Supposing, however, instead of making an irrelevant pronouncement, the General Commissioners had addressed themselves the true points, namely, the criticism of the estimate as in 1923 and 1924, what material had they before them to justify, first, the intervention at all of the Inspector on the ground of a discovery; and, secondly, their own action in upholding the additional assessment made in pursuance of that intervention The only way, I think, in which it could be put would be that the subsequent growth of the indebtedness indicated that there must have been some fact in 1924 and 1924 which (a) was not taken into account in the estimate, and (b) would have made the estimate as an estimate in 1922 and 1923 higher. It may indicate that the appellants in 1923 and 1924 were willing to contemplate that the debt should or might increase, but I think it is merely guess work in the circumstances of this case to infer that that was because there was then reason to think the existing debt good.'
It seems to me the learned judge was there holding that the fact that the company in subsequent years had given further credit to those debtors was irrelevant in ascertaining whether or not the debt was a bad debt several years earlier. When one examines the case carefully, one sees that is the real foundation of his judgment, but it is true that in giving that judgment Rowlatt, J., did use language which, if applied literally to the facts of the present case, would, I think, be sufficient for counsel for the taxpayers. He said :-
'The real question is whether, within the meaning of Section 125, the Inspector has discovered an undercharge in the first assessment. The word discover does not, in my view, include a mere change of opinion on the same facts and figures upon the same question of accountancy, being a question of opinion.'
He then goes on to refer to R. v. Kensington Income-Tax Commissioners, which, as I have already said, appears to me to lend very little, if any; assistance to the salutation of this problem.
A somewhat similar matter arose for decision before finlay, J., in Williams v. Grundys Trustees. There the trustees under a will, in making a return to income-tax of the trust income, stated in error but in good faith that by reason of the provisions of the will, which they misread, the income was not liable to income-tax. After production of the will and discussion with them the Inspector of Taxes agreed, and no assessment was made. His successor discovered the error and additional assessments were made on the trustees. The error which had been made was this. Under the will the income in question was held in trust for one Appleton, who was a domiciled American, until he attained the age of twenty-one years. The error which treated the interest under the will as a vested interest, and, therefore, exempt from tax, was, it was conceded, a bona fide error. That was clearly a mistake of law. Finally, J., had occasion to refer to Rowalatt, J.s decision in the Anderton case. He was not able to accept in its entirety the language used by Rowlatt, J., to which I have referred He said :-
'I have, however, come to the conclusion upon a survey of the authorities as a whole, and one must look at them as a whole, that it must not be supposed that Rowlatt, J., there was speaking otherwise than with reference to the facts of the particular case which was before him. Clearly one would think there could be no doubt as to the correctness of the result of that case, but I do not find it possible to apply the words I have quoted to every case, in the sense of reading them as meaning that an Inspector can never made a discovery if the making of that discovery involves only a change of opinion. I cannot think that that was what was meant and it does not seem to me that that view is consistent with the authorities to which I have already referred..... I have carefully considered the authorities, but, apart from the authorities, if one looks at Section 125 itself, it is rather difficult to say that on the facts of this case the Surveyor had not discovered, found out, that there were properties or profits chargeable to tax which had been omitted from the first assessments. He did, I think, find out that fact. The fact is, or course, that the properties or profits were chargeable to tax; they had been omitted from the first assessments and he found that out. The only answer made to this is that they had been omitted from the first assessments, so to speak, with the sanction of the Inspector, because he, like those making the return, supposed that they were not properties or profits chargeable to tax. But of course an Inspector would have no power to sanction such an omission. He discovers, he finds out, that they are chargeable, and I have difficulty in seeing why Section 125 does not then precisely apply.'
I should have pointed out-that the income in question was derived from foreign possessions. That is the property which had been omitted, to which Finlay, J., was referring.
The next case is one which came before this Court, British Sugar . v. Harris. That was an appeal from a decision of Finlay, J. He had followed his own decision in Williams v. Grundys Trustees, and the question involved was whether a certain sum of money that had been expended was properly deductible in arriving at the profits of the company or whether it was merely a distribution of the companys profits. In that case the Inspector, who had previously taken the view on the same facts that the sum in question was properly deductible, now took the view that it was merely a distribution of profits, and he caused additional assessments to be made. On the hearing of the appeal the first question that arose was whether the Inspectors second thought were correct, and the Court held that they were not. The Court came to the conclusion that the Inspectors first view was the correct one, and, accordingly, the contention on behalf of the Crown failed, but the Attorney-General, in the course of his argument, had urged the second point which would have arisen if the Court had held that the Inspectors second thoughts were right, namely, that he had made a 'discovery' within the meaning of Section 125 which would have justified the additional assessments. Having heard the whole of the argument for the Crown the Court did not call on counsel for the company to reply, and when Sir Wilfrid Greene, M.R., had given his judgment on the main point he was proceeding to deal with the second point, which would have arisen if they had taken a different view on the first point, when the learned Attorney-General intervened and indicated that, if the judgment of the Court was adverse to the Crown on that point, the Crown would be compelled to ask for leave to appeal to the House of Lords. Accordingly, counsel for the taxpayer consenting, the Court left the matter where it was and delivered no judgment on that point, although from the observations of Romer, L.J., that the decision of the court would have been adverse to the Crown.
