LORD EVERSHED M. R. These four cases have raised a single points for our consideration, which may be stated as follows : Where a company, which carries on the trade or business of property dealing, receives from the War Damage Commission a value payments in respect of a property held by the company in the course to its trade, is that value payment to be treated as part of the companys annual profits or gains arising to it from its business within the meaning of Schedule D, now incorporated into section 122 of the Income Tax Act, 1952 ?
There is also raised in each case a question as regards profits tax, but we were information that the answer to this question as it is related to income tax necessarily involves also the answer as it relates to profits tax, and I shall therefore follow the judge, Upjohn J. in delivering a single judgment in all four cases, and I shall confine my observations to the impact of the Income Tax Acts upon the value payments.
I concaves that the case has been for me one of very great difficulty. One reason is that on either view of it the conclusion inevitably produces, or is capable of producing, anomalies. If, for example, the view of the Crown is correct, then the following might be the consequence. Suppose a case in which a property owned by a property company and of a value of pounds 5,000 is wholly destroyed by enemy action. Suppose that the sum of pounds 5,000 is in due course paid by the War Damages Commission as a value payments in respect of that property. Suppose, finally, that the company, though it is under no obligation so to do in the case of value payments elects to reconstruct or rebuild the premises and spends pounds 5,000 in doing so. As Mr. Senter for the company demonstrated, the result of the various relevant provisions of the War Damage Acts, and again on the hypothesis that the Crowns argument should prevail, would be that the company on the one hand could not deduct as a legitimate expense for income tax purpose the pounds 5,000 expended by it on reconstruction, but yet it would have to pay income tax in respect of the pounds 5,000 which it received from the commission. Thus, assuming for simplicity that income tax be taken as 10s. in the pounds the entire sum received from the War Damage Commission, in effect, would have to be repaid by way of tax. Mr. Senter, not unnaturally, stressed the obvious injustice, for I think it might be so described of such a result - which he described as being really a matter of double taxation, though I am not sure that, with all respect to him, strictly it ought to be so described.
On the other side, if the example be taken that I haves already stated, but with the distinction that there is no rebuilding or reconstruction, the company (let it be assumed) sells the vacant site. In that case the pounds 5,000 remains, so far as can be seen perpetually franked from any possible impost in the way of income tax. Although I think it could not be suggested that that pounds 5,000 became part of the companys fixed capital, yet it would not be liable ever to be bought into account for tax purposes. That again would appear to be anomalous.
One other matter of fact I will mention because to may mind it has an important bearing on the proper result to be reached in this case. Let me repeat that we are here dealing with a company whose trade or business is that of property dealing, so that property, be it freehold or leasehold property, will be the circulating capital of the stock-in-trade, in common parlance, of the companys trading operations. According to ordinary accounting practice, if I correctly apprehend it, there would at the beginning of each year be brought into account the value of the stock-in-trade on hand. After item giving sales and purchases there would be a corresponding item on the other side of the account showing at the end of the accounting period what remained in hand. If that is right, it would appear to follow that in the case of a property (and I will adhere to my hypothetical figure) worth originally pounds 5,000, which was destroyed and reduced to a value, say, of pounds 500 as a result of enemy action, that property for accounting and therefor for tax purposes would be reduced in the accounts from its figure of pounds 5,000 to its figure pounds 500 and in respect of that property there would have been loss in value of the stock-in-trade which would be reflected in the final liability for income-tax.
As I have referred to value payments it would perhaps also be relevant to mention, though the matter is not directly before, us, the case of cost of works payments. The scheme of the war damage legislation, particularly to be found in section 6, and 7 of the Act of 1943, provides, on the one hand, that value payments are appropriate in cases of total loss, and I have already indicated that they do not proceed upon the footing that the payee, the recipient, will rebuild or reconstruct the damaged property. In the case, however, of cost of works payments which are payable in cases other than those of total loss, the payments are made in practice, and are contemplated plainly by the language of the statute as payable, only when work of reconstruction is done and by way, so far as they go, to recoupment of cost.
