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inland Revenue Commissioners Vs. Butterley Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Reported in[1955]28ITR762(Cal)
Appellantinland Revenue Commissioners
RespondentButterley Co. Ltd.
Cases ReferredInland Revenue Commissioners v. Tootal Broadhurst Lee Co. Ltd.
Excerpt:
- the following judgments were read.evershed m. r. as roxburgh j. observed at the beginning of his judgment, this case is concerned with the claim by the crown to profits tax in respect of sums, now admittedly income for income-tax purposes, received by the butterley co. ltd. in the years 1947, and following, from the minister of fuel of three kinds, namely, (1) revenue payments in respect of the years 1947 and 1948 under section 22(3) of the coal industry nationalization act, 1946 (which i shall hereafter sometimes call the coal act, 1946); (2) revenue payments in respect of the years 1949 and 1950 under section 1 of the coal industry (no. 2) act, 1949 (which i shall hereafter sometimes call the coal act, 1949); and (3) other sums paid under section 22(2) of the coal act, 1946; in.....
Judgment:
The following judgments were read.

EVERSHED M. R. As Roxburgh J. observed at the beginning of his judgment, this case is concerned with the claim by the Crown to profits tax in respect of sums, now admittedly income for income-tax purposes, received by the Butterley Co. Ltd. in the years 1947, and following, from the Minister of Fuel of three kinds, namely, (1) revenue payments in respect of the years 1947 and 1948 under section 22(3) of the Coal Industry Nationalization Act, 1946 (which I shall hereafter sometimes call the Coal Act, 1946); (2) revenue payments in respect of the years 1949 and 1950 under section 1 of the Coal Industry (No. 2) Act, 1949 (which I shall hereafter sometimes call the Coal Act, 1949); and (3) other sums paid under section 22(2) of the Coal Act, 1946; in satisfaction or part satisfaction of the right to interim income conferred by section 19(2) of the last-mentioned Act. Although the payments are of the three kinds I have indicated, all of them were in respect of the right to interim income under section 19(2) of the Coal Act, 1946. So far as class (3) above is concerned, these were expressly paid towards satisfaction of that right. The revenue payments, on the other hand, are expressed in the statute to be 'in substitution for' what may be called the primary right under the Act of 1946. The revenue payments under the Act of 1949 also differed from those under the Act of 1946 in that, if the former were found to exceed what would be payable strictly by way of interim income under section 19(2) of the Act of 1946 for the given year, the recipient would be liable to be made to recoup.

Notwithstanding the above difference, it is to my mind, clear that the Crowns claim to tax should wholly fail or wholly succeed. there is, in my judgment, no sensible distinction between any of the three types of payment for present purposes, and no suggestion to that effect was made in the course of the argument on either side.

The scheme of the Coal Act, 1946, is well known and I shall not take time in describing its general nature. It provided for the transfer, on what was called the primary vesting date - a date which was later fixed as January 1, 1947 - to the National Coal Board of the business assets, and other assets called overhead expenses increases, of the component parts then existing of the coal industry. For the assets so transferred compensation was provided under the Act to the components in the industry, of which the Butterley Co. was one.

I can, with that introduction, turn at once to section 19 of the Coal Act, 1946, which, by sub-section (1), provides : 'Compensation in respect of a transfer of transferred interests or of an overhead expenses increase shall be due on the primary vesting date' - that is January 1, 1947 -'subject to determination of the amount thereof.' I pause to state that the method of determining the amount was of a complex nature, and made it clear that a considerable time would elapse before it was, in fact, finally determined.

Sub-section (2) : 'For the period between the primary vesting date and the date on which any such compensation is fully satisfied there shall be a right to interim income, to be satisfied in accordance with the provisions of section 22 of this Act.'

Sub-section (3) : 'Provision may be made by regulations for authorizing the partial satisfaction of such compensation - that is, the principal compensation -'before the determination of the amount thereof has been completed.'

Section 20 was concerned with the persons to whom the compensation should be transferred, made over or paid; and section 21 provided for the mode of satisfaction of what I have called the principal compensation which substantially, though not exclusively, was to be by way of Government stock.

I then come to section 22, which picks up, it will be recalled, sub-section (2) of section 19. By section 22(1) : 'The right conferred by sub-section (2) of section 19 of this Act to interim income for the period between the primary vesting date and the date of the satisfaction in full of compensation in respect of a transfer of transferred interests, or of an overhead expenses increase, shall be satisfied in accordance with the provisions of this section. (2) Subject to the provisions of sub-sections (3) and (4) of this section as to the revenue payments therein mentioned - (1) the said right conferred by sub-section (2) of section 19 of this Act shall be satisfied, so far as regards interim income for the period between the primary vesting date and the time when any amount of compensation in respect of a transfer of transferred interests or of an overhead expenses increase is satisfied, by making, in addition to the issue of the stock then issued in satisfaction of that amount of compensation or to the making of the money payment then made ins satisfaction of that amount of compensation, as the case may be, a money payment of an amount equal to interest for that period on that amount of compensation at such rate or rates as may be prescribed ... (b) the provisions of section 20 of this Act as to the legal and beneficial title to compensation' - that is, in effect, a reference to the persons who would be the recipients -'shall have effect in relation to additions to compensation under this sub-section' - with a substitution not material to be read.

Sub-section (3) introduces the revenue payments. It is, so fare as is material, thus : 'The following provisions of this sub-section shall have effect as to the making to colliery concerns ...... of payments in respect of each of the two years beginning with the primary vesting date and the first anniversary thereof respectively, that is to say - (a) a colliery concern ..... shall be entitled in respect of each of the said two years to a payment of an amount equal to one half of the comparable ascertained revenue of the concern .... attributable to activities thereof for which the transferred interests thereof were used or owned; (b) the payments to be made under the last preceding paragraph are in this section referred to as revenue payments, and shall be money payments.'

Paragraph (c) provides for the determination of what is called in (a) 'the comparable ascertained revenue'; it is a sum which is to be derived not from the amount of compensation, but from the previous relevant trading activities of the concern. I will pause here to state what is perhaps the obvious. Since, as I have already indicated, the amount of the compensation could not in the nature of events be finally determined quoad any concern for a considerable time, it followed that the amount of interim income under section 22(2) was, before determination, incapable of calculation. The revenue payments were, therefore, plainly devised to fill that gap.

Sub-section (4) is important for the language which it uses : 'The provision made by the last preceding sub-section shall be deemed, in the case of any colliery concern...... to be in substitution for the provisions of sub-section (2) of this section, so far as regards additions thereunder for the said two years or any part thereof to compensation for a transfer of transferred interests being compensation attributable to transferred interests of that concern ... except as to any excess of the aggregate amount of such additions over the aggregate amount of the revenue payments of that concern.'

I shall return to that language, but, for present purposes, it is sufficient to point out that this section provided that revenue payments would go in satisfaction or towards satisfaction of interim income, but that, if it turned out that they exceeded the interim income, when properly calculated, there was no obligation upon the concern to make repayment.

