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J. G. Ingram and Son Ltd. Vs. Callaghan (inspector of Taxes). - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Reported in[1969]74ITR282(Cal)
AppellantJ. G. Ingram and Son Ltd.
RespondentCallaghan (inspector of Taxes).
Cases ReferredGordon & Blair Ltd. v. Inland Revenue Commissioners
Excerpt:
- goff j. - this is a case in which the taxpayer company j. g. ingram & son ltd., carried on for a good many years a successful business in the manufacture and sale of surgical and pharmaceutical products having glass and rubber parts. owing to the facts that plastics and comparable products became not only a possible substitute for the rubber, but something which was both cheaper and more durable, and therefore clearly better, the taxpayers fell into difficulties and suffered serious losses, so much so, that a receiver was appointed and he sold the taxpayers factory, completion taking place in september, 1960. in the meantime, the taxpayers shares had been acquired in may, 1960, by redland holdings ltd., a public company with many subsidiaries and diverse interests. the commissioner found.....
Judgment:
GOFF J. - This is a case in which the taxpayer company J. G. Ingram & Son Ltd., carried on for a good many years a successful business in the manufacture and sale of surgical and pharmaceutical products having glass and rubber parts. Owing to the facts that plastics and comparable products became not only a possible substitute for the rubber, but something which was both cheaper and more durable, and therefore clearly better, the taxpayers fell into difficulties and suffered serious losses, so much so, that a receiver was appointed and he sold the taxpayers factory, completion taking place in September, 1960. In the meantime, the taxpayers shares had been acquired in May, 1960, by Redland Holdings Ltd., a public company with many subsidiaries and diverse interests. The Commissioner found that Redland intended to extend its interests into the field of plastics and had for that reason recently acquired a company, Tuck & Co. Ltd. There was a space in Tucks factory premises a Hainault, and Redland caused three-quarters of the taxpayers machinery to be moved to Hainault, the remainder being sold, and thereafter the company continued its business at Hainault.

[His Lordship read paragraph 7 of the case stated, and continued :]

It does not appear that Martindill or anyone else ever acquired any plant other than the pilot plant so far as the facts found are concerned, but it may be that that one pilot plant was and is sufficient.

Notwithstanding these efforts, considerable losses continued to be incurred and in March, 1961, Redland decided to close the Hainault factory.

[His Lordship read paragraphs 8 and 9 of the case stated and continued :] By paragraph 10 :

'The products produced by Martindill were not entirely satisfactory, and in April or May, 1962, Redland decided to dispose of the company;'

and on June 4, 1962, they made an offer to another company called Plastage (Sussex) Ltd. which was accepted, and under which they agreed to sell the Losca Moulding Machine (which must, I think, be the pilot machine) complete with all ancillary equipment and moulds, all raw materials in stock, and to transfer the whole of the issued share capital of the company for the sum of Pounds 3,500. It was said to be an integral part of the agreement that all orders of the company outstanding as at May 31, 1962, would be undertaken by the purchasers and satisfied. It is indeed expressly stated that the machinery referred to was Martindills shares was Pounds 375. The company had no physical assets. It had its order book which was valuable to Plastage and the name Ingram was well known and was a valuable acquisition for Plastage.

[His Lordship read paragraph 11 of the case stated and continued :]

In view of the finding in paragraph 9 (b) that Martindills products, which were made with plastic components, were accepted as identical with the rubber products previously supplied, the exception in paragraph 11 [to the finding that the business carried on by taxpayers after the sale to Plastage was exactly the same as before September, 1961] is of no significance.

On these facts it is material both as to the made of assessment, and more importantly, on the question of carrying forward losses, to determine whether the taxpayers business continued throughout, or whether there was a break and a change-over to a new trade when Martindill took over and the taxpayers were reduced in the manner I have described, and then again when Plastage having acquired the taxpayers, the same business as had been in operation prior to September, 1961, was again carried on, and if there were such breaks, whether the first change amounted to a permanent discontinuance of the trade, or whether there was merely a suspension.

The commissioners findings, starting at paragraph 15(2), are as follows :

'It is common ground that the taxpayers arrived on a trade of manufacturers and suppliers of surgical and pharmaceutical products up to September, 1961, and incurred losses therein.'

Pausing there, it is a little surprising that that was common ground because it is clear from the findings that the taxpayers ceased production in May, 1961, and one would have thought that that was the relevant date rather than September, but there it is.

The sub-paragraph continues :

'We find that from June, 1962, onwards the taxpayers have been carrying on a trade which so nearly resembles the trade they were carrying on prior to September, 1961, that we would have had no doubt it was the same trade if we have not got the events of the intervening nine months to consider.'

