Succession to trade and real-profit computation: interdepartmental transfers cannot be treated as fictitious sales.

A succession-to-trade provision applies where an acquired business retains its essential trading identity after absorption, even if it is brought within a larger company organisation. The decisive factors were that the same processes continued and the same products were manufactured, so the trade was treated as continuing separately for assessment purposes. The computation of profits under the statutory fiction had to reflect real production cost and actual profits; it did not permit inventing a sale between departments that never occurred or charging unrealised profits. On that basis, interdepartmental movement of goods was not to be treated as a notional sale.

---

---

Issues: Whether the appellant company had succeeded to the trades previously carried on by the subsidiary companies within the meaning of section 32(2) of the Finance Act 1936, and whether the profits of the acquired businesses had to be computed by introducing a notional sale between departments.

Analysis: The businesses formerly carried on by the subsidiaries did not cease to exist merely because they were absorbed into the appellant company's organisation. Their identity was preserved in substance: the same processes continued, the same type of products was manufactured, and the only material change was that the raw material was no longer purchased from an outside seller but was produced by another department of the same company. The statutory fiction in section 32(2) requires the acquired trade to be treated as continued separately for assessment purposes, but it does not justify inventing a sale that never occurred or charging profits that were never realised. The proper approach was to ascertain the actual cost of producing the steel bars and to compute the profits of the acquired trades on that real basis, without treating interdepartmental movement of goods as a notional sale.

Conclusion: The appellant company was held to have succeeded to the subsidiary trades, and the assessments were rightly upheld. The appeal failed.

Ratio Decidendi: For the purpose of a succession-to-trade provision, a business remains identifiable if its essential trading identity continues after acquisition, and the computation must be based on real profits and actual production cost, not on a fictitious interdepartmental sale.

---