Section 1 of the Coal Act, 1949, extended, in effect, the provisions for revenue payments, no doubt because, the first two years having passed without the compensation having been finally ascertained, it was though necessary to fill the further gap which resulted. Section 1(1) provides : 'The following provisions of this section shall have effect with respect to the making to colliery concerns .... of payments in respect of the year 1949 and subsequent years towards satisfaction of the right to interim income conferred by sub-section (2) of section 19 of the Coal Industry Nationalization Act, 1946,..........(2) A colliery concern ......shall, in respect of the year 1949 and in respect of any subsequent year before that in which compensation undeer the principal Act in respect of the transfer of the transferred interests of the concern.......is satisfied in full, be entitled to a payment of an amount equal to the amount by which one third of the comparable ascertained revenue of the concern......attributable to activities thereof for which the transferred interests thereof were used or owned exceeds an amount equal to interest for the year in question on the aggregate amount of that compensation satisfied before the end of that year.'

By sub-section (3) : 'A payment to which a colliery concern... is entitled under the last foregoing sub-section in respect of any year shall be treated for the purposes of paragraph (a) of sub-section (2) of section 22 of the principal Act as being made towards satisfaction of the aggregate of the proportions attributable to that year of amounts which that paragraph requires to be paid as additions to stock issued or money payments made after the expiration of that year in satisfaction of compensation in respect of transfers of transferred interests of the concern.'

Sub-section (5) contains the power (which I have already anticipated) whereby, if the revenue payments under this Act prove to exceed the interim income properly attributable to the same period, there is a liability to recoup; thus the regulations made by the Minister may provide 'for requiring the repayment to the Minister of any amount by which a payment made under this section in respect of any year to a colliery concern.... may exceed the aggregate towards satisfaction of which that payment is under sub-section (3) of this section to be treated as being made.'

There follows a proviso which has some significance and relates to certain deductions, which may be made against the aggregate which I have just mentioned. The second one (for it is convenient to take them in reverse order) is : '(b) an amount which bears to the amount of the deduction the same proportion that the amount of profits tax ultimately borne by the concern..... (as determined in accordance with rules laid down by the regulations) in respect of the aggregate (as so determined) of its profits which are attributable to the year in respect of which the excess arises bears to that aggregate.' The previous paragraph (a) relates to an amount in regard to income-tax calculated by a similar method.

The tax now known as profits tax was originally imposed in the year 1937 sub-nomine 'national defence contribution.' Section 19(1) of the Finance Act, 1937, stated : 'There shall be charged, on the profits arising in each chargeable accounting period falling within' - and there is named a period which was subsequently extended - 'a tax (to be called the national defence contribution) of an amount equal to' the percentage therein named.

I should state now for simplicity hereafter that for present purposes the chargeable accounting periods are from January 1 to December 31 in each year.

By sub-section (2) : 'Subject as hereafter provided, the trades and businesses to which this section applies are all trades or business of any description carried on in the United Kingdom, or carried on, whether personally or through an agent, by persons ordinarily resident in the United Kingdom.' No question has been raised that the business activities of this company, at all relevant times, were business within the scope of that sub-section.

Section 20, relating to computation, provided in sub-section (1) : 'For the purpose of the national defence contribution, the profits arising from a trade or business in each chargeable accounting period shall be separately computed, and shall be so computed on income-tax principles as adapted in accordance with the provisions of the Fourth Schedule to this Act. For the purpose of this sub-section, the expression income-tax principles in relation to a trade or business means the principles on which the profits arising from the trade or business are computed for the purpose of income-tax under Case 1 of Schedule D, or would be so computed if income-tax were chargeable under that Case in respect of the profits so arising' : that is arising from the trade or business.

I now turn to Schedule IV. Paragraph 7 (which subsequently became by a later amendment, sub-paragraph 1 of paragraph 7) provided : 'Income received from investments or other property shall be included in the profits in the cases and to the extent provided in this paragraph, and not otherwise.' Then there followed (a) what should be included in the case of the business of a building society or certain other businesses, and (b) what should be included in the case of any other trade or business, being a trade or business carried on by a body corporate. Putting it quite briefly, the form of the paragraph in its original shape was that income from investments should only be included in certain limited cases and otherwise should be excluded.

Paragraph 8 provided : 'Subject to the provisions of the last foregoing paragraph, the profits shall include all such income arising from the trade or business as is chargeable to income tax under Case 1 of Schedule D, or would be so chargeable if the profits of the trade or business were chargeable under that Case, except' certain cases there mentioned. That language picks up, it will be recalled, the language of section 20(1).

The tax was substantially amended and renamed 'profits tax' by the Finance Act, 1947. Further, by that Act individuals and partnerships (with certain limited exceptions) were wholly exempted from the tax.

I will read section 31(2) of the Act of 1947, because some emphasis was laid upon certain of its language in the course of the argument; it provides : 'The said section 19' - that is section 19 of the Finance Act, 1937 - 'shall not apply to any trade or business carried on by a body corporate during any chargeable accounting period if, for a year or period which includes, or for years or periods which together include, the whole of the chargeable accounting period, the actual income of the body corporate from all sources is apportioned under or for the purposes of section 21 of the Finance Act, 1922, and all the persons to whom it is apportioned are individuals.'

The reference to the Finance Act, 1922, is a reference to the provisions in that Act which made the individual corporators of certain kinds of company, in certain circumstances, liable in respect of super-tax for the income of the company as though it has been wholly distributed among the members.

Paragraph 7 of Schedule IV to the original Act was also amended by section 32(1) of the Finance Act, 1947, so that its first sub-paragraph now was, so to speak, reversed in its emphasis. It reads (as amended) : 'Income received from investments or other property shall be included in the profits except' - and there are certain exceptions. So that henceforth all such income was included, save in so far as excepted. Paragraph 8 of the original schedule remained as it had originally been enacted. Finally, whereas the tax in respect of each business of a taxpayer carrying on more than one business had been (it will be recalled) separately computed by virtue of section 20(1) of the Act of 1937, the Act of 1947 provided by section 43(1) : 'All trades or businesses to which section 19 of the Finance Act, 1937, applies carried on by the same person shall be treated as one trade or business for the purposes of the enactments relating to the profits tax,' and by section 47(1) : Subject to the provisions of this section,' - which do not affect the present point - 'the provisions of this Part of this Act relating to the profits tax shall have effect with respect to all chargeable accounting periods any part of which falls after the end of the year 1946.'

It follows from the two citations which I have just made that, in the case of a body corporate carring on during the year 1947 and onwards more than one distinct business or trade, all those businesses or trades would be taken together for the purpose of computing profits tax. It will be observed that the formula in section 19(1) - 'profits arising .. from any trade or business' - which was essential in the case of an individual, so as not to subject to the tax profits or income not so arising - was retained after the tax had become limited to the profits of bodies corporate and unincorporated bodies of persons. The formula which appears in section 31(2) of the Act of 1947 - 'the actual income of the body corporate. That point was considerably emphasized on the companys side during the course of the argument.

During the period before the primary vesting date - that is, January 1, 1947 - the company carried on, in addition to its coalmining business, several other business activities of a distinct nature, for example, structural steel manufacturing, brickmaking and dairy farming - all businesses very different the one from the other, but all, in fact, busnesses within the ambit of the tax.