It was a point made by Mr. Senter that, if the Crown is right in its contention, it would appear also to follow that cost of works payments would be liable to tax. For my part I am inclined to think that the answer to that particular criticism it to be found in the illustrative figures which Mr. Cross gave us, showing what in practice would happen in such a case. Without undue elaboration those figures indicate that the cost of repair, which as I have already said cannot be deducted, as such, for the purposes of income tax liability, would be offset by the costs of works payments received, so that the latter, in effect, eliminated the former, and no question on either side of the account in such a case would arise.
Be that as it may, the problem with which we are concerned it that of a value payment, and I propose to confine myself strictly to that problem. I say that, perhaps with added emphasis, because when the matter was before the Special Commissioner they, in an attempt to mitigate the hardship of the type of instance which I have earlier stated, made a qualification upon their determination, in favour of the Crown. The qualification is expressed in these words : 'We hold What the company should in general include payments received under the War Damage Act, but that where a property has been, is being, or is intended to be repaired or rebuilt sum received in respect of it should not be include as receipts but should be deducted from the amount expended on rebuilding.' That form of words if I correctly follow it, suppose that in an account the War damage value payment would be treated in the way which I have tried to describe in the case of a cost of works payment; but Mr. Cross has observed that the laudable attempt of the Special Commissioners to achieve a just conclusion involves unfortunately certain grave administrative difficulties. Not thereby discouraged Mr. Cross for the Crown, at an earlier stage suggested what I might call a means of gilding the philosophic pill which, no less than the method adopted by the Special Commissioners, would, as I see it, if we adopted it, inevitably involve judicial legislation. It seems to me that the court cannot properly indulge in those exercises, however much they may be tempted so to do. We must in his case, I think decide, for better or worse, wholly in the favour of the Crown or wholly in favour of the company. Legislation to gild the pill is a matter for Parliament.
Upjojn J. in his very full and careful judgment clearly indicated his own difficulty in the matter. He concluded at the end, contrary to the determination of the Special Commissioners, that these value payments ought to be treated, by the necessary implication of the war damage legislation, as exempt in the hands of the recipient in any capacity (as I think it follows) from liability to computation for income tax purposes).
I shall come back presently to refer more fully to the judgment but I think it right that I should say at once that, for my part, I have reached the contrary conclusion. I confess that I do so not only with diffidence, because I part company from Upjohn J., but also with some reluctance, because although there are undoubtedly anomalies either way, I think the hardship of the decision to which I have felt compelled to come is the greater of the two anomalies. That again, however, must be a matter for legislation - subject only to this, that in assessing this company and other companies similar placed no doubt the revenue authorities can properly exercise a certain discretion.
I return to the basis of the arguments put forward on both sides, which proceed from this. Since there is here a property company and since its properties are its liquid or circulating capital or its stock-in-trade, then, as is urged strongly by Mr. Cross, prima facie a sum of money received by way of compensation for the loss or destruction of part of the circulating capital or of the stock-in-trade is something received by the company which comes to it arises to it, from its trade.
Mr. Senter in the end of it all was not really disposed to quarrel with that as a general proposition. I asked him a number of questions at the beginning of his argument, and, having regard to the authority of J. Gliksten & Son v. Green and of Newcastle Breweries Ltd. v. Inland Revenue Commissioner, I think he was disposed to concede that, prima facie, that might well be the result, though I do not forget that in some respects he qualified the general implications of those cases; but he did say, and if I may say so with due respect to his argument, I think he said rightly, that the decision in this case must really depend upon the effect of the war damage legislation. Put other way, his argument can be posed thus : the war damage legislation property contstrued gives, and was intended by Parliament to give, a particular characteristic, relevant for present purposes, to valuer payments paid to contributors under the Acts; and that conclusion he found on the language of the war damages legislation itself. It is upon that part of his argument that I have felt compelled to a different view. It may be that the war damage legislation in this respect failed to be exhaustive. Whether its fair to described the result as a cases omissus is neither here nor there. But I have felt forced to the conclusion that the implications of the Acts, as they are expressed, have not been in this respect fully apprehended by Parliament, if they wished to avoid the conclusion for which the Crown is arguing.
