TaxTMI 
TaxTMI 
1967 (3) TMI 114
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....ssments, was entitled to make deductions in respect of payments made by it to Wood Brothers (Glossop) Ltd., of which company the appellant was a subsidiary. The payments made by the appellant, commonly known as " subvention " payments, were in respect of deficits of Wood Brothers (Glossop) Ltd., and it was common ground that the appellant was not entitled to make such deductions unless it was authorised to do so by section 20 of the Finance Act, 1953. Accordingly, the question turned on the construction of that section, and its application to the facts of the case, including, in particular, the fact that at the dates when the payments were made Wood Brothers (Glossop) Ltd. had ceased to carry on its trade. The case stated by the special commissioners was in the following terms : At a meeting of the special commissioners held on October 16, 17 and 31 and on November 1, 1963, Davies Jenkins & Co. Ltd., hereafter called the company, appealed against assessments to income tax made upon it under Case I of Schedule D for the years 1959-60 and 1960-61 in the sums of GBP 5,000 and GBP 20,000 respectively. The sole question for the decision of the special commissioners was wh....
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....e of section 20; that the company had therefore made subvention payments to an associated company within the meaning of subsection (1) of section 20; and that the subvention payments should therefore be treated as trading expenses of the company. It was contended on behalf of the Crown that subsection (1) of section 20 of the Finance Act, 1953, dealt with the position where a company received a subvention payment from an associated company; that subsection (10) set out the conditions which, for the purposes of the whole of section 20, must be satisfied before a company making a subvention payment to another could be treated as the other's associated company, namely, " if, but only if, at all times between the beginning of the payee company's accounting period in respect of which the payment is made and the making of the payment one of them is the subsidiary of the other . . . . . . " that subsection (9), however, provides that for the purposes of the whole of section 20 " references to a company shall be taken to apply only to a company resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom, " and the word " ....
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....this view the company was an associated company of ' Wood Brothers Glossop, ' and the payments in question should be allowed as deductions under subsection (1) as if they were trading expenses of the company. But the Crown seeks to import the description of ' company ' in subsection (9) into subsection (10), contending that since 'Wood Brothers Glossop' was not trading when the payments were received it was not a company 'at all times . . . ' within the meaning of subsection (10). We reject this contention. We have already said that in our view it is subsection (10) which governs the question of association for the purposes of subsection (1), and we think we are supported in this view by a consideration of paragraphs 1 and 3 of the Fourth Schedule to the Finance Act, 1954, and section 18 of that Act. It seems to us implicit in this legislation that a subvention payment made to a payee company after cessation qualified under sub- section (1) of section 20 of the Finance Act, 1953. In particular, paragraph 3 of the above-mentioned Schedule would seem to have little, if any, content if this is not so. We do not think this 195....
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....final accounting period but this is impossible in many cases. Suppose there is a hotel group consisting of a parent company and twelve subsidiary companies each of which runs a hotel. One of the hotels is gutted by fire. How, it may be asked, is it possible for such a contingency to be taken into account for the purposes of section 20 ? The Crown's argument involves the admission that Parliament has failed to provide the machinery to effect its intentions. 3. It is an irresistible inference that Parliament in 1953 intended that a subvention payment should be available and effective for a final accounting period. The function of the courts in relation to a statutory provision is to ascertain and implement the intention of the legislature. Normally that intention is ascertainable by a strict construction of the language of the statute and where this is done and it leads to anomalies nevertheless the intention so arrived at ought to prevail but it is wrong to attribute literal inerrancy to every word and every phrase of the provisions of a statute and where a statutory provision read in its entirety clearly manifests a general intention that general intention should not be over....
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....d for which the relief is paid. If the definition of company in subsection (9) is imported into sub- section (10) the Crown is bound to defeat any claim for relief in circumstances where one subsidiary makes a subvention payment to another subsidiary and before such payment the parent company ceases to carry on trade. This would seem to create an extraordinary anomaly on the Crown's construction of the section. (3) Reliance is placed on the conclusion of the special commissioners in the case stated Ante, p. 449 that it is sub-section (10) which governs the question of association for the purposes of subsection (1), and that this is supported, inter alia, by section 18 of the Finance Act, 1954. As to when guidance can be sought on a question of statutory construction from the provisions of a subsequent enactment : see Kirkness v. John Hudson & Co. Ltd., [1955] A. C. 696, 710-713; [1955] 2 W. L. R. 1135; [1955] 2 All E. R. 345; 36 T. C. 28, H. L. per Viscount Simonds, where the authorities are reviewed. The court is entitled to look at a subsequent Act on the same subject in construing an earlier Act which contains a provision open to divers meanings in order to help resolv....