The Special Commissioners held that the company was not liable for the tax claimed in the case. The basis of the Commissioners decision was that the companys various business activities constituted distinct and separate businesses, and, accordingly, that, since the coalmining business had altogether ceased on and by January 1, 1947, the sums in question, which were exclusively referable to the discontinued activity, did not arise from any trade or business carried on by the company during the relevant chargeable years.

Paragraph 13 of the case stated reads : '(3) But we found, on the evidence adduced before us, that the companys composite trade or business consisted at the material time of a number of separate and severable trades, of which its colliery concern was one, and that that trade ceased entirely on January 1, 1947. (4) We further held that as a consequence of our finding of fact as set out in sub-paragraph (3) above, the said payments under the Coal Acts, 1946 and 1949, were not receipts of any trade carried on by the company during the relevant chargeable accounting periods, because it had ceased to carry on its colliery trade on January 1, 1947. (5) We further held that, on a proper construction of section 19(2) and section 22 of the Coal Act, 1946; section 1 of the Coal Act, 1949, and paragraph 7(1) of Schedule IV, Finance Act, 1937, as amended by section 32(1), Finance Act, 1947, the said payments were not income received from investments or other property.'

Roxburgh J. based his conclusion in favour of the Crown exclusively on the terms of the amended paragraph 7(1) of Schedule IV to the Finance Act, 1937, holding that the sums in question were, on any view, income of property within the meaning of that paragraph. There was some argument before us whether the judge assumed that, if the sums were caught by paragraph 7(1) of Schedule IV to the Finance Act, 1937, they would also and necessarily be profits arising from the companys trade or business on the basis that the company was formed as a trading company. I do not think myself that the judge made any such assumption. Argument on the application to the facts of the case of section 19(1) of the Finance Act, 1937, was, so I understand, stopped by the judge as irrelevant, having regard to the view which he took of the application of paragraph 7(1) of Schedule IV. The judge, therefore, thought, in my view, that whether or not the scope of section 19(1) was thereby enlarged, the sums in question were, in any case, 'income received from ...... other property,' namely, the principal sum of compensation or the stock representing that sum, or perhaps, the chose in action, being the right to get that compensation.

He said : 'This compensation could not properly be regarded as an investment, but I can see no reason at all why it is not other property. ...... The companys right to that compensation was, in my judgment, plainly a chose in action; none the less a chose in action because it was the creature of statute....true, it is a right conferred by statute, but from what is it to be income I should have though plainly from the compensation due, payment of which was still deferred. In other words, these payments arose from the chose in action, consisting of compensation due but still unpaid, and fall directly within the words income received from .... other property, and, therefore, by virtue of paragraph 7, should be included in the profits.'

If the question on this appeal was whether the judge was right in the view I have attributed to him, I should, for my part, the inclined to disagree with him; the language of sections 19 and 22 of the Coal Act, 1946, seems to me carefully and deliberately to avoid the result that the interim income is income from or of the compensation provided for in section 19(1); rather it is treated (and, as I think, deliberately treated) as a distinct right, quantified, no doubt, by reference to the amount of the section 19(1) compensation, but none the less something in addition to, rather than flowing naturally from, the section 19(1) compensation; a distinct compensation for the loss of earnings during the period between the primary vesting date and the payment of the section 19(1) compensation. The revenue payments, moreover, were computed without reference to the section 19 compensation at all; they are in substitution for the interim income right and, under the Act of 1946, might be retained, even though they were in excess of the proper amount of the interim income.

I refer again to the language of the relevant sections. Section 19(2) speaks, it will be remembered, of a 'right to interim income' to be satisfied in the manner set out in section 22. Section 22(2)(a) provides that the right shall be satisfied by making, 'in addition to' the issue of the stock, etc., a money payment of 'an amount equal to' interest on it; and in (b) of the same subsection the relevant words are 'additions to compensation.' Finally, it will be recalled that in sub-section (4) of the same section there is repeated this somewhat special and elaborate language - 'so far as regards additions thereunder for the said two years or any part thereof to compensation for a transfer of transferred interests' -and agains later - 'except as to any excess of the aggregate amount of such additions.'

In the course of the argument reference was made to other statutes, and I will refer to one merely for the purpose of emphasizing the special character of the language used in the Coal Act, 1946, as distinct from the sort of language which is used in other contexts, when what is clearly intended is neither more nor less than income on a principal sum. I refer to section 32(2) of the Transport Act, 1947, which provides : 'Where the compensation payable to any person in respect of a wagon is satisfied by the issue of British transport stock interest on which begins to accrue as from a date later than the date of transfer, the Commissioner shall pay to him interest on the amount of the compensation, at such rates as the Treasury may determine......'

I agree that, as Mr. Cross pointed out, all this income compensation is comprised within the terms of section 19(2) of the Act of 1946, whether the form it took was that of revenue payments or otherwise; but I think that that fact is not enough, having regard to the language used, to make the interim income or the revenue payments in reality and substance income arising from, or income of, the section 19(1) compensation or arising from the right to receive that compensation conferred by the statute. In my judgment that view is reinformed by the circumstances, having regard again to the special language used, that the compensation was stated to be due on the primary vesting date.

It is not, however, necessary for me to express a concluded view on this point for, just as in this court Mr. Russell, for the company, conceded that the sums in question were, in truth, income, so Mr. Cross in turn, on behalf of the Crown, conceded that the amended paragraph 7(1) of Schedule IV to the Finance Act, 1937, could not enlarge the scope of the formula in section 19 of that Act; in other words that, if they are to be chargeable to profits tax, the sums in question must be 'profits arising from a trade or business.'

Mr. Cross conceded that paragraphs 7 and 8 of Schedule IV, when read together, were, in their scope, of a limiting rather than an expanding character. The case of the Crown in this court, therefore, has been of a two-fold nature : (1) Since the company is a trading company formed for the exclusive purpose of carrying on business, therefore all receipts in the nature of income must inevitably be - or be brought into account in ascertaining - 'profits arising from the trade or business.' Thus the last-mentioned formula becomes synoymous with 'profits arising in the course of trade'; or, simply, with trading profits. (2) Alternatively, if a company could, by appropriate separation, keep the income of the kind here in question wholly distinct from its other and ordinary trade receipts (for example, as or as part of a first stage in the repayment of capital to its shareholder), that was no done on the facts in this case.

Mr. Cross referred to the printed accounts for the years 1947 and following of the company. I will take one of these printed accounts as an illustration, namely, that for the year ended December 31, 1950. The profit and loss account for the company and its subsidiaries opens with an item of 'profits (less losses) on trading, including provisional revenue payments under the Coal 'Industry (No. 2) Act' - and so on, so much. The balance-sheet of the Butterley Company itself is divided on the right hand side under the beadings 'Assets previously owned which vested in the National Coal Board' and 'Assets not vested in the National Coal Board.' Under the first heading, which includes freehold and leasehold property less depreciation, there appears an item of deduction of proceeds of sale of Treasury bonds received on account of compensation; but under the second heading 'Assets not vested in the National Coal Board' there appears, brought in as a current asset, compensation for certain vested assets, and in the profit and loss account there is brought in a provisional revenue payment receivable from the Ministry of Fueland Power, which is clearly a reference to receipts under the Coal Nationalization Acts. Those instances show that, for the purpose of making up their accounts, revenue sums received from the Ministry were brought into the profit and loss account by the company, together with the rest of its income and so as to form part, for accounting purposes, of the whole of the companys income.