The Gliksten Case (and I think it is unnecessary for me to refer to it at great length) was a case in which a trader was trading in timber, Certain of his stock-in-trade, that is, certain of his timber, was destroyed by fire. But since it had been insured the trader received from the insurers a substantial sum of money for compensation for the loss of the timber, a sum which, in fact, having regard to the current increases in timber values, was very largely in excess of the book value of the timber destroyed. It was held by the House of Lords that, since the traders business operations in essence consisted of the purchase and subsequent resale or turning into money of timber with a view to making profits out of such transactions, the effect of the what had happened must be treated in all relevant respect as any other case in which timber had been replaced by cash, as was the intended result of sales. It is quite true, as Mr. Senter has pointed out, that in a number of passages in the judgments in the Court of Appeal, as well as in the speeches in the House, it is observed that the insurance of these stocks would be itself a natural business operation; but I do not thing that that circumstances is vital to the principle of the conclusion.
That much I think is shown clearly enough from the case of the Newcastle Breweries. In that case the stock-in-trade in question consisted of rum, and under war-time legislation the Admiralty compulsorily acquired stocks of rum for which, after a good deal of protracted battling, a considerable sum of compensation was paid. Again I think Mr. Senter is justly entitled to say that the sum of money was received as though it had been the proceeds of a sale. The compulsory acquisition was treated for the purposes in hands as analogous to a sale. But the point of my reference to the Newcastle Breweries case is to show that the circumstance in the Gliksten case that insurance was a natural business operation cannot have been vital, since it could not possibly be suggested that the result of Government compulsory acquisition of your stock-in-trade could have been part of the contemplated business transaction of the Newcastle Brewery company.
It seems to me that the effect of those two cases supports the view which has been fundamental to the Crowns argument, namely, that where a trader is dealing in any kind of commodity and where for any reason part of that stock-in-trade, part of the commodity, disappears or is compulsory taken or is lost, and s replaced by a sum of cash by way of price or compensation, then, prima facie, that sum of cash will be, and should be, taken into the account of profits or gains arising or accruing to the trader from his trade.
So far I have not departed at all from the conclusion of Upjojn J. In the course of his judgment he recited passages from those cases, and, indeed, from others; and I think there is nothing in what I have said which in any way runs counter to the views which the judge expressed. But he then (and I am reading from p. 10 of the transcript of his judgment) said this : 'It seems to me, with all respect to Mr. Crosss argument that this his broad proposition that, whenever trading stock is turned into money it is a trading receipt, is too wide. In each case, one mistake account of the circumstances. The question to be answered is whether the particular receipt has to be brought into account in computing the profits or gains. There is no doubt that the value payments is in a sense a realization, and the case no doubt bears a marked resemblance to the Gliksten and Newcastle Breweries cases.' I agree that, although as a general rule, prima facie, the result is as I have tried to state it, it would be too wide to say that if in respect of his business property a trader receives any money, that is necessarily a trading receipt. That may well be too wide.
In his reply Mr. Senter referred us to what was said by lord warrington of Clyffe in his speech in the House of Lords in Inland Revenue Commissioners v. Scottish Central Electric Power Co. He said : 'It is, I think, clear that not every sum expended by an owner of land occupied by him for the purposes of his trade can be regarded as wholly and exclusively laid out for such purposes.' Then he cites certain authorities, and then the Lord continues : 'Moreover, the recent decision in this house in Fry v. Salisbury House Estates Ltd. throws considerable light on the question. In that case receipts consisting of rents received by a company, owner of a large building of flats, were excluded from the computation of profits and gains of a business carried on in connection with the same premises on the ground that they were received by the company in their capacity as land owners and not as traders.'
The facts in Fry v. Salisbury House Estates Ltd so far as a material l were these. The taxpayer company owned the considerable edifice known as Salisbury House. They carried on upon and in respect of those premises a trade or business of providing services to the people to whom they sublet parts of the building, and out of the supply of those services they made profits for which they were taxed under schedule D. But as regards the premises themselves they were taxed or had been taxed under schedule A. Their lettings of the rooms or offices in the building were not part of their business. That is to say, they were not carrying on the business of letting and managing flats. The Crown sought to tax them under schedule D in respect of the profits made from such lettings, submitting to deduct what the taxpayer company had paid, or what they were liable to pay, under schedule A.