(3) 'Looking at the taxpayers activities between September, 1961, and June, 1962, we find they were not during that period carrying on the trade they had carried on theretofore. It was not disputed that the activities amounted to trading, but in our view it was a new and different trade, set up and commenced in September, 1961, and discontinued in June, 1962.'

It is difficult to see what was set up and commenced in September, 1961. It is true that the factory at Hainault was not closed until then, but the Martindill arrangements were clearly operating before September, 1961, and, as I have before observed, it is found that the company ceased production in May. Continuing the quotation :

'The question, as we see it, is whether the former trade was suspended (to be continued again after June, 1962), or whether it was permanently discontinued in September, 1961, and a new trade was set up in June, 1962.

'We have not found this easy to decide, but looking at all the evidence we have come to the conclusion that in September, 1961, the trade previously carried on was permanently discontinued, and that its activities since June, 1962, although very similar to its activities before September, 1961, constitute a new trade and not a continuation of the old trade.'

Those conclusions were not acceptable to the taxpayers who have appealed to this court.

Mr. Monroe for the taxpayers put his case in two ways : first, he says, in order to see whether a trade has ceased when there has been a change in the mode of carrying it on, or in proprietorship, it is necessary to see what the essence of the trade was and to see whether in that essence it has been preserved, in support of which he relies on two cases, Laycock v. Freeman, Hardy and Willis Ltd. and Briton ferry Steel Co. Ltd. v. Barry. He submits that the essence here was selling the product, not manufacture and sale. On that basis he contends that the first trade did not cease at all. Alternatively he says that if the trade did cease, it was only a temporary cessation and the commissioners should have found that the trade was suspended, not permanently discontinued.

Different considerations, in my view, apply to these two separate submissions. On the first it seems to me that the question involved is clearly one of fact as has been reiterated in numerous cases. In the Freeman, Hardy and Willis case itself at page 8, Sir Wilfrid Green M. R. said :

'Now that, of course, does not mean that the business, regarded after the secession, must be in every respect and in every detail identical with the business which was carried on before the succession. The successor may succeed to a business, let me say, with 50 ships; he may choose to shut up some of those shops; he may make alterations in the goods that he sells; all sorts of alterations of that kind may take place; he may change his supplier; he may cut out a particular class of customer or a particular area. All questions of that kind appear to me to be really matters of fact for the determination of the commissioners, who have to set themselves the question, where matters of that kind arise, whether or not its is true and fair to say that the business in respect of which the successor is said to be making profits is the business to which he succeeded. Changes of that kind may or may not be so substantial as to make it right to say, as a matter of fact (that would be a question for the commissioners) that the business is not the same as the one to which he succeeded. The differences may be so substantial as to justify a finding to that effect.'

Again, at page 615 his Lordship said,

'the question which arises appears to me to be : Can it truly be said that the business of a wholesale manufacturing concern is being carried on by respondents The answer to that question seems to me to be quite clearly in the negative. Manufacture in these factors is being barrier on, but the mere manufacturing is not the thing which produces the profit of the business. That part of the business of the subsidiaries which was essential for the realisation of taxable profit, namely, the selling of their goods wholesale, has disappeared, and the goods are now sold and the profits realised by the respondents in their ordinary organisation and in their ordinary retails ships. It seems to me, therefore, that the special commissioners were amply entitled to find, and I think on the facts they were bound to find, that the business of two subsidiary companies ceased..........'

In Gordon & Blair Ltd. v. Inland Revenu Commissioners to which I must presently refer again, and Tryka Ltd. v. Newall, where Willberforce J. said, at page 154 :

'Now whether the trade in question is that trade or the same trade must, of course, be basically a question of fact. I have had referred to me a number of cases which Mr. Foster has very helpfully explained in order to illustrate how the courts have approached questions of this kind. I think it is clear that the position is the familiar one in relation to questions of this kind -questions of cessation, identity of business and so on -that it is for the commissioners to find the facts and that the court will not readily interfere with their finding; but of course the court will do so if it comes to the conclusion that they have drawn the wrong inferences from the facts or if it comes to the conclusion that reasonable men ought not to have come to the conclusion to which they did come upon the facts which they have set out.'

That passage restates the well-known passage in the speech Lord Redcliffe in Edwards v. Bairstow and Harrison, and I net not separately read from that report.