As regards the second or alternative point, Mr. Cross said that there was, in truth, a lacuna in the findings of the commissioners. For the question is as to the separate character of the companys enterprises after and not before January 1, 1947. Mr. Cross relied also on the terms of section 43(1) of the Finance Act, 1947, which provides that, for the purposes of profits tax, all trades or business should be treated, as from the date mentioned -January 1, 1947 - as one in the case of a company carrying on more than one trade or business.

As to this second or alternative point, I think that it is now too late for us to draw any inferences of fact from the accounts. The chairman of the company and the chief accountant gave evidence before the commissioners and they were not cross-examined on the point at all. I think we must conclude that the separateness of the various trades was as great after as before January 1, 1947, and that the commissioners findings so intended to state; and such a matter is a question of fact for the determination of the commissioners : see for example, the judgment of Rowlatt J. in Scales v. George Thompson & Co. Ltd.

Further, in regard to the point made on section 43(1) of the Finance Act, 1947, the question is of the nature of the sums when received, not what was done with them after receipt. Section 43(1) treats all the trades of a particular company as one as from January 1, 1947, for the purposes of the profits tax; but, the coalmining business of the company having then ceased, the sums in question cannot, in my judgment thereby - that is, by a mere application of the terms of section 43(1) - be made profits of a trade if, in truth, they were not.

Finally, since this was a compulsory acquisition by the State, there is no real room, in the absence of clear evidence, for any intention related to the time before the sums were received. It is not, in may view, in doubt that the profits of a trade for present purposes must be profits of a trade being carried on during the chargeable accounting period. I think, therefore, that Mr. Crosss second or alternative argument cannot be sustained on the facts as found and that it would not, in the circumstances, be right for us now to refer the matter back to the Special Commissioners.

The question, therefore, comes down to the single point and turns on the first head of the argument on the part of Mr. Cross, which I have stated above. On the whole, my conclusion is against the Crown upon this matter. The grounds for my conclusion I can state under four heads : (1) Even in the case of a trading company, the conception that not all income is business earnings appears to be accepted, for example, by the House of Lords in Inland Revenue Commissioners v. Gas Lighting Improvement Co. Ltd. and later Inland Revenue Commissioners v. Tootal Broadhurst Lee Co. Ltd. Those cases related, in fact (in the former case) to excess profits duty and (in the latter) to excess profits tax, and it is no doubt true that the question whether particular items or assets were investments turns on the special provisions of the rules applicable to that duty or tax. Nevertheless, it seems to me that the language which I am about to cite from their Lordships speeches in the Gas Lighting Improvement Co. case is of general application and relevant to the point which I have sought to make.

Thus, Lord Cave L. C. said : 'The expression' - that is, investments - 'cannot be intended to apply to investments wholly unconnected with the business to be assessed; for investments of that character could in no case be regarded as capital of the business, and it would be quite unnecessary to direct their exclusion. It must therefore refer to investments connected with the business, and I see no reason why it should not include an investment of part of the business capital in an outside security, though made with the object of forwarding the trading operations for which the business was constituted.'

Lord Finlay said : 'The rule' - that is, rule 8 of the particular rules applicable to the duty - 'must, on the face of it, have been intended to deal with cases in which but for its provisions the income of these investments would have formed part of the profits of the business. The rule is meaningless if it was intended to apply only to income which formed no part of the profits of the business, as such income would be already outside the scope of the excess profits duty. I do not see how it is possible to escape from the conclusion that rule 8 includes within its operation cases in which the money, from which the income was derived, was employed in the business of the company assessed to excess profits duty.'

Lord Atkinson agreed entirely with what Lord Finlay had said.

In the Tootal Broadhurst case the question was whether certain patents ought to be regarded as an investment for the purposes of the tax, the patents being assets from which the company derived substantial revenue. I confine myself to one passage from the judgment of Lord Simonds in which (as will be observed) he referred to the Gas Lighting Improvement Company case. He said : 'It appears to me that the problem may be solved in this way. I would take a schedule of the assets of the trading company, concerned and, omitting assets such as stocks and shares to which in view of the decision in the Gas Lighting Improvement Co. case the title of investments can in no circumstances be denied, would ask of each other asset : Is this an asset which the company ahs acquired and holds of the purpose of earning profits in, or otherwise for the purpose of earning profits in, or otherwise for the promotion of, its particular trade or business There might be borderline cases in which the answer would be uncertain, but I do not doubt that in the vast majority of cases the answer would be clear cut.'

I should, however, refer also to the speech of Lord MacDermott in this case, since it was somewhat relied upon by Mr. Cross. Lord MacDermott said : 'If, in the course of carrying on my business, I make active use of a business asset - be it my factory building, a piece of machinery, a patent or my working capital - that asset is not an investment. Whatever else a business investment may have to be, it is an asset for the time being held intentionally aloof from the active work of the business. It is none the less an asset of the business and may have great business value of instance, it may enable me to survive bad times and take advantage of goods, or it may help me to control supplies or competition. And if it produces income that is income of the business. But I do not earn that income by my business efforts. The part I play there is essentially passive.'

I cannot, for my part, regard the language of Lord MacDermott as sufficient, having regard to what I have cited from the earlier case and from the speech of Lord Simonds, to dispose of the statement I have made that, in the case of a trading company, not all income arising from assets belonging to the company can be treated as business earnings or income arising from a trade or business.

(2) The formula, which was, as I have already stated, deliberately preserved after the amendment of the Finance Act, 1937, was 'profits arising from a trade or business.' When individuals were liable to the tax, this formula had an obvious and necessary significance : so as to exclude income or profits belonging to the individual and derived otherwise than from his business. It should not be said, in my judgment, that the amendment of 1947, which (among other things) excepted the individual from the tax, had the oblique effect of making the original formula necessarily synonymous with 'income from all sources.'

(3) The commissioners found, as a fact, that the various business enterprises of the company were, immediately before January 1, 1947, separate and distinct. There is, in my view, no basis for saying either : (a) that after January 1, 1947, there was some kind of amalgamation, or (b) that the sums here in question, which were inf act derived from a discontinued separate business, became automatically the profits of one or all of the continuing and separate businesses. Section 43(1) of the Finance Act, 1947, can only operate to the extent that the business in fact being carried on after January 1, 1947, are treated as one for the purposes of the computation of the tax.

(4) If the disposal of the coalmining business had been a voluntary act upon similar or somewhat similar terms, then I conceive that the income receipts might be treated as arising from a trade or business, on the ground that the sale had been (and had been intended as) a business transaction; but here the transfer to the National Coal Board was provided by Parliament in invitum so far as the company was concerned, which could do no other than obey the law and receive the sums which Parliament ordained. Such a transaction must have been wholly outside the contemplation of the original corporators and the scope of the companys memorandum of association. No intention in regard to income for the future can, in my judgment - in the absence, at least, of direct evidence - be attributed to the company or its directors; to treat the income payments as arising from any trade or business being carried on by the company is, to my mind, wholly unreal and insensible.