The Crowns failed, on the ground the the business for which they were taxed under schedule D did not comprehend the business or trade of letting flats, so as to justify an assessment in respect of that business under Schedule D. So mush I think appears quite plainly from the speech (which I take, for example) of Lord Tomlin. 'The sole question,' said he, 'Upon which the opinion of the court was desired by the Special Commissioners was whether the rents received by the respondents on letting the offices in Salisbury House were properly to be induced in the assessments as trade receipts of the respondents for the purpose of case 1 of schedule D of the Income Tax act, 1918. Rowlatt J. apparently took the view that the respondents were carrying on a trade in the nature of a hotel business and that the assessments were rightly made. The court of Appeal however rejected this view of the case and in substance held that a landowner who happens to make taxable profits by rendering certain services to his tenants' - that is, providing them with services, heating, lifts and the rest of it - 'cannot for that reason be treated as carrying on a trade in respect of the receipt of rents so as to be chargeable with income tax under schedule D upon the excess of the actual rents over the annual assessments to tax under Schedule A.'
We were referred in the course of the very interesting arguments to Crook v. Seaham Harbour Dock Co., and I can quite well conceive that if the Government were to make to all land owners certain payments for the purpose of their being used for some specific purpose, say to make some particular construction in relief of unemployment, it would by no means necessarily follow that, because the premises of A were As stock in trade, therefore the payments in the case i am supposing were to be brought into account as part of the profits of that trade. In other words, I am content to accept from Mr. Senter the proposition that it is not a necessary conclusion in every case that one who is a land owner and carries on property dealings with the property he owns is necessarily and inevitable to be required to bring into account for tax purposes under Schedule D every sum of money which he may receive as land owner.
But I have already indicated that it is with the conclusion from that premise that I find myself at variance with the judge and the argument of Mr. Senter. l go back at this stage to what the judge says, and I pick up the judgment were I left it. 'But, as I say, I have to consider the nature of the receipt having regard to the War Damage Act. We start, then, with this. There is nothing in the nature of a premium here. A capital payment has to be made in five instalments, and it is to be made by the owner of every acre of land in England and Wales. It seems to me quite clear on the construction of section 28, that, if and when a payment is received, no part of that payment, even if it be expended in restoring the property to its former state, can be brought into account when the property is sold and the net profit is realized as it otherwise admittedly would have been apart from the section. I think those two factors are indications that the legislature was not considering the trading aspect of the matter at all, but was imposing on an owner of land throughout the country the obligation to contribute, with the corresponding benefit, if disaster happened, of receiving a sum of money, a value payment. I think the legislature considered that that would be altogether outside the area of trading operations. It would be very remarkable, as Lord Atkin pointed out in the Seaham Harbour Case, if half of this money, which was plainly intended to be applied in rehabilitating the property...' - an observation which with all respect I venture to doubt - '...should be instantly taken away in tax. I think parliament did not intend that result.'
It will be a parent from the passage which I have read that the judge reached his conclusion from the effect which he got from the war damage legislation. So far, as a general matter, I do not at all disagree. Apart from the Acts, the judge is saying that the result would no doubt be otherwise; but the import of the Acts gives this stamp to the war damage value payments in the hands of the recipient. I must therefore now turn to the war damage legislation itself, but I preface with this genera l observation what I shall say about it. It is, of course, quite true, as Mr. Senter says, and the argument is echoed by the Judge, that a company contributed to the War damage scheme qua land owner and received the value payments as land owner; but to say that is not at all, as I venture to think, to answer the question. I quite agree that the persons to whom the payment s are to be made are land owners. The question on what terms and in what capacity they hold it when they have got it is a matter, prima facie, with which the War Damage Commission is in no way concerned.
During the course of the argument illustrations were taken of cases where the land owners were trustees. The obligations of trustees in regard to value payments, when they receive them, would depend not at all upon the war damage legislation but upon the terms of the trusts under which the trustees held. But still it is no doubt plainly competent for parliament in the legislation to provide that for all purposes these sums are capital, whatever the ordinary implications of the land owners circumstances might otherwise be.