Mr. Monroe points out that the taxpayers never did manufacture all the components for their products, and that after September, 1961, the goods were still sold under the same brand name and there were continuing contracts, and he relies very strongly on the finding of fact that the customers remained the same. He submits that the essence of the trade was selling these particular appliances to these specialist customers. Those points are of course important and I am not certain that if I were trying the case de novo I would have arrived at the same conclusion, though it is fair to say there are weighty considerations pointing in the opposite direction. The taxpayers ceased to manufacture any of the components and even to do the work of assembly. It had no factory. It was reduced to buying and selling and ceased to have any staff other than one part-time selling representative.

Mr. Miller relies very strongly on those features, and he points out that the cases, a number of which he has cited to me, show that the factors which weigh in considering whether a business has been continued or discontinued are those of intention, ability to implements it, and ownership of the apparatus of trade. However, it seems to me on this part of the case, having regard to the authorities to which I have referred, that I can only go behind the commissioners findings of fact if I can say that there was no evidence to support them or that they drew from the primary facts inference which no reasonable person could draw, or, of course, if they misdirected themselves in law.

Still dealing with Mr. Monros method of presentation, I can see no question of any wrong principle of law and I find it quite impossible to say that there was no evidence to support the primary findings or that the inferences drawn were not at least reasonably possible in the face of the decision of the Court of Session in Gordon & Blair Ltd. v. Inland Revenue Commissioners, which I have already mentioned. The facts of that case were in some respects very similar to those of the present, including the continued sameness of the customers. In one respect they were continued to bottle the purchased beers whereas in the present case the taxpayers had, as I have observed, given up even the work of assembly. At [1962] S. C. 267, 273, the Lord President, Lord Clyde, said :

'It appears to me that, in this situation, the special commissioners were entitled to conclude that the trade carried on by the appellants before October 1, 1953, was not the same trade as that carred on afterwards. The question is primarily, if not indeed wholly, a question of fact dependent upon the special circumstances of the particular case. It was contended that it was immaterial to the appellants trading whether they manufactured their particular brand of beer by the hands of their own workmen or arranged with some other party to manufacture it for them and to their order. In either even their trade was the distribution and sale for profit of their own particular brand of beer. Upon such an approach to the matter the trade both before and after October 1, 1953, so it was contended, was the same. But, in my view, this contention involves a misdescription of the real nature of the appellants trade. The essence of that trade, I see it, before October 1, 1953, was the manufacture for sale by the appellants of their own particular brand of beer. Their selling and distribution organisation was merely ancillary to that main trading activity. It is, in my view, quite false to suggest that their trade throughout was essentially the distribution of a special brand of beer whoever may have been the manufacturer. After October 1, 1953, what had been, in my view, their ancillary activity became the appellants sole trading activity and, instead of being brewers of beer, they became distributors of beer which they did not brew, but which another firm contracted to brew for them. In these circumstances, the special commissioners were entitled, in my view, to reach the conclusion to which they came.'

At page 275 Lord Guthrie said :

'Now it is true in a sense that a companys earnings are made by the disposal of its product, and that the process of manufacture per se yields no financial return. That does not mean, however, that in considering what is the trade of a company one should have regard only to the distribution of the product sold. If it is of the essence of the business of a company that it is the disposal of a product manufactured by the company, then the discontinuance of manufacture and the despoil instead of a product made by another manufacturer is a change in the nature of the business of the company which an properly be held to be the cessation of the trade and the commencement of a new one. On the facts stated. I am of opinion that the special commissioners were entitled to hold that there had been a change in the essence of the business of the appellants in October, 1953.'

Mr. Monroe argues that the ratio disdained in that case was that it was there held that brewing was the essence of the trade. He distinguishes it from the Freeman, Hardly and Willis case on that ground. So be it; the most I could do as it seems to me would be to remit the case for the commissioners to consider further what was the essence of the trade in this case before and after September, 1961, but I do not think that even that would be justified.

In my judgment the fact remains, and Gordon & Blair Ltd. shows that clearly, that there was ample evidence on which the commissioners could find as they did,

I was exercised in my mind by one special feature in this case, namely, the statement in paragraph 15 (2) that it was common ground that the taxpayers arrived on a trade of manufacturers and suppliers up to September, 1961, which is a concession by the Crown, as I see it, that the original trade continued after the taxpayers had ceased manufacture, and after the regime which operated during the nine months between September, 1961, and June, 1962, had come into being. I think, however, that it would be wrong to upset the findings of the commissioners on that ground. First, there is a finding that the company continued for some time to sell of existing stocks, and, therefore, though it was then winging up the trade, it had not yet ceased, and one does not know how long that continued. Secondly, it might be said that the trade should be regarded as continuing until the factory was actually sold, but thirdly, and this to my mind is the most compelling reason, the admission is not really, as I see it, that the selling by the company of products manufactured and assembled by Martindill was the same business as the company carried on before Martindill were introduced but merely, possibly contrary to the true facts, that the companys business if it did cease, went on to September, 1961, and not, as should have been found, some earlier date. If it were material the admission would, of course, preclude the Revenue from claiming that the succession was earlier than September, 1961, but I do not think it goes beyond that.

