Definition of Business under Excess Profits Tax Act: incidental letting excluded from capital employed computation, supporting Tribunal finding.

The issue considers whether 50% of the capital cost of buildings let by the company must be included in capital employed for the Excess Profits Tax Act; the court applies the definition of "business" in s.2(5) and Rule 4(4) read with the provisos, requiring examination of the memorandum of association to determine whether acquisition and letting were within the company's objects. Where letting is merely incidental to buildings constructed primarily for the company's use and not an authorised principal object, it is not the company's business; accordingly the portion of capital cost relating to lettings is excluded from capital employed.

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Issues: Whether, for the purposes of the Excess Profits Tax Act in the chargeable accounting period 1-1-1944 to 31-12-1944, a portion (50%) of the capital cost of buildings owned by the company and let out to others should be excluded from the computation of capital employed in the business of the company.

Analysis: The question turns on the definition of "business" in Section 2(5) of the Excess Profits Tax Act and the application of Rule 4(4) of Schedule I read with the provisos to that definition. The first proviso to Section 2(5) treats the holding of investments or other property by a company as business where the company's functions consist wholly or mainly in holding such property; the second proviso treats all businesses carried on by the same person as one unit. Rule 4(4) includes income from letting property as part of profits where the business consists wholly or partly in letting property. These provisions must be read together so that the term "business" in the rule is understood in the light of the definition and provisos. The memorandum of association must be examined to determine whether the acquisition and letting of property were within the company's objects and constituted its business. Decisions cited show that where a company is empowered by its memorandum to erect and let premises as part of its business, erection and letting may constitute business; conversely, where the memorandum restricts acquisition of property to purposes of the company's ordinary business and does not authorise dealing in property as the company's business, erection and letting for rent are not business activities under the Act. On the facts the company constructed the new building primarily for its own use and the memorandum did not empower the company to construct and let buildings as its business; letting was incidental and not the company's principal or authorised business. The Tribunal's factual and legal conclusion that the letting did not constitute a business under the Excess Profits Tax Act is supported by the provisions and the memorandum.

Conclusion: The question is answered against the assessee; the portion of the capital cost of the buildings let out is properly excluded from the computation of capital employed for the purposes of the Excess Profits Tax Act.

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