Reference was made to the terms of section 1(5) of the Coal Act, 1949, as showing that Parliament regarded the revenue payments - at least under the Coal Act 1940 - as subject to profits tax. I cannot for any part attach any significance to this matter. Assuming that Parliament did so contemplate - and the sub-section, to my mind, is by no means free from doubt in this respect - the Coal Act was not in pari materia with the Finance Acts. In these circumstances, and according to well-established principles, see, for instance, Camille and Henry Dreyfus Foundation Inc. v. Inland Revenue Commissioners, the language of the sub-section cannot influence the interpretation of the Finance Act, 1937, in its application to the facts of the present case.

On the other hand, if the question had been asked of the company, in any of the years 1947 and following : 'what is your business income ?' or, more correctly : 'what are the profits arising from your business ?' I think that a natural answer (contrary to the suggestion put before us by Sir Reginald Hills) would not have taken these income payments into account.

For the resons which I have attempted to state, I would allow the appeal.

JENKINS L. J. This is an appeal by the Butterley Co. Ld. from a judgment of Roxburgh J. dated July 27, 1954, allowing an appeal by the Crown from a determination of the Special Commissioners in favour of the company on an appeal to them by the company against assessments to profits tax for the calendar years 1947 to 1950 inclusive.

Down to December 31, 1946, the company carried on a number of trades or business, including the trade or business of colliery proprietors. As from January 1, 1947, the companys colliery undertaking was compulsorily acquired by and vested in the National Coal Board under the provisions of the Coal Industry Nationalization Act, 1946, and the company became entitled to receive in respect of the assets so transferred an unascertained amount of compensation, and also to receive, for the period between January 1, 1947, and the date on which the compensation was fully satisfied, periodical payments designated in the Act as interim income and calculated as therein provided.

The question in the case is whether the payments received by the company in respect of interim income under the compensation provisions of the Act of 1946 in each of the calendar years 1947 to 1950 are liable to profits tax.

In approaching this question it is material to observe that, according to the facts found by the Special Commissioners, it appears : first, that the colliery concern of the company constituted a trade separate from its other trades and ceased entirely on January 1, 1947, the date on which the colliery concern was compulsorily acquired by the National Coal Board; and, secondly, that thereafter the company continued to carry on its various other trades, which conversely were distinct and separate trades from the defunct colliery concern, and included iron founding, structural steel manufacturing, wagon building, wrought iron production, brick making, civil engineering and dairy farming.

The profits tax was first imposed under the name of the 'national defence contribution' by the Finance Act, 1937. The more material provisions of that Act are these : by section 19(1) the tax is 'charged on the profits arising in each chargeable accounting period ..... from any trade or business to which this 'section applies.' I here also refer to various other provisions of the Act of 1937 to which my Lord has already referred : I will not take up time by reading them again in extenso.

Then by the Finance Act, 1947, s. 31(1)(a), it was provided that the charge of profits tax should not apply to any trade or business, unless it was carried on by a body corporate or unincorporated society or other body. By section 32(1) the substitution was made in respect of paragraph (7) of Schedule IV to the Act of 1937, and to that again my Lord has sufficiently referred.

Section 43(1) of the same Act provided that all trades or businesses to which section 19 of the Finance Act, 1937, applied, carried on by the same person should be treated as one trade or business for the purposes of the enactments relating to the profits tax. By section 47(1) of the same Act it was provided, so far as material for the present purpose, that these changes in the law relating to profits tax should have effect with respect to all chargeable accounting periods any part of which fell after the end of the year 1946.

It is unnecessary to refer at any great length to the complicated provisions of the Coal Industry Nationalization Act, 1946. So far as material for the present purpose, this Act provided by section 5 for the vesting in the National Coal Board of the assets to be transferred to it. With exceptions not here material, such vesting was by section 5(1) to take place automatically on such date as the Minister might by order appoint, therein referred to as the primary vesting date and in fact fixed by the Minister as January 1, 1947. By section 10(1) compensation was to be made as thereinafter provided in respect of the transfer to the board of the transferred interests. The provisions as to compensation were elaborate, involving as they did the fixing of a global sum representing the total amount of compensation payable in respect of all the assets acquired throughout the country, the apportionment of this sum amongst valuation districts, the allocation of the various transferred interests to compensation units, the valuation of those units, and the rateable apportionment amongst the units in each valuation district according to their respective values of the compensation allocated to such district. It was therefore likely to be a matter of years before the compensation payable in respect of any individual colliery concern could be fully ascertained and satisfied. By section 21(1) the compensation in respect of a transfer of transferred interests was, with immaterial exceptions, to be satisfied by the issue of Government stock, and this stock was by section 23 subject to certain restrictions as to the disposal thereof. The provisions chiefly material for the present purpose are those contained in sections 19 and 22 of the Act.

It will be seen that under section 22 the right to interim income conferred by section 19 was, as regards the years 1947 and 1948, to be satisfied (in effect) by whichever of the following sums might be the greater, that is to say, the additions provided for by sub-section (1) to instalments of compensation satisfied, and the 'revenue payments' provided for by sub-section (3), with no provision for the repayment of any excess of the latter over the former. By the Coal Industry (No. 2) Act, 1949, provision as made for the continuance in a modified form of 'revenue payments' in

respect of the year 1949 and subsequent years, until the compensation payable in respect of the transferred assets of any concern was fully satisfied. I here refer to the provisions of the Act of 1949 which my Lord has already read.

The contentions advanced on behalf of the company before the Special Commissioners were to this effect : first, that the 'interim income' payments received by the company under the Acts of 1946 and 1949, whether in the form of additions to instalments of compensation under section 22(2) of the Act of 1946, or in the form of revenue payments under section 22(3), or in the form provided for under section 1 of the Act of 1949, notwithstanding the statutory description of 'interim income' assigned to them in section 19(2) of the Act of 1946 and elsewhere, were not income of the company, but part of the compensation payable to the company for the taking away of its colliery assets; secondly, that these 'interim income' payments were not profits of the trades or business carried on by the company during the relevant chargeable accounting periods, but arose to the company from its colliery concern, which trade ceased entirely on January 1, 1947, and, thirdly, that such payments were not 'income received from investments or other property' within the meaning of paragraph 7(1) of Schedule IV to the Finance Act, 1937, as amended by section 32 of the Finance Act, 1947. For the Crown, on the other hand, it was contended : first, that such payments were income of the company; secondly, that such payments were part of the profits of the trade or business carried on by the company in the relevant chargeable accounting periods; and, thirdly, that such payments were income received from investments or other property within the meaning of paragraph 7(1) of Schedule IV to the Finance Act, 1937, as amended.

The Special Commissioners first stated their conclusion that the payments in question were not properly included in computing, for the purposes of the profits tax, the profits of the company for the relevant chargeable accounting periods; secondly, held, that such payments were income of the company and rejected the companys first contention; and continued the statement of their findings which my Lord has already read.