I turn now to Mr. Monroes alternative proposition which must proved on the hypothesis that the trade during the nine months was different from that with which the taxpayers started and with which they finished, but here it seems to me that it is not purely a question of fact. It is one of law, or at any rate partially of law, whether on the facts proved or found by the commissioners there was a permanent discontinuance within the meaning of the Income Tax Act. I refer to Kirk and Randall Ltd. v. Dunn. The headnote reads as follows :

'Up to the outbreak of the Ward in 1914 the appellant company was engaged in completing old contracts entered into by a firm of contractors whose business it had been formed to take over in 1912, but it obtained no fresh contracts. The business premises were closed down during the year 1913, and offered for sale without success until taken over and purchased by the War Office in December, 1914.

From December, 1914, until February, 1920, the company had neither works nor plant, but during that period persistent efforts were made by its directors to obtain contracts. All negotiations, however, proved abortive until early in 1920 when with the introduction of fresh capital into the company and the adoption of a different business policy, a number of profitable contracts were obtained, and fresh plant acquired.

Throughout its existence the company retained a registered officer and held its statutory meetings year by year, the secretarys salary and directors fees were paid, and substantial payments made for expenses, including those incurred by the directors in connection with their abortive efforts to obtain contracts.

The special commissioners, on appeal, held that there was no trade carried on by the company between 1914 and 1920, that the trade which was taken over by the company was discontinued in 1914, and that a fresh trade was set up and commenced in 1920.........'

Rowlatt J., at p. 670, said :

'I agree with the contention put forward on behalf of the appellants. I think that really it is a question of law in the sense that the Master of the Rolls laid down in Bells case [1904] 1 K. B. 140 : the finding is that upon the construction of the rule this case is not within it. It is not really a question of fact, or even of mixed law and fact. I think it is a question of law, because all the facts are quite clearly stated as far as they are thought to be relevant and to have been acted upon in the case.'

Later in Gladstone Development Co. Ltd. v. Strik, were the question was whether the company had ceased trading, Atkinson J. said, at p. 141 :

'It was suggested that it is really a question of law, but it is only a question of law in the sense in which that expression was used in Bell v. National Provincial Bank of England Ltd., where Sir Richard Henn Collins M. R. said :

'The finding of the commissioners upon that part of the case is this : The commissioners were of opinion that there was no succession within the meaning of the said 4th Rule. That is, as my brother Mathew has pointed out, not a finding in fact that there was no succession, but that the particular kind of succession which took place in this case was not a succession within the meaning of the 4th Rule. That is not a finding of fact, but a finding of law.

'But the question here is not of that character, and I think that I must seek guidance from Hillerns and Fowler v. Murray, where the question was whether the appellants had ceased trading. On p. 87 Lord Hanworth M. R. said this : But a declaration of an intention by the persons charged will not do to secure immunity from the Income Tax Act. The question is : what is the character to be attributed to the acts done by the partners in relation to the Income Tax Act The quality and the characteristics to be attached to the acts rare all questions of fact, because they are questions of degree. They are questions for the commissioners to determine. The short point is before us : Were there any materials on which the commissioners could reach the conclusion to which they have come Greer L. J. has a very helpful sentence which is very appropriate when one comes to consider the effect of the resolution relied on in the present case. He says, on p. 89 : The decision as to the quality and effect of the facts established in each particular case that is binding on the court is the decision of the commissioners.'

Now in the present case there is an express finding of fact in paragrah 11 of the case dealing with the period after June, 1962, as follows : 'Their busineess thereafter was exactly the same as it had been prior to September, 1961, except that the components which they manufactured were Plastic instead of rubber.' The in paragraph 15(2) the commissioners decide or find that from June, 1962, onwards the taxpayers have been carrying on a trade which so nearly resembles the trade they were carrying on prior to September, 1961, that 'we would have had no doubt it was the same trade if we had not got the events of the intervening nine months to consider.'

Mr. Monroes submission is that the commissioners misdirected themselves in law because they had found in paragraph 11 that the final trade was exactly the same as the first, which was inconsistent with permanent discontinuance. They do not say that it was a similar business. Then in paragraph 15(2) they consider themselves precluded from holding that it was the same trade because they have got the events of the intervening nine months to consider, but one must see how their judgment proceeds. Paragraph 15(3) reads :

'Looking at the taxpayers activities between September, 1961 and June, 1962, we find they were not during that period carrying on the trade they had carried on theretofore. It was not disputed that the activities amounted to trading, but in our view it was a new and different trade, set up and commenced in September, 1961, and is contained in June, 1962. The question, as we see it, is whether the former trade was suspended (to be continued again after June, 1962) or whether it was permanently discontinued in September, 1961, and a new trade was set up in June, 1962.