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....deduction to the appellant as if they were a trading expense incurred by it. Moreover, subsection (10) must be construed after the definition contained in subsection (9) has been applied to it, and so construed it is plain on the facts here that, at the dates of the payments made by the appellant to Wood Brothers (Glossop) Ltd., that company was not a company as defined in subsection (9) (for it had ceased to trade) and accordingly the appellant could not have been an associated company of it. J. Raymond Philips following. As to the construction of section 20(1) of the Finance Act, 1953, it is essential that it should be construed grammatically. The two vital words of the subsection are " where . . . then. " A company does not become designated and identified until it has satisfied all the conditions specified between the words " where . . . then. " It is to be noted that the subject of " receives " is a company as described in subsection (9). The fallacy in the appellant's argument can be shown by the fact that if the definition of " company " in subsection (9) had been that it meant " a private company " and this definition had been read into sub- section (1) it could n....
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....g company to bear or share in losses or a particular loss of the payee company, and is not a payment which (apart from [the] section) would be taken into account in computing profits or gains or losses of either company or on which (apart from [the] section and from any relief from tax) the payee company would be liable to bear tax by deduction or otherwise..." The payments made by the appellant company were made pursuant to such an agreement and were not payments which apart from the section would be taken into account in computing profits or losses or on which the payee company would be liable to bear tax by deduction or otherwise. Sub-section (1) of section 20 reads as follows: Subject to the provisions of this section, where a company has a deficit for tax purposes during any accounting period of the company, and receives a subvention payment in respect of that period from an associated company having a surplus for tax purposes in the corresponding period, then in computing for the purposes of income tax the profits or gains or losses of those companies the payment shall be treated as a trading receipt receivable by the one company on the last day of the accounti....
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....idiary of the other or that both were of a third company, nothing appears to turn on the actual date of payment. But the revenue contend that the section only applies if at the actual date of payment the company which receives it is carrying on a trade. There appears to be no good reason for so restricting the application of the section. There revenue was not able to suggest one, but they contended that, on its true construction, the section had that effect. They concede that Parliament, when section 18 of and paragraphs 1 and 3 of the Fourth Schedule to the Finance Act, 1954, were enacted, proceeded upon the basis that the provisions of section 20 did not cease to apply if the company which received the payment had at the time of receipt ceased to trade, but they rightly say that the content of subsequent legislation affords no reliable guide to the interpretation of an earlier statute as Parliament may have proceeded upon an erroneous view on the law: see Kirkness v. John Hudson & Co. Ltd [1955] A.C. 696; [1955] 2 W.L.R. 1135; [1955] 2 All E.R. 345; 36 T.C. 28 H.L. It is, however, inconceivable that the Government of the day would have introduced a Finance Bill containin....
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....ured by sub-section (10). There are obvious reasons for defining, if the section is not to apply to all companies, the class of companies to which it is to apply. That is done by sub-section (9). But there is no reason why companies which qualify for the benefits given by the section should be deprived of them if the company receiving the payment has at the time of its receipt ceased to trade. Each of the sub-sections (9) and (10) begin with the words "For the purposes of this section" and the revenue therefore contends that sub- section (9) must be applied to sub-section (10). That contention appears to me to depend on the fact that the contents of the two sub-sections were not included in one sub-section or indeed in a separate section of the Act. If, for instance, instead of there being two sub-sections there bad been one commencing with the words "For the purposes of the section" containing two paragraphs, (a) and (b), and (a) contained what is now in sub-section (9) and (b) what is in sub-section (10), it would not be right as a matter of construction to interpret the contents of (b) in the light of the contents of (a) and it would, in my opinion, be clear that (a) and (....
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....equirement. If company A has a deficit for tax purposes at a time when it is carrying on a trade, then one has to look to see whether company A has received a subvention payment from an associated trading company. One is not, in my opinion, required to consider whether company A was carrying on a trade when it received the payment. If it had been intended that this should be done, then one would have expected that to have been made clear, either by the insertion of the words "the company" before "receives" or in some other way. In my opinion Harman L.J. was right in rejecting the revenue's contentions and the section should be held to have the meaning the revenue originally thought it had and which Parliament attached to it when the Finance Act, 1954, was passed. I would therefore allow the appeal. LORD MACDERMOTT. My Lords, I have had the advantage of reading the opinions prepared by my noble and learned friends Lord Morris of Borth-y-Gest and Lord Upjohn. I agree with their conclusion that this appeal should be allowed and with their reasoning for that conclusion and their description of the material circumstances. I do not, therefore, propose to burden your Lo....