Roxburgh J. found it unnecessary to decide whether the payments received by the company in respect of 'interim income' were or were not profits arising from the trades or businesses carried on by the company during the relevant chargeable accounting periods, for, in is view, whether this was so or not, it was at all events plain that these payments were 'income received from property,' and as such fell to be included in the profits of the company for the purposes of profits tax, by virtue of the express direction in paragraph 7(1) of Schedule IV to the Act of 1937, as amended, that, with exceptions not applicable in the present case, 'income received from ... property shall be included in the profits.' This provision, in his view, had the effect of bringing the interim income payments into the charge to profits tax, whether they were, or were not, profits arising from any trade or business carried on by the company in the relevant chargeable accounting periods. Accordingly, he allowed the Crowns appeal.

In this court, Mr. Russell, for the company, abandoned the contention that the interim income payments were not income at all, while Mr. Cross, for the Crown, abandoned the contention that the claim to tax could be established merely by showing that the interim income payments were income received from property.

It thus became common ground that the interim income payments, whether they were or were not income received from property, were only chargeable to profits tax if they were profits of a trade or business carried on by the company during the relevant chargeable accounting periods. This must, I think, be the right view. The charging section, that is to say section 19 of the Act of 1937, charges the tax on the profits arising in each chargeable accounting period from any trade or business to which the section applies and charges nothing other than the profits so arising. Paragraph 7 of the Schedule IV to the Act of 1937, as originally framed, in providing that income from investments or other property should, with the exceptions therein mentioned, be excluded from the profits, must be taken to have been referring to investments or other property, the income received from which would, apart from its exclusion, have been included in the profits arising from the trade or business, and not to income from investments or other property which have nothing to do with the trade or business, the exclusion of which would have been wholly unnecessary. Compare Commissioners of Inland Revenue v. Gas Lighting Improvement Co., per Lord Sterndale M. R., Lord Cave L. C., Lord Finlay, and Commissioners of Inland Revenue v. Tootal Broadhurst Lee Co. Ld., per Lord MacDermott. Similarly, I think that the substituted paragraph 7(1) of the Schedule IV to the Act of 1937 introduced by section 32 of the Act of 1947, in providing that income received from investments or other property should, with the exceptions therein mentioned, be included in the profits, must be taken as referring to income received from investments or other property, the income from which forms part of the profits arising from the trade or business. In other words, I think that the inclusion of income received from investments or other property enacted by the new paragraph 7(1) of Schedule IV to the Act of 1937 relates to investments or other property of the same character as those to which the exclusion enacted by paragraph 7 of that schedule in its original form related. I cannot construe the new paragraph 7(1) as bringing into charge to tax investments or other property which have nothing to do with the trade or business. I think this view is reinforced by the circumstance that, until the amendment in this respect introduced by section 32 of the Act of 1947, the charge to tax extended to trades or businesses carried only partnerships or individuals. The question to be answered being whether profits of a trade or business received in the form of income from investments or other property were to be included in the charge to tax the old paragraph 7 gave the answer 'No, with certain exceptions,' and the new paragraph 7(1) gave the answer 'Yes, with certain exceptions.' Before the amendment the general rule was that income received from investments or other property, which would otherwise have been included, should be excluded, whereas after the amendment the general rule was that there should be no such exclusion.

Accordingly, the argument before us was, in effect, directed to two questions, that is to say : first, whether the interim income payments, considered simply as periodical payments in the nature of income received by the company under the provisions of the Coal Industry Nationalization Act, 1946, and the Coal Industry (No. 2) Act, 1949, were profits arising from any trade or business carried on by the company in the relevant chargeable accounting periods : and, secondly, alternatively, whether such interim income payments, considered, if they could properly be so considered, as income received from property, in the shape either of a capital sum represented by the compensation when ascertained or of an income bearing asset consisting of the right to receive interim income under the Acts, were profits arising from any such trade or business.

The first of these questions must, I think, clearly be answered in the negative. The commissioners found, as a fact, that the colliery concern of the company constituted a trade separate from its other trades and that that trade ceased entirely on January 1, 1947. The separate nature of the colliery concern and its cesser are both undoubtedly questions of fact, as to which the Special Commissioners findings are binding upon us. The cesser of the companys colliery concern was indeed a matter upon which a finding was hardly required, as it followed as a necessary consequence of the application of the provisions of the Act of 1946 to that concern, and, to be strictly accurate, the exact moment of cesser would appear to have been mid-night on December 31, 1946 - January 1, 1947. On these findings, the interim income payments clearly could not be profits arising from the carrying on of the companys colliery trade, which had wholly ceased. It is equally clear that such payments were not in fact profits arising from any of the trades or businesses which the company continued to carry on after the cesser of its colliery trade. Such payments were received independently of, and had nothing to do with, any of those other trades or businesses. They would have been received just the same if the company had never carried on any trade or businesses other than its colliery concern. In view of the Special Commissioners finding as to the separate character of the colliery concern, the interim income paments cannot be imputed to the trades or businesses which were continued by the company, on the ground that the colliery concern was merely a branch or department of one entire business, which was continued as a whole with the substitution of the companys rights under the Acts of 1946 and 1949 for the defunct colliery concern. I do not think that section 43(1) of the Finance Act, 1947, as to treating all trades or businesses carried on by the same person as one for profits tax purposes can assist the Crown here, for the separate colliery trade in this case ceased contemporaneously with the beginning of the first chargeable accounting period to which that section applied. The true nature, as I see it, of the interim income payments is that they were not profits arising from any trade or business but were payments in the nature of income made under the Acts of 1946 and 1949 to compensate the company for the loss of income which it sustained during the period from January 1, 1947, to the date of final ascertainment and satisfaction of the compensation by reason of the compulsory acquisition and consequent cesser of its colliery trade.

As to the second question, I do not think that the case for the Crown is improved by treating the interim income payments as income received from property, whether in the shape of a capital sum represented by the compensation when ascertained or of an income bearing asset consisting of the right to receive interim income under the Acts, for it is, as I have said, common ground that income received from property in order to be chargeable with profits tax must be profits arising from a trade or business carried on during the relevant chargeable accounting period. I think that income received from property can only answer that description if the property from which it is received can fairly and properly be described as an asset of the trade or business so carried on. In view of the separate character possessed by the companys colliery concern down to the date of its compulsory acquisition and consequent cesser, it seems to me impossible to hold that the companys rights under the Acts, whether to the capital compensation when ascertained or to the interim income payments, can fairly or properly be described as constituting assets or income of the trades or businesses carried on by the company during the relevant chargeable accounting periods, that is to say, its trades or businesses other than the separate and defunct colliery concern. These rights and their produce were just as separate and distinct from the continued trades or businesses as the colliery concern had been while it existed.