We have not found this easy to decide, but looking at all the evidence we have come to the conclusion that in September, 1961, the trade previously arrived on was permanently discontinued, and that their activities since June, 1962, although very similar to their activities before September, 1961, constitute a new trade and not a continuation of the old trade.'

It is to be observed that they there changed their expression and said that the activities were very similar.

If this were a pure question of fact I might well be in the same situation as on the first aspect of the matter, that I could not go behind the commissioner, but if it be a matter of law then I have to consider whether on all the facts found there was a permanent discontinuance within the meaning of the Act. The facts found are that whilst there was a different trade during a not very long interim period, it was a period which was in many respects, if not wholly, experimental, and it was not like most of the cases where there was a complete or substantial disruption in identity of the trading because the same products were throughout being sold under the taxpayers name to the same customers. There is the express finding in paragraph 11 that the business at the end was exactly the same as the business with which one began, and I find it an impossible conclusion in those circumstances that the business was permanently discontinued when this change of activity started in September, or it may be May, 1961. I hold that the facts lead inevitably to the inference that the business was suspended and not permanently discontinued. For those reasons I allow the appeal.

Appeal allowed with costs.

Desmond Miller Q. C. and J. Raymond Phillips Q. C. for the Crown.

H. H. Monroe Q. C. and J. E. Holroyd Pearce for the taxpayers.

LORD DONOVAN. - The periods of the taxpayer companys life which are under review in these proceedings are : First, the period from incorporation in 1916 up to September, 1961. Before this period ended, a company called Redland Holdings Ltd. acquired all the shares in the taxpayer company; secondly, the period from September, 1961, to June, 1962; thirdly, the period from June, 1962, onwards. At the commencement of this period the taxpayer companys shares were bought from Redland by another company called Plastage (Sussex) Ltd. I can conveniently call these periods Nos. 1, 2 and 3.

During period No. 1, the taxpayers trade consisted of manufacturing and selling surgical and pharmaceutical rubber goods; they added to the rubber portion certain metal components which they bought elsewhere, assembled the complete prefect, and soils it at home and abroad.

In period No. 2, in the circumstances which are set out in the stated case, the taxpayers ceased to manufacture these rubber goods and to add the required metal components. They manufacture nothing. But they sold similar products made of plastic which had been made by another company.

In period No. 3, the taxpayers one more manufactured the same kind of product and sold it. The only difference between what they did in period No. 1 and period No. 3 was that now the goods were made of plastic instead of rubber, a difference agreed to be immaterial.

The special commissioners came to the inclusion that at the end of period No. 1 the taxpayers permanently discontinued the trade of manufacturing, assembling and selling these products. Thereafter the taxpayers, trade was, in period No. 2, a different trade, namely, that of merchanting similar products made had assembled by somebody else. The commissioners further concluded that in period No. 3 a new trade was set up and commenced, notwithstanding that it considered of making assembling and selling products similar to those made, assembled and sold in period No. 1.

The taxpayers disputed these conclusions before Goff. J. He decided that while the trade in period No. 2 was not the same trade as in period No. 1, yet this latter trade was not permanently discontinued. Such a conclusion was, he held, impossible as a matter of law on the facts found in the case : the true inference was that the trade carried on in period No. 1 was merely suspended, and resumed in period No. 3.

Against that judgment the row now appeals. The main practical importance of the case is that if either of the taxpayers contentions is right, trading losses suffered by it in and prior to period No. 1 can be carried forward and set against it trading profits for subsequent periods. On the Crowns view they cannot.

There is no dispute between the parties that the expression 'permanently discontinued' in relation to a trade, where it appears in section 130 of the Income Tax Act, 1952, does not cannot a discontinuance which a everlasting Income tax being a yearly tax, the question has to be answered in relation to the year of assessment in which it arises, and must obviously be answered in the light of the facts which are known at the time when the assessment for that year comes to be made. If in the light of those facts the true conclusion is that the trade has been discontinued indefinitely, the revenue, and the taxpayers, would be entitled, I think, to say that it has been discontinued permanently within the meaning of the section. It, on the other hand, the true conclusion from the facts is that the trade is only temporarily in abeyance (for example to allow of extensive reconstruction or repair of the taxpayers trading premises), then clearly it would be wrong to assert that the trade had been permanently discontinued. So far I do not think there is any controversy between the parties.