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....l the time when the subvention payment is eventually made. My Lords, of these contentions, that of the Crown seems to me to place more weight on sub-section (9) that it was intended to bear. It is a form of definition that must be applied with caution, for it involves characteristics of qualifications which may not be constant, and it relates to a situation which, however sub-section (1) may be read, is bound to develop over, and can only be completed after, the lapse of an appreciable period of time. But, in my opinion, two things at least are reasonably clear. In the first place, if section 20 is read as a whole it is evident that sub-section (9) cannot be interpreted as requiring that, in every instance where the word "company" is used or referred to, the reference must be to a resident trading company. The proviso to sub-section (9) furnishes one example of this, as Stamp J [1966] 1 W.L.R. 446, 455; [1966] 1 All E.R. 716. has already observed; and another may, I think, be found in that part of sub-section (1) which comes after the conditions for relief have been stated and provides that "then in computing...... the profits or gains or losses of those companies........ the....
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....ue now before your Lordships, what the purposes of the section were. My Lords, these considerations lead me to the view that the proper construction is that for which the appellant company has argued. To my mind, it is the view to be preferred on the terms of the statute and, beyond that, it is the view best calculated to give effect to the policy of section 20. That policy has been described by Harman L.J. in the Court of Appeal and by my noble and learned friends in the opinions to which I have already referred and I need not describe it again. It is not in dispute and is readily conveyed to the informed mind by the terms of the section. Suffice it to say that the appellant company's contention accords entirely with the intendment of the section, whereas that of the Crown would mean, in effect, that relief thereunder could not be granted in respect of a deficit incurred in a company's last accounting period-an anomalous result for which no explanation was forthcoming. The Crown also based an argument on sub-section (10), but as it cannot prevail if that based on sub-section (9) fails, I need say no more about it, except to add that I share the view favoured by those....
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....ing that the subvention payments should be treated as trading expenses of the appellants under the provisions of sub-section (1) of section 20. In ordinary circumstances a subvention payment will be made after the end of the accounting period of the receiving company. It will be made to such company after it is ascertained that it has a deficit for tax purposes. This will only be ascertained after the end of the accounting period. A payment will be made by the paying company after it is ascertained that it has a surplus for tax purposes. In computing for the purposes of income tax the profits or gains or losses of the respective companies a payment is "treated" as a trading receipt receivable by the receiving company "on the last day of the accounting period during which it has the deficit" and is to be "allowed as a deduction to the other company as if it were a trading expense incurred on that day" (see subs. (1)). It would seem to follow that from a practical point of view the actual date of the subvention payment is of no materiality save that regard must be had to the proviso to sub-section (2), which lays it down that a payment in respect of any accounting period of the pa....
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....and applying both to sub-section (1) the consequence is, that if a company resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom has a deficit for tax purposes during an accounting period and receives a subvention payment in respect of that period from a company resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom and if at all times between the beginning of the payee company's accounting period in respect of which the payment is made and the making of the payment, one of them is a subsidiary (within the meaning of section 42 of the Finance Act, 1938) of the other, then the payment is to be treated as a trading receipt receivable by the one company on the last day of the accounting period during which it has the deficit and is to be allowed as a deduction to the other company as if it were a trading expense incurred on that day. I see no reason why the words "and receive" should not be read perfectly naturally and literally. The section does not stipulate that there must be receipt at some particular time. It would be surprising if it did. The time of receipt is unimportant save that there is a ....
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....ers of the family down to the time of payment. There is force, therefore, in the contention that sub-section (9) and sub-section (10) should be read as imposing separate independent qualifications and that sub-section (9) should not be infused into sub-section (10). If, however, sub-section (9) is to be applied to sub-section (10), then I think that in that event what is being provided for as between the two companies is as follows. One of them that was resident in and carrying on trade in the United Kingdom during an accounting period will have had a deficit for tax purposes during the accounting period. The other that also was resident in and carrying on trade in the United Kingdom during the corresponding period will have had a surplus for tax purposes in the corresponding period. There having been a subvention agreement between them, the latter company at some stage will make a payment pursuant to the agreement to the former. The paying company will be "treated" as the other's "associated company" for the purposes of sub-section (1) provided that one continues to be the subsidiary of the other down to the time of payment. Subject to that, the date of making the payment is i....