Finally, we get to a case in the Court of Session, Inland Revenue Commissioners v. Mackinlays Trustees, on July 6, 1938, six or seven months after the British Sugar Manufacturers case had been before this Court, where a very similar point arose. There had been a deed of partnership between certain persons, one of whom was a Colonel Mackinlay who had died. A question arose with regard to the tax payable by his trustees in respect of his share of the profits for the year of his death. There was a provision in clause 15 of the partnership deed which provided that, in the event of the death, bankruptcy or expulsion of any of the partners, 'the price to be paid for the share of such deceasing or outgoing partner or partners shall be the amount standing at his credit in the immediately preceding balance sheet but under deduction of any sums drawn out by him and with the addition of any sums paid in by him since the date of that balance sheet with progressive interest at 5 per cent. per annum from the date of the balance sheet to the date when the partners interest shall cease, and a sum in lieu of profits for the same period calculated upon the assumption that the profits shall be the same as the average for the corresponding period during the immediately preceding three years and a proportion taken which is applicable to the said partners share for the period that has run since the date of the said last balance sheet.' On November 19, 1935, the Special Commissioners wrote to the trustees solicitors stating that, in the opinion of the assessing commissioners, the deceased was not entitled to any share of the firms profits for the year ending April 5, 1935, and that the capital sum which became payable under the partnership agreement to his representatives did not form part of his total income assessable to sur-tax for that year. An assessment to sur-tax was thereupon made on the trustees on the basis set out in the Special Commissioners letter. Then, as the Lord President (Lord Normand), in giving his opinion, stated :-
'Nothing more took place between the trustees and the Special Commissioners until December, 1937, when the Special Commissioners again wrote to the trustees solicitors stating that it was proposed to include in the computation of the deceaseds total income for sur-tax purposes for year to April 5, 1935, the sum of Pound 7,479 representing his share of income from the partnership. This amount was competed by reference to the provisions of Section 20 of the Income Tax Act, 1918, and is really based on the 35/60ths of the profits of the firm to which Colonel Mackinlay was entitled during the years actually preceding the year of his death.'
So the discovery there made was that what had got to be considered was not clause 15 of the partnership deed, but the effect of Section 20 of the Income Tax Act, 1918, as applied to the other provisions of the deed, which set out the share of the profits which Colonel of the deed, which set out the share of the profits which Colonel Mackinlay would have received. In dealing with that matter Lord Normand said :-
'Accordingly, it remains to consider whether in this case the commissioners are entitled to say that such a discovery has been made, In considering that question we have, of course, to assume pro veritate that the first assessment to sur-tax laid upon the trustees was mistaken, and that the additional assessment now laid on will be a correct assessment. The question therefor is whether a discovery that a mistake, essentially a mistake of law, has been made is a discovery within in the meaning of Section 125. I think the word discover in itself, according to the ordinary used of language, may be taken simply to mean find out. What has to be found or found out is that may properties or profits chargeable to tax have been omitted from the first assessment. Now, it is clear that what has happened here is within the literal meaning of these words. If the additional assessment is a correct assessment, then it is plain that certain profits chargeable to tax have been omitted. I go on to the next paragraph of Section 125(1), which is an alternative to the first paragraph. There the discovery which must be made is stated in alternative forms of which the first is that a personal chargeable has not delivered any statement or has not delivered a full and proper statement. There is an express finding in the case that a full and proper statement has been made. But then we have to go on and give effect to the alternative which follows : Or has not been assessed to tax, or has been under-charged. I think that, since these words must apply where the person chargeable has delivered a full and proper statement, they are apt to cover the case of a discovery of a mistake in the assessment caused by a mistake in the construction of the partnership deed or, it may be, caused by a mistake in the law applicable to such a deed, even where there has been a compete disclosure of all relevant facts upon which a correct assessment might have been based. I do not think it is stretching the word discovers to hold that it covers the finding out that an error in law has been committed in the first assessment, when it is desired to correct that by an additional assessment.' Later he says :-
'That again seems to me rather to point to the discovery that a deduction claimed upon a true representation of the facts had been allowed, although it is contrary to those provisions in the Act which authorize deductions to be made. That is to say that again that third paragraph appears to be intended to apply to the discovery of an error in law just as much as to an error in fact. Of course, if there were any reason in the context for restricting the word deceiver to the discovery of an error in fact, that restriction would necessarily receive effect, but, in my opinion, the context points, not to any such restriction, but on the contrary to so wide a meaning that the word ought to to be held to cover just the kind of discovery which was made here, when the Special Commissioners found out that, by reason of a misapprehension of the legal position, certain of the profits, chargeable to tax had been omitted from the first assessment.'