Mr. Cross sought to meet this difficulty in two ways : first, he said that the company had, in fact, dealt with the interim income payments and treated them in their accounts as if they were income of the continued trades or businesses, and had, in like manner, treated the payments on account of compensation as assets of the continued trades or businesses. Thus, whatever the position might have been if the company had segregated the interim income payments and the payments on account of compensation from the continued trades or businesses, the company had, in fact, chosen to make them income and capital assets respectively of the continued trades or businesses, with the result that the interim income payments became part of the profits arising from the continued trades or businesses for the purposes of profits tax. Secondly, he said that the raison detre of a trading company being to trade, any income received by such a company must be income of its trade or business. The latter point can, I think, be shortly disposed of. Profits tax is charged on the profits arising from any trade or business carried on during any given chargeable accounting period, and not on the income from all sources of the person carrying on any trade or business during any given chargeable accounting period. It follows that income received by a trading company is not chargeable to profits tax, merely on the ground that it is income of a trading company. It must be shown further that such income represents profits arising from some trade or business carried on by that company during the relevant chargeable accounting period.

As to the former point, Mr. Russell did not dispute that the interim income payments and payments on account of compensation were, in fact, treated by the company, as and when received, as if they were respectively income and capital assets of the continued trades or businesses. This, indeed, appears clearly enought from the post - 1946 balance-sheets and accounts of the company annexed to the case. The interim income payments, as and when received, were credited to revenue account, while the payments on account of compensation, as and when received, were, broadly speaking, applied in writing down to the nominal figure of Pound 1 the book values of the assets taken over the Coal Board and discharging the companys overdraft, the surplus over such book values being in part carried to reserve and in part applied by way of distribution of capital profits. But, said Mr. Russell, the quality of a given income receipt as being or not being profits of a trade or business carried on by the recipient must be judged and determined at the time of receipt, and, if it is not profits arising from such a trade or business when received, it cannot be converted into profits so arising by reason of the fact that it is afterwards treated as if it had been profits so arising. Moreover, while it is no doubt true that, so far as the payments on account of compensation were, as and when received, made part of the capital assets of the continued trades or businesses, any income thereafter derived from them would fall to be brought into the computation of the profits arising from those trades or businesses for profits tax purposes, it does not follow that, pending the actual ascertainment and receipt of the compensation for the time being outstanding, the mere right to receive it, when ascertained, became an asset of the continued trades or businesses, so that the interim income, considered as income of the compensation, became, as income of property which was an asset of those trades or businesses, part of the profits arising from them in the shape of 'income received from...property' within the meaning of paragraph 7(1) of Schedule IV to the Act of 1937 as amended. That conclusion would be inconsistent with the Special Commissioners finding that the companys colliery concern was a separate trade. The right to receive the outstanding and unascertained compensation was a right conferred exclusively in respect of the compulsory acquisition and consequent cesser of that separate trade and had nothing to do with the companys other trades or businesses. The fact that the stock or cash received in or towards satisfaction of the continued trades or businesses could not alter retrospectively the character of the right, any more than the appropriation to such purposes of the interim income payments, as and when received, could alter retrospectively the character of those receipts.

As appears from the above discussion of the arguments, the two questions into which I divided the matter in issue earlier in this judgment to some extent overlap, and perhaps they would be better described as two ways of approaching the same question. On both questions, or on both methods of approach, I think that the argument for the company should prevail.

If the view I have formed to the effect that the interim income payments in this case are not, upon the true construction of the relevant provisions of the Finance Acts, 1937 and 1947, chargeable to profits tax, is right, I find it impossible to hold that the references to profits tax in the proviso to section 1(5) of the Coal Industry (No. 2) Act, 1949, has made them so chargeable. Those references at most imply an assumption by Parliament that interim income payments under the Act of 1946 and that Act were subject to profits tax; but an assumption made in a later enactment as to the construction and effect of a given statutory provision is not to be treated as if it were an amendment of the earlier provision. Such legislative assumptions may sometimes be used for the purpose of resolving doubts or ambiguities, but do not alter the law. See the cases on this subject collected in Camille and Henry Dreyfus Foundation Inc. v. Inland Revenue Commissioners and particularly the succinct observation of Lord Radcliffe in Inland Revenue Commissioners v. Dowdall OMahoney & Co. Ltd. that 'The beliefs or assumptions of those who frame Acts of Parliament cannot make the law.'

Moreover, it is to be observed that, in the present case, the Act in which the assumption as to liability for profits tax is made is not directly concerned with profits tax, but with the continuation, in an amended form, of the provisions of the Coal Industry Nationalization Act, 1946, as to interim income. The incidental references to profits tax in the provisions as to the adjustment of payments may thus well have been made merely ex abundanti cautela with little or no consideration of the question whether the interim income payments were or were not liable to the tax. Finally, non-constant that there may not conceivably have been cases in which the facts and circumstances were such as to attract profits tax on the interim income payments, and the possibility that such cases might exist would suffice to satisfy the references to the tax in the Act of 1949 without recourse to the supposition that the legislature regarded it as exigible in all cases.

The admission made by the Crown to the effect that the new paragraph 7(1) of Schedule IV to the Finance Act, 1937, as amended by the Finance Act, 1947, only includes 'income received from....... property' where such income forms part of the profits of the trade or business, and the view I have formed to the effect that the interim income payments in the present case, even if considered in other respects as 'income received from.....property' within the meaning of the paragraph, were not profits of any trade or business carried on by the company during the relevant chargeable accounting periods, make it unnecessary for me to decide whether these income payments were, in other respects, 'income received from........property' within the meaning of the paragraph. This seems to me at least open to doubt. The Act of 1946 studiously avoids describing the interim income as interest on or income of the compensation, even when the interim income is to be satisfied in the way provided by section 22(2)(a), the formula there used being 'the said right' (that is to say, the said right to interim income) ..... 'shall be satisfied ..... by making, in addition to the issue of the stock then issued in satisfaction of that amount of compensation......a money payment of an amount equal to interest for that period on that amount of compensation at such rate or rates as may be prescribed.....'; and these additional payments are referred to elsewhere in the Act as 'additions' to the compensation. Under the provisions of section 22(3) as to revenue payments (which, in effect, were to be made for the calendar years 1947 and 1948 in lieu of the above-mentioned additions in all cases in which they would be larger than such additions), these payments were to be calculated by reference to the past earnings of the concern, and bore no relation at all to the amount of the compensation. In continuing the revenue payments in modified form the Act of 1949, in effect, made them as regards 1949 and subsequent years subject to adjustment by repayment to the Minister of any amount whereby they were found to exceed the interim income which would have been payable for the same period according to the method of calculation provided for by section 22(2)(a) of the Act of 1946, but, subject to such adjustment, the right given is still a right measured by reference to past earnings. I find it difficult to hold that the interim income payable under these Acts, defined and measured in the way it is, can properly be described as income of the compensation; and there is, I think, much to be said for the view that, albeit itself in the nature of income, it is not income of the compensation but rather 'income-compensation,' if I may use that expression, that is to say, a series of periodical payments, an independent right to which is conferred by the Act by way of compensation for the loss of income sustained in respect of the period between the primary vesting date and the ascertainment and satisfaction of the capital compensation.