The Principal Act for the present purpose is the Act of 1943. I shall not traverse it at any length. Our attention was directed to a number of sections, but it will suffice for present purposes (though I hope it will not be assumed that I have wholly neglected to apprehend the points made upon the other sections) just to refer to section 66(1) which provides : 'Contributions made and indemnities given under this part of this Act shall be treated for all purposes as outgoings of a capital nature'; from which it follows, as I fully agree and as the judge said, that the contributions paid over a period of years were capital outgoings so far as the company was concerned and had to bed treated as such in its accounts.
Section 113 of the Act of 1943 dealt with expenses and other matters, but it has been replaced by section 28 of the Act of 1949 upon which, as will be recalled from the judges judgment, the real basis of the argument for the taxpayer is founded. I turn, therefore, to section 28 of the Act of 1949. Subsection (1) : 'In computing the amount of the profits or gains, or of the income from any source, of any person for any purpose of the Income Tax Acts...' -and then there is a reference to profit s tax - '...no sum shall be deducted in respect of any payment or expenditure to which this section applies is - (a) any expenditure on repairing or otherwise making good war damage to land in so far as any person has received or is entitled to a payment in respect of the damage go by virtue of any of the provisions of the Principal Act' - that is the War Damage Act, 1943 - '(whether alone or as applied or modified by or under any provision of this Act)...,' and then there follows certain language relating to goods damaged by enemy action. Subsection (5) makes the preceding provisions of the section retrospective.
Subsection (6) : 'Where before the passing of this Act the liability of any person in respect of income tax or excess profits tax or in respect of profits tax...has been reduced, or any person has been repaid any a mount in respect thereof, by reason of the deduction or inclusion of any sum which under the provisions of subsection (1)...of this section would not have fallen to be deducted or included, the amount by which his liability has been so reduced...shall be recoverable...' Now it is, I think, tolerably plain that the compendious terms of the section or of the subsections apply, and in terns are intended to apply not only to private persons who might be affected as regards their liability under schedule A but also to traders; and I think it is plain that sub-section (4) is expressly so phrased as to apply, at least among other cases, to property dealers.
That has been strongly relied upon by Mr. Senter in this fashion. He says that first of all section 66 of the Act of 1943 had made what one might call a 'Premium Payment' capital. This section, section 28 of the 1949 Act, comes into prevent the recipient, the contributor, including the property dealer, who has received a war damage payment whether by way of a cost of works or value payment, from making any deduction for income tax purposes for the expense of restoration to the extent that he receives war damage payments in respect of the property restored. So is produced undoubtedly, on the Crowns view the anomalous, if not unjust, result which I mentioned at the beginning of this judgment. And, says Mr. Senter, it is impossible sensibly to read this provision save on the assumption that parliament is treating throughout all the payments made either into or out of the war damage fund as capital payments from whomsoever or into whosesoevers hands they come. That, of course, is a forcible argument, and it is at the very least tempting to suppose that parliament, if it gave its mind to this matter a t all, was assuming that in the hands of the recipient, whatever his circumstances might be, whether he was a private owner, whether he was a manufacturer whose principal capital asset a factory, was damaged, or whether he was a property dealer, in every case the sums received would be capital sums. My difficulty is that parliament has not said so.
What is worse to my mind is that this section, as Sir Reginald Hills observed in the course of his address to the court, and as Mr. Cross emphasized in his reply, is a section which in terms directed to a modification of the ordinary fiscal results, which would otherwise be applicable to these war damage contributions and payments. The section is, as Sir Reginald pointed out, in effect an addition or a modification to the fiscal code. By providing that the expenditure mentioned in sub-section (4) should not be deducted for income tax purposes, it is accepting the proposition that, were it not for the subsection, such would be an ordinary fiscal consequence in such a case as that with which we are dealing. Parliament has said that, notwithstanding the prima facie result, this other result will apply. But unhappily, it has for one to go on to say 'and any sums receive by a property dealer or by any trader in respect of loss of stock shall in his hands not be brought in as part of his profit or gains but shall be capital.' Where Parliament has directed its attention expressly and specifically to the fiscal results of the legislation, but has made no provision for dealing with the ordinary prima facie results in any particular respect, then it seems to me that the court cannot proceed to say that it intended so to do or that the implication of the Act is such that we must interpret it as though it did.