What is left then is, in my opinion, a question of fact : Was the trade carried on by the taxpayers in period No. 1 permanently discontinued in the foregoing sense, or was it merely suspended for a time ?

It is first argued for the taxpayers that, throughout, the essence of its trade has been selling. There is not much use (it is said) in simply manufacturing goods and looking at them : what produces the profit - and, incidentally, tax for the Revenue - is the profitable sale of the goods so made. It is immaterial on this view that in one period the goods are made by onself and in another period are purchased ready-made from somebody else : this is simply a change of means. The end remains the same - a profitable sale. Here that was the end in all the three periods, and on that view the trade has remained one and the same throughout : there has been no discontinuance, and not even a suspension.

I have some sympathy with this view, which I fear, however, derives from somewhat far-off days when I tried to establish it myself. I failed; and looking back at the attempt, I think now that I rightly failed. I doubt if one can, as a rule, segregate the various activities involved in carrying on a trade, select one of them asbeing of the essence, and then designate the one selected as being the real trade. There is, I think, an organic unity about a trade which invalidates this sort of dissection; and I think that Rowlatt J. was saying much the same thing, though more incisively, when he remarked in Graham v. Green, that a trade differs from the individual acts which go to make it up, just as a bundle differs from odd sticks. If the taxpayers had been asked in period No. 1 what their trade was, they would have replied : 'Making and selling surgical products' - not merely 'Selling surgical products. ' And in period No. 2, if asked the same question, I think the company would have replied, and properly replied : 'We have changed over now simply to selling. ' For what it is worth, moreover, the definition of 'trade' for the purpose of the Income Tax Acts includes 'every manufacture. ' This may not be worth much (indeed the whole definition is not worth very much) unless it is to be implied that the definition assumes in this respect that the goods manufactured will be sold. But the definition modes, I think, show that manufacture is to be regarded as more than a means to an end. I respectfully agree on this aspect of the case with the decision of the Court so Session in Gordon & Blair Ltd. v. Inland Revenue Commissioners, which decided in 1962 that commissioners were entitled to find that a brewery company which discontinued an existing trade of brewing and selling beer, and changed over simply to selling it, had discontinued one trade and started another. I am not able, therefore, to say that there was on continuing trade throughout in this case, namely, that of selling these surgical products. Or, to put the matter more accurately. It think there was evidence upon which the commissioner could rightly reject such a contention. The judge below took the same view.

The second string to Mr. Monroes bow is, however, this. Granted that a different trade was carried on in period No. 2, this does not necessarily involve that the trade carried on the period No. 1 was permanently discontinued. It may simply have been in temporary abeyance. Experiments were being carried out to see if plastic could successfully be substituted for rubber, and when that was achieved, manufacturing was resumed of the same kind go articles and for the same customers. The judge upheld this argument and allowed the taxpayers appeal.

If the position of the taxpayers in period No. 2 were as thus described, one would have expected an assertion to that effect, supported by evidence, to be in the forefront of the case before the special commissioners. A witness who was a director of the company up to the end of period No. 2 in fact gave evidence; and if the companys manufacturing business had simply been in abeyance pending a successful outcome of experiments with plastic substituted for rubber, one would have expected him to say so. There is no trace of any such evidence in the case, and indeed no suggestion that any such evidence was given. What is heavily relied on instead are the facts described in paragraph 7 of the case, to the effect that the policy of the Redland company was to substitute plastic for rubber in the taxpayers products; that an expert in this field was appointed managing director of the taxpayers; and that by Ma, 1961 (which is in period No. 1), a suitable alternative had been found and it was decided that the taxpayers products should change over from rubber to plastic - not, it may be noted, that 'the company should change over. ' But that its products should. And indeed while the taxpayer company was a member of the Redland group it never resumed manufacture itself of anything.

Another finding of the special commissioners which is also relied upon in this connection is this. They say in paragraph 11 of the case, dealing with period No. 3 in which the respondent company once more manufactured these goods,

'Their business thereafter was exactly the same as it had been prior to September, 1961, exempt that the components which they manufactured were plastic instead of rubber.'

And again in their findings they say (I quote from paragraph 15 of the case) :

'We find that from June, 1962, onwards the taxpayers have been carrying on a trade which so nearly resembles the trade they were carrying on prior to September, 1961, that we would have had no doubt it was the same trade if we had not got the events of the intervening nine months to consider.'

Then in the following paragraph, towards the end, they say :

'The question, as we see it, is whether the former trade was suspended .......... or whether it was permanently discontinued in September, 1961, and a new trade was set up in June, 1962.'