It is true that opinion is not binding on this court, and that the Court of Appeal in 1938, in the British Sugar Manufacturers case, had not got the benefit of reading that opinion of Lord Normand. All I can say, with respect, is that what is there stated by Lord Normand appears to me complerely to fir the present case, and I can do more than say that the way he puts it convinces me that the argument of the Crown is the one which should be accepted by us. I can do no more than adopt the language of Lord Normand, and will not attempt to say the same thing in proper language. Although he may not have been dealing with a mistake in the general law of the country as distinct from a mistake in the interpretation of a document, the case was rather on the border line. He was dealing with the proper application of Section 20 of the Income Tax Act, 1918, to the provisions the particular deed, but I think his language is applicable here and the reasoning is equally applicable to mistakes made with regard to the dicovery of the effect of the genenral law on a particular set of facts. It is true that the result of this construction of Section 125 may of necessity in some cases involve the taxpayer in the hardship that assessments made some years previously may be affected or upset by additional asesments made in the light of, perhaps, some shbsequent decision of the House of Lords, but, none the less, I think that this is the proper construction of the section. In may view, any other constrution of the word 'discover' might not be welcome to taxpayers when the provisions of Section 140 come to be considered, where the legislature is dealing with discoveries made by the taxpayer. However that may be, I base my decision on what I think is clear language of Section 125 as construed by Lord Normand in the opinion to which I have referred, and for those reasons I think this appeal fails.
COHEN, L.J. - I am of the same opinion. The learned judge, Atkinson, J., based his judgment on the decision of Finlay, J., in the Grundy case and the Court of Session in the Mackinlay case. These cases are clear authorities for the conclusion which he reached, and had it not been for the Anderton case and the British Sugar Manufacturers case to which Tucker, L.J., has referred, I should have been content without more to adopt the reasoning of Lord Normand in the Mackinlay case. There are, however, observations in the Anderton case and the British Sugar Manufacturers case, which support the opposite view. The Anderton case on any view, as Finlay, J., oponted out in the Grundy case, was clearly rightly decided. The real decision in the Anderton case was that there was no evidence that the deductions then in question were wrongly allowed by reference to the circumstances at the time of allowance, and for that reason the additional assessments were not justified. True it is, that Rowlatt, J., went on to say in the passage to which my Lord has referred : 'The word discover does not, in may view, include a mere change of opinion on the same facts and figures upon the same question of accountancy, being a question of opinion.' It is also clear that the Court of Appeal were inclined, in the British Sugar Manufacturers case to the same view, but Tucker, L.J., has pointed out that the Court of Appeal gave no decision, and we are compelled to come to our own conclusion on the question of law unassisted by any decision on the point. I am convinced that the reasoning of Lord Normand in the Mackinlay case was sound and, like Tucker, L.J., I desire to adopt it as my reasons for the conclusion that Atkinson, J.s decision was right.
I desire to add only one more word. If some other meaning is to be given to 'discover' than the natural meaning 'to find out,' I should like to learn what it is. Counsel for the taxpayers had great difficulty in reaching a definition, but finally, in his reply, he said : 'If the Surveyor discovers' means. 'If the Surveyor sees any fact or circumstance which was not apparent when the first assessment was made and which shows or tends to show......' That is rether an elaborate translation, and, indeed, if that be the meaning of the draftsman, he has adopted a most unusal compendious phrase. But the matter did not stop there because that was not sufficient definition for counsel. He said, 'I should have to add a definition that the provisions of an Act of Parliament are not a fact or circumstance which can be discovered.' I think the fallacy of counsels argument is exposed by the paraphrase he found himself compelled to suggest to attain the result he desired. I think, therefore, that is an additional reason for accepting the construction which Lord Normand has placed on the word.
There is one other matter to which I ought to refer. At one stage in his argument counsel for the taxpayers suggested that some meaning ought to be given to the word 'under-charged' in the section other than its natural meaning. That point does not seem to have been taken either before the Commissioners or before the learned judge, but, assuming it to be open to him, in my opinion, it has no foundation. The meaning which counsel invited us to adopt was that there should be read into the words 'by accident or error, not being an error in the general law,' I see no reason for reading in something which narrows the meaning of the expression. It seems to me that, if we were to accept this argument, we should not be fulfilling our duty of construing the language used. We should be guessing at the intention of Parliament, and in all probability guessing wrongly. For those reasons, and for the reasons given by my Lord, I am of the opinion that Atkinson, J., was quite right in the conclusion to which he came; and the appeal fails.
ASQUITH, L.J. - I concur.