I earlier said that I felt compelled to this conclusion with some reluctance, but once the proposition is accepted that prima facie receipts of this kind (which represents what has been lost by destruction of stock in trade) are themselves properly profits or gains arising to the trader from his business, then, unless there is something in the Act with which we are here concerned, which presses those payments with some other characteristic, I think the court is unable to do so by way of implication.
I venture to repeat that, if this was an ordinary insurance case, it could not be doubted that the sums received from the insurers by way of compensation for the loss of the property insured would be annual profits or gains. The general character of the war damage legislation is to provide through the State, and by a scheme for which the Act has provided, the equivalent of insurance money; and although it has in certain respects expressly and specifically modified what would otherwise be the fiscal conclusions of the scheme, it has upon this matter remained silent. I have felt accordingly unable to extract from section 28 in particular, and form the legislation in general, so extensive an implication as that which appealed to the judge.
For those reasons I think this appeal must be allowed.
BIRKETT L.J. I am of the opinion. I must say I feel a little diffident in adding anything at all to the judgment which has just been delivered by the master of the Rolls, but in view of the argument which has been presented to us in this court, and the decision of Upjohn J., I add a few words of my own.
This happens to be one of those cases where, whatever the decision may be someone will be entitled to say that it causes an injustice in this particular direction or the other. It is not always possible to arrive at a result which wipes out all anomalies, particularly in matters relating to taxation. But my Lord has dealt with the anomalies which arise and the arguments which have been addressed to us both by Mr. Cross and by Mr. Senter on that topic.
I think the essential point always to be kept in mind is that the company in this case were dealer s in property. In the case stated it is put in this way : 'The appellant company is a property dealing company.' Then it goes on to relate certain of their trade transactions during the war, and the receipt of the value payments to which my Lord the Master of the Rolls has already referred and to which i need not refer again.
This is also stated quite plainly in the case stated 1 : 'The question for determination in this appeal is whether value payments arising under the provisions of the War Damage Acts, 1941, and 1943, and paid to the appellant company, who carry on the trade of property dealing, are receipts of the appellant companys trade to be brought into account in computing the balance of profits and gains of the appellant company for taxation purposes......'
During the last few days the whole of the controversy has ranged round this point. Upjohn J., in this most careful judgment, reviewing all the arguments and the cases, put the whole matter in one simple, single sentence when he said of the value payment : 'It was a contribution made and a payment received by the taxpayer, not as a part of his trading operations at all, but because he was compelled under the war damage scheme to make benefits in his capacity, not as a trader, but as an owner of the land.' Whilst it would not be right to say that Mr. Senter had concentrated wholly on this point, because he had many, it is perfectly plain that this was the most important point. 'I cannot deny,' said Mr. Senter, 'that my company trades in properties. It is plain on the face of it; but merely because it does that, and merely because it receives a value payment, that does not of necessity bring it within the charging sections,' to which he referred us.
I quite agree with what my Lord the Master of the Rolls said. I can quite conceive of a land owner, who is also a trader, receiving payments which are not payments which are to be brought in as trading, receipts accruing to the business. The point in this case, as put in the summary of Mr. Senters argument with which he supplied us, is this : 'Is the value payment a trade receipt arising in the course of carrying on a trade in the ordinary way ?' To that he makes the answer, 'No.'
He did not receive the value payments in his capacity as a trader at all; he received it, as everybody else in the country received kit because he was compelled to pay the five instalments under the Act. They were instalments of a capital nature, and he was entitled in the case of property which was damaged, to the value payment which the Act prescribed and laid down. Indeed, at the conclusion of Mr. Senters argument, when he summarised for our benefit the points which he endeavoured to support, this point again loomed large. He said : 'The source of the payment to the land owner in this case is this statutory right under the Act of Parliament; it is not a source of profit from trading activities. The land owner is not allowed to deduct the premiums paid under the War Damage Act by section 66 of the Act of 1943, and the whole scheme of the Act and the Act of 1949 indicates that the payments which he receives because of those capital premiums are not to be regarded at all in the light of trade receipts but they are received by him in his capacity as a land owner. All persons were compelled to make the payments, and as Upjohn J., recognizing the strength of the argument which was put, said : We start, then, with this. There is nothing in the nature of a premium here. A capital payment has to be made in five instalments, and it is to be made by the owner of every acre of land in England and Wales. It seems to me quite clear on the construction of section 28 that, if and when a payment is received, no part of that payment, even if it be expended in restoring the property to its former state, can be brought into account when the property is sold and the net property is realized as it otherwise admittedly would have been apart from the section.' Then he deals with the trading aspect.