Mr. Crosss suggestion that, at all events, the interim income was income of an income bearing asset in the shape of the right to receive it conferred by the Acts strikes me as highly artificial. My doubts are, I think, warranted by some observations of Lord Simonds and Lord MacDermott in Inland Revenue Commissioners v. Tootal Broadhurst Lee Co. Ltd. on the meaning of the word investments. Lord Simonds said : 'The problem, my Lords, is a different one, not whether these assets, being investments, are within the paragraph, but whether they are investments at all, and, as I have already said, that is a word whose scope will depend on its context. It appears to me that the problem may be solved in this way. I would take a schedule of the assets of the trading company concerned and, omitting assets such as stocks and shares to which in view of the decision in the Gas Lighting Improvement Co. case the title of investments can in no circumstances by denied, would ask of each other assets : Is this an asset which the company has acquired and holds for the purpose of earning profits in, or otherwise for the promotion of, its particular trade or business? There might be borderline cases in which the answer would be uncertain, but I do not doubt that in the vast majority of cases the answer would be clear cut.'

Then, later, has Lordships said : 'Applying this test to the facts of the present appeal I cannot believe that any business man (who may be regarded as the touchstone in such a case) would describe the patent rights here in question as investments of the appellants or the payments received by them under the licences or agreement as income of their investments.'

Lord MacDermott said : 'My Lords, I do not think any business man would describe the income so obtained as income received from investment.' Then : 'It is plain, therefore, that investments refers to some assets and not to others. The statute, however, does not lay down any method of segregation for its purposes and, in the absence of such provision, the proper test must, in my opinion, be related to the limited sphere of trade or business with which the Act is here dealing and founded, accordingly, upon the meaning of the word for the man engaged in trade or business rather than for the man in the street.'

It is true that, as Lord MacDermott pointed out, the words to be considered were 'income received from investments' without the addition of the words 'or other property,' which are of wider import. But, if it is right to consult the probable views of the business man as to the meaning of 'investments.' I see no reason why the same test should not be applied in considering the meaning of the word 'property.' I therefore ask myself whether any business man would describe the interim income receivable under the Acts of 1946 and 1949 as 'income received from ..........property,' and find it difficult to believe that he would.

It is, however, unnecessary to pursue this question further, and for the reasons I have earlier stated I would allow this appeal.

MORRIS L. J. In considering the facts in this case it is necessary to have in mind the precise provisions pursuant to which profits tax is charged. The wording of section 19(1) of the Finance Act, 1937, provides that : 'There shall be charged, on the profits arising in each chargeable accounting period ...... from any trade or business to which this section applies a tax.' The wording of sub-section (2), so far as relevant for present purposes, provides that the section applies to all trades or businesses of any description carried on in the United Kingdom. Section 20(1) of the Act provides that 'the profits arising from a trade or business in each chargeable accounting period shall be separately computed, and shall be so computed on income-tax principles as adapted in accordance with the provisions of the Fourth Schedule to this Act.' There is the further provision that : 'For the purpose of this sub-section, the expression income tax principles in relation to a trade or business means the principles on which the profits arising from the trade or business are computed for the purpose of income tax under Case 1 of Schedule D, or would be so computed if income-tax were chargeable under that Case in respect of the profits so arising.'

It is to be noted that the function of Schedule IV is to set out certain adaptations of income-tax provisions as to the 'computation' of profits of the purpose of the tax.

It was not before us contended on behalf of the Crown, nor in my judgment could it validly have been contended, that any of the provisions contained in Schedule IV could enlarge or do enlarge the words contained in the body of the Act by which a charge is imposed. The result is therefore that the tax is charged upon the actual profits arising in a chargeable accounting period from a trade or business which is being carried on and which is not exempt. In computing those profits the provisions of the Fourth Schedule come into play : but they do not come into play so as to extend the scope of the tax. Thus paragraph 7 of Schedule IV, both in its original form and in the substituted form introduced by section 32 of the Finance Act, 1947, refers to 'income received from investments or other property.' The reference is to investments or other property of the trade or business. When by the Finance Act, 1937, the tax (then called the national defence contribution) was imposed, it then applied not only to bodies corporate but also to individuals who owned a trade or business. In either case, the reference in the schedule to 'investments or other property' was to such investments or other property as related to or formed part of the trade or business as opposed, particularly in the case of individuals, to those which were unrelated to the trade or business.

The Butterley Company carried on a number of trades. They included coalmining, iron founding, structural steel manufacturing, waggon building, waggon building, wrought iron production, brick making, civil engineering and dairy faming. There is a finding of fact that the colliery concern of the company constituted a trade separate from its other trades : there is a further finding that that trade 'ceased entirely' on January 1, 1947.

The position was, therefore, that the Butterley Company before January 1, 1947, carried on the trade or business of coal-maining (which I will call business A) and various other businesses (which I will call businesses B, C, D and E although, in fact, they were more than four in number). The commissioners found that what they called the companys 'composite trade or business' consisted at the end of the year 1946 of 'a number of separate and severable trades' of which the colliery concern was one. Business A ceased entirely on January 1, 1947. The company then had businesses B, C, D and E, and the company owned the statutory rights to income and capital given by the Coal Industry Nationalization Act of 1946. When 'interim income' payable pursuant to the provisions of that Act was received, the company could use or apply that income in such way as it decided. But the question now arising is as to the nature and quality of that income at the time of its receipt. This cannot be affected or altered by the manner in which it was used, applied or spent after receipt. Though the 'interim income' must be regarded as 'income' when received by the company, the present inquiry is whether it was income arising from a trade or business carried on by the company in a chargeable accounting period. Business A was no longer being carried on and so profits tax could not be charged in reference to it. Businesses B, C, D and E must as a result of section 43 of the Finance Act, 1947, 'be treated as one trade or business.' But the 'interim income' has no relation to businesses B, C, D and E, whether treated as one or whether regarded separately and singly. I do not think that the Crown can successfully assert that these businesses ceased to be separate after the end of 1946. The stated case refers to the 'trades' carried on after January 1, 1947. The 'interim income' did not in any way or in any sense arise from the trade or business' which I may call 'B plus C plus D plus E.' In my judgment it would be contrary to the realities of the situation so to hold. It is true that the company, which owned the business of 'B plus C plus D plus E,' also owned the rights resulting from the Coal Act, 1946, after business A, which belonged to the company, had been compulsorily acquired. But the mere ownership of the statutory rights resulting from the acquisition of business A did not, on the finding in this case, amount to a business in itself (and it is to be observed that no suggestion has been made that the provisions of section 19(4) of the Finance Act, 1937, have application in this case) or to a new business to be tacked on to businesses B, C, D and E and to be treated as one with them. The company might have placed all its receipts of 'interim income' to a suspense account. In fact, as the accounts of the company show, the money, when received, was employed in the general operations of the company. As a result, it might be that in later years some income, which would result from the use of the 'interim income,' would be included in the income or profits attracting profits tax. But the manner in which the company employed the 'interim income,' which they received, is, in my judgment, not relevant in an inquiry as to whether it arose from a trade or business being carried on in a chargeable accounting period. As it did not so arise, profits tax did not, in my judgment, become chargeable upon it. I would allow the appeal.

Appeal allowed.

Leave to appeal to the House of Lords.


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