Now the first two of these passages induced the judge to reverse the commissioners conclusion of discontinuance of one trade at the end of period No. 1. He considered this was, in the face of such findings, an impossible conclusion in law.

I regret I am unable to share that view. If these passages are considered in isolation, there would be something to be said in favour of the view which the judge took. But at the outset of the case, in paragraph 2, the commissioners describe with complete accuracy the point they had to decide. They say :

'Shortly stated, the question for our decision was whether, throughout the whole period covered by the assessments, the taxpayers carried on one and the same trade.'

Again, in their findings they say :

'We have come to the conclusion that in September, 1961, the trade previously carried on was permanently discontinued, at that a new trade was set up in June, 1962.';

and then, of course, there is the third passage which I have just quoted referrig tto the questio of whether the trade in period No. 1 was merely suspeended. Now. readig all these findings together it is, I think, tolerably clear that when the commissioners refer to the 'business' in period No. 3 being 'exactly the same' as in period No. 1, they are not contradicting themselves, but are simply saying that in period No. 1 the taxpayers made and sold surgical products to certain customers and in period No. 3 made and sold surgical products to the same customers - a finding which is certainly not consistent only with the view that the two activities were one and the same trade. On has to know, before reaching any such conclusion, what happened in period No. 2. And when later the special commissioners remark on the similarity of the taxpayers trade in periods Nos. 1 and 3, again they are not finding that they were one and the same trade, for they expressly qualify what they say by reference to the effect of the events of period No. 2.

Those events were, indeed, striving. Before period No. 2 opened, the taxpayers had been in the hands of a receiver and their own factory had been sold during period No. 1. The taxpayers still carried on manufacture, however, at the factory of another company for a time, being another member of the Redland group, at Hainault. Four months before period No. 2 opened, the taxpayers ceased to make anything, but simply sold off its existing stocks. Meantime, the machine which would make the products in plastic instead of rubber was bought by and installed in the premises of still another company of the Redland Group - Martindill Ltd.

At the outset of period No. 2 the factory at Hainault, where, until May, 1961, the taxpayers had continued to manufacture their products, was closed altogether. The taxpayers machinery was sold; their staff, except for one man, was paid off. Thenceforward throughout period No. 2 Martindill Ltd. made the plastic products, assembled the complete article, and packed them. They were invoiced and delivered to customers by the staff of Redland. They still bore the brand name of Ingram Ltd. Thus the godwill attached to that name was being kept alive, but since the physical manufacture and packing of the goods was done by Martindill Ltd., and the invoicing and delivery done by Redland, the operations of the taxpayers would seems to have involved little more than inter-company book-keeping and perhaps the collection of the purchase price from customers. Meanwhile, as I have said, there was no evidence that this was a merely temporary phase which was to last simply until the time when the taxpayers would have concluded arrangements for setting up manufacture again by itself.

That event in fact came about (so far as one an tell from the case) fortuitously. Martindills manufacturing efforts were not entirely satisfactory, and in June, 1962, Redland sold the machine which made the goods in plastic to another company, apparently outside its own group. That is a company called Plastage (Sussex) Ltd. Redland also sold to the same concern all the shares in the taxpayers company. Plastage Ltd. had available a factory in Portslade, and by the beginning of period No. 3 the taxpayers were housed there, had bought from Plastage the machine which made the goods in plastic, and once more commenced to manufacture and sell.

In those circumstance I think it is impossible to treat as legally impossible the special commissioners conclusion that the taxpayers trade was permanently discontinued (in the sense of ceasing indefinitely) at the end of period No. 1 and that a new trade was set up and commenced in period No. 3. I do not think that on the evidence they were bound in law to find that the trade of period No. 1 was merely sounded during period No. 2 and resumed in period No. 3. I agree it is not enough simply to assert that the question is one of fact, and that the commissioners have decided it. The evidence must be looked at to see whether the commissioners, being properly apprised of what they have to do, could reasonably have reached the conclusions that they did. In my opinion the answer here is in the affirmative.

We were asked in the course of the argument by Mr. Monroe to consider remitting the cases to the special commissioners in order that further evident might be adduced in support of the view that the respondent companys original trade was merely suspended and not discontinued. I feel myself we should not do this. The hearing before the special commissioners was spread over two days in April, 1966. A witness who was a director of the respondent company until June, 1962, was called who could have given evidence that the companys trade was merely suspended pending experimentation with plastics, had that been the case. The circumstances are not such, in my view, as to justify a course which would be virtually a retrial of the case. In my opinion the Crowns appeal must be allowed.