Now, on the contention, Mr. Senter is saying : 'This is received not as a trader at all. It is quite wrong to consider a value payment in that capacity, even though it does so happen that the company. I represent admittedly trades in property and in land. That factor must be entirely disregarded, and you must consider the company exactly as you consider any other land owner who was not a trader and who was compelled, as this company was compelled, to pay the five sums and to receive the statutory benefit in case their property was damaged.' That is the argument.
As against that it was said : 'You cannot ignore the fact that the company in this case was in fact trading in property. It makes the whole distinction.' When the circumstances of the case are considered, it is said by the Crown : 'This is a value payment. You cannot really divorce this value payment from the ordinary trading of the company.'
Reliance was placed upon two cases which it is not necessary to cite, again : J. Gliksten & Son v. Green, the case of the timber, and the Newcastle Brewery case, the case of the rum. Mr. Senter attempted to show that those cases really did not affect the point in this case, and primarily I think for this reason. So far as the Gliksten case was concerned it would appear that both in the court below and in this court he was contending that it was because of the payment of the insurance premiums that the money came, and that it was not a trading receipt in the ordinary sense at all. Nevertheless what really happened in that case may be put as simply as this : the traders stock of timber, through no wish of theirs or through no fault of theirs, was transformed into money; and the effect was the same as though they had in fact sold it; and therefore it must be brought into account.
Similarly, with regard to the rum, the case which went all the way to the House of Lords. The point taken there was that this rum had not been treated as being sold in the ordinary course of trade; it was requisitioned. But there again in the decision in simple language came to this : You had rum which was part of your stock in trade, in its natural state if you wish; but if you had soles it in that condition and received cash for it you would admittedly have had to bring that into your trading accounts. What happened was that by this elaborate process of requisitioning you had the rum taken out of your possession, and in its place you had a sum of money; and you must bring that into account.
I think, despite all the valiant efforts which Mr. Senter made, those two cases are really very strong authorities in this case. My Lord has covered every point, and my own conclusion is that I can find nothing, either in section 66 of the Act of 1943 or in section 28 of the Act of 1949, upon which reliance was placed, which takes this value payment out of the category of a trading receipt properly falling within the charging section and puts it into some other category. For those reasons I agree that this appeal ought to be allowed.
ROMER L. J. I agree, and I only wish to add a very few words because we a re differing from Upjohn J., who has considerable experience of tax matters, and to whose judgments one always and naturally attributes considerable weight. I think there is only one point really on which we do differ from him. Where a trader sells or disposes of part of his circulating capital it is a well settled principle that the proceeds, for tax purposes, are treated as a trading receipt, and it is not confined to cases where the circulating capital, be it timber or other property, is actually sold, because, as Lord Reid said in the case of John Hudson & Co. Ltd. v. Kirkness (Inspector of Taxes) 'A sum may be well be a trading receipt although it does not come to the trader as the price of goods sold.' The Gliksten case was not a case of a sale but a case of a loss of cumulative capital, which was timber, by fire; and it was there held that the insurance money which was recovered was to be treated as a trade receipt. Nor is it relevant that the transaction, which led to the loss or the disposal of the asset, is a compulsory transaction enforced upon the owner; that sufficiently appears from the Newcastle Brewery case.
I myself feel little doubt that the analogy of those cases is close enough for the application of the principle to a case such as the present, where property forming part of the trading companys circulating capital was lost or destroyed as a result of war damage and was compensated for by a payment under the War Damage Act of what is called a 'Value Payment.' So far I have no reason to suppose that Upjohn J. took a different view.
Mr. Senter, without I think going so far as to concede the applicability of the Gliksten case principle to the present case, from a prima facie point of view, said : 'In any case, if you look at the War Damage Act, the whole structure and the scheme of the Act, and in particular at section 66 of the Act of 1943 and section 28 of the Act of 1949, it becomes clear that it was the intention of Parliament that Value Payments should be capital and nothing else.'