HARMAN L. J. - From 1916 to 1955 the taxpayer company carried on a profitable business of manufacturing in part, assembling and selling certain articles to a limited and specialised type of customer. This business became unprofitable firm 1955 and the bank to work the taxpayers owned Pounds 33,000 in January, 1960, appointed a receiver under its debenture who sold the companys factory, but not its machinery, in satisfaction of the overdraft. He wound up his receivership in June, 1960, but completion of the sale was not until September of that year, up to which time the taxpayers remained in occupation of its factory. Down to that date I suppose the business was to some extent contained.

In May, 1960, a company called Redland Holdings Ltd., acquired the taxpayers shares from their shareholders and in September, 1960, when the factory sale was completed, part of the taxpayers machinery was moved to a factory at Hainault belonging to a company called Tuck & Co. Ltd. (a subsidiary of Redland) and the taxpayers business was thenceforward conducted from Hainault.

Redland employed a man named Kalepp who was expert in plastic and he discovered a substitute for the taxpayers rubber components and the taxpayers ceased production of these in May, 1961, and sold off their remaining stock. In September, 1961, Redland closed the Hainault factory and sold the taxpayers machinery. The taxpayers staff, except for one man employed at Tucks London office partly on the taxpayers business, was paid off, and in fact the taxpayers activities then ceased.

From September of that year products indistinguishable from those which the taxpayers had been marketing, except that they were made in plastic, were manufactured by another subsidiary of Redland called Martindill Ltd., and this company assembled these products, packed them, and delivered them, but did so largely in the taxpayers name and to the taxpayers old customers at prices fixed by the taxpayers old contracts, Martindill paid some proportion of the price to the taxpayers, presumably for the use of the taxpayers name.

This state of things went on till June, 1962, but was not a success, and in that month Redland sold the machine and the materials and goods which were the property of Martindill to Plastage (sussex) Ltd. and also transferred to that company the taxpayers issued shares for a sum of Pounds 375, which represented the value of the taxpayers brand name and order books with some outstanding contracts, but no physical assets at all.

Subsequently in 1962 Plastage moved the machine and the materials bought from Martindill to a factory owned by it (Plastage) at Portslade and sold them to the taxpayers, which thereafter rented a space in Plastages factory and set up manufacture again in the from of plastic parts, buying glass parts and assembling and selling the resulting articles to much the same customers. This was the same trading activity as that carried on by the company before September, 1961, but plastic was used instead of rubber.

On these facts the commissioners found as follows :

'It is common ground' (say they) 'that the taxpayers carried on a trade of manufacturers and suppliers of surgical and pharmaceutical products up to September, 1961, and incurred losses therein. We find that from June, 1962, onwards the taxpayers have been carrying on a trade September, 1961, that we would have had no doubt it was the same trade if we had not got the events of the intervening nine months to consider.

'Looking at the taxpayers activities between September, 1961, and June, 1962, we find they were not during that period carrying on the trade they had carried on theretofore. It was not disputed that the activities amounted to trading, but in our view it was a new and different trade, set up and commenced in September, 1961, and discontinued in June, 1962. The question, as we see it, is whether the former trade was suspended (to be continued again after June, 1962, or whether it was permanently discontinued in September, 1961, and a new trade was set up in June, 1962.'

The commissioners found in favour of the latter view, namely, that a new trade was set up in 1962.

Against that decision the 4taxpayers appealed and succeeded, Goff. J. holding that the conclusion reached by the commissioners was an 'imposable' one and that what had happened was in truth that there had been a mere suspension of the taxpayers business between 1961 and 1962 and no 'permanent discontinuance' so that the new business could be regarded as the same as the old one.

I am unable to take this view of the facts. I cannot see any evidence that when the taxpayers factory was closed and its machinery disposed of and its staff dismissed in 1961 there was any intention of merely keeping it in abeyance to resume at a favorable opportunity. I think that at that time anyone would have said that the business was at an end. If the repeat by the taxpayers from Martindill during the next year of some part of the proceeds of Martindills activities is to be regarded as a trading activity. I think it was a different and new trade and the manufacturing business started up in the Portslade factory in 1962 seems to me to have been a fresh venture.

Even if this be to go too far and supposing it to be wrong, I cannot see how there was no basis for such a conclusion so that it was one at which the commissioners were not entitled to arrive. It was, in my judgment, a justifiable conclusion : the judge, therefore, had no right to reverse it, and, thinking, that it was justifiable, I would reinstate the commissioners conclusion and allow the appeal.

WIDGERY L. J. - I agree with each of the full judgments which have been delivered; and although we are differing from the judge below, I do not feel that I an usefully add anything. I, too, would allow the appeal.

Appeal allowed with costs.


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