Following from that premise Mr. Senter said that there is a dichotomy of character in which this company may have received a value payment, and if in one character the money in their hands would be capital and in the other character it would be income, then in conformity with the intention of the Act they are to be taken as receiving that payment in the character which would enable the payment to preserve its capital nature. In other words, they must be taken to have received the money in the character of property owners and not as traders.
Then he proceed to say, as has already been pointed out by my brethren, that the source of the companys right to receive these value payments was not to be found in the fact that they were traders; it was to be found solely in the fact that they were owners of property upon whom had been imposed an obligation to pay capital instalments, so that, if a certain contingency happened, which it did, they would receive a payment under the Act; and that neither that payment had anything whatever to do nor had the contributions which they paid anything whatever to do with the fact that they were traders. They were solely referable to their position as property owners, an as such were brought within the provisions of the Act both as to contributions and as to payments.
He then pointed out that it was quite a different thing from a voluntary insurance under which the company would pay premiums out of revenue and would be entitled to bring them in as deductions from their taxable profits.
He finally pointed out that the amounts of the instalments they paid as contributions had no reference, apart altogether from being capital payments, to trading receipts or the trading position at all. They simply paid on the basis of the schedule A valuation of the property.
That is an attractive way of presenting the case, especially when one bears in mind that hardship falls upon the traders in some circumstances if the Crowns contention is right, hardships to which the Master of the Rolls has referred, but I do not think myself that the argument, although it commended itself to the judge, is one which can really be accepted.
Of course, generally speaking, it is perfectly true to say that value payments made under the act would be, in the hands of the recipients, capital. For example, if they were paid to trustees of a settlement, to trustees who held property under a trust for sale, then as between the tenant for life (unless there was some unexpected and unusual provision in the settlement) and the remaindermen, the sums in the hands of the trustees would be capital and not income, and more especially having regard to the fact that the contributions had been paid out of corpus.
It seems to me that the answer really to Mr. Senters way of putting the case is that there is no sufficient indication in the Acts that Parliament intended the value payments to be capital in the hands of the recipients, whoever the recipients might be. The truth is, as I think, that Parliament was not concerned with the fate of the payments after they had been received. If they were paid to trustees, that was the end of the matter so far as the War Damage Commission was concerned. In such a case one looks at the terms of the trust, and one finds that the capital sums have to be dealt with in accordance with the provisions thereof. So also, in my judgment, if they are paid to a company in respect of the loss of part of the companys circulating capital, they are to be treated as such and dealt with as such in the hands of the recipients. I do not think there is any room or justification to be found in the Act for this suggested dichotomy of which Mr. Senter spoke. As the Master of the Rolls has pointed out, section 28 of the Act of 1949, which is expressly directed to the fiscal aspect of the matter, makes no mention of this point at all, although it was manifestly directed to the position of people in trade.
That is all I wish to say on the matter, except with regard to the suggested harshness, indeed not only the suggested but the actual harshness, in cases where a company such as the present applies a value payment towards restoring the damaged property. They are, of course, in a worse position that a private individual, or a company which has received a payment in respect of a loss of fixed capital as distinct from circulating. On the other hand, there is the very important consideration to which the Master of the Rolls has referred, that a trading company such as the present company which loses a valuable item of circulating capital by war damage in any given year could, according to accepted practice, deduct the value of that property from its taxable profits for that year, which no individual could do, and which no company could do which suffered a loss of some house or property which formed part of its fixed capital. That consideration does, to some extent at all events, mitigate the undoubted harshness of the result for which the Crown is contending.
Finally, although I have every sympathy with the gallant endeavour which the Special Commissioner made to put the matter right from an equitable point of view, there is no justification or warrant for introducing words into a taxing statue which are not there, that being matter for the legislature, and not for this court, which can only take the language as it finds it and put such interpretation as it thinks right upon that. For those reasons I agree that the appeal should be allowed.
Leave to appeal to the House of Lords.
Solicitors : Solicitor of Inland Revenue; R. C. Bartlett & Co.