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....accepted that the beliefs and assumptions of those who frame Acts of Parliament cannot make the law. For the reasons which I have set out, and agreeing as I do with the approach of Harman L.J., I would allow the appeal. LORD GUEST. My Lords, I have the misfortune to differ from the rest of your Lordships, and, although I regard this case as a difficult one of statutory construction, I can express my views quite shortly. The short question, by no means easy of answer, is: Whether in order to obtain the benefit of what has been described as the subvention procedure available to associated companies under section 20 of the Finance Act, 1953, it is necessary that the company receiving the subvention payment should be resident and trading in the United Kingdom at the date when the subvention payment is received. It must obviously be trading during the chargeable accounting period when the deficit occurs and it is agreed that the company making the payment and the company receiving the payment must be associated within the meaning of sub-section (10) of section 20 from the beginning of the payee company's accounting period to the date of making the payment, but the recipient co....
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....for tax purposes; secondly, the company must be what has been compendiously described as a "resident and trading company" within the meaning of sub-section (9); thirdly, the company must receive a subvention payment from an associated company within the meaning of sub-section (10). If these conditions are satisfied, "then," and only then, do the results follow. The Crown contend that in interpreting sub-section (1) to give effect to the importation of the definition of "company" in sub-section (9), the grammatical construction of sub-section (1) requires that, in order to qualify, the company must be resident and trading not only during the accounting period, but that it must also be resident and trading when the subvention payment is received. The company in question, the Crown says, cannot to receive a subvention payment" under sub-section (1) unless it is a company within sub-section (9). The appellants would read sub-section (1) so that the company in question, having qualified as a resident and trading company when the deficit is incurred under the first limb of the section, becomes a "designated company," as it is called, for the rest of the subvention procedure and, havin....
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....tance, the Revenue said, if the company has ceased to be resident and trading in the United Kingdom at that date. Residence and trading are inseparably linked together. However this may be, I cannot see that there is any ambiguity in the words of section 20 or that if they are interpreted according to their natural and grammatical meaning they can lead to any other result than that for which the Revenue contends. There is no room, in my view, for what would amount, in my view, to judicial legislation. I find the judgment of Stamp J. entirely satisfactory and I would dismiss the appeal. LORD UPJOHN. My Lords, this appeal is concerned with a very short point of construction on section 20 of the Finance Act, 1953. This section was introduced in 1953 to meet the development by the commercial community of the use of subsidiary and associated companies to carry out large enterprises, usually under the umbrella of a parent company controlling the group. The practice had long grown up whereby if one subsidiary or associated company made a loss and another a profit, agreements were made within the group for a profitable subsidiary to make a subvention payment to a less successful s....
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....ossop ceased to trade before the dates of payment of the sums payable under the subvention agreement. I must now set out the relevant terms of section 20 upon which alone this question is to be determined. While it is a long and involved section with many sub-sections, it is agreed that, as Stamp J. said, sub-section (1) is the enacting part of the section. This sub-section, however, must be construed in the light of the all-important sub-sections (9) and (10). So I need set out little more than these sub-sections: "20.-(1) Subject to the provisions of this section, where a company has a deficit for tax purposes during any accounting period of the company, and receives a subvention payment in respect of that period from an associated company having a surplus for tax purposes in the corresponding period, then in computing for the purposes of income tax the profits or gains or losses of those companies the payment shall be treated as a trading receipt receivable by the one company on the last day of the accounting period during which it has the deficit, and shall be allowed as a deduction to the other company as if it were a trading expense incurred on that day. ....
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.... The argument of the Crown before your Lordship followed closely and relied upon the reasons given by Stamp J. in his judgment, though for my part I think that Stamp J., while agreeing with those arguments in principle, reached the same conclusion by a slightly different route, which I shall examine later. The Crown's argument is that you must fasten upon the definition of "company" in sub-section (9) and so that in the enacting sub-section (1) where the word "company" first occurs you must read it as a company "resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom," which qualification for brevity in argument was referred to as a resident trading company, a phrase which, for the like reason, I shall adopt. So far this proposition could not be disputed. The argument then proceeds that where the word "company" follows "during any accounting period of the company" you must again read in the words of the definition and so reading on "and receives" you must find that to quality for the benefit the company must be a resident trading company which receives-i.e., a company which at the moment of receipt is a resident trading company. Stamp....
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....ital to claim the benefit of the section in the sense that the company must then be a resident trading company, I note that Parliament knew how to do that in sub-section (10) and it has signally failed to do so in sub- section (9); I would suppose because it thought that consideration to be irrelevant when construing sub-section (1), as indeed it does to me. So I fail to understand why Stamp J. placed such emphasis on the time of payment. But apart from this consideration, it seems to me that, assuming sub- section (9) to be in truth a definition section, a matter to which I shall return, it is quite a wrong method of construction slavishly to read in the definition whenever and wherever the word so defined occurs. Regard must be had to the context. The "company" in section 20(1), where it first occurs, is plainly defined as a resident trading company. Having been so defined, as a matter of construction of that sub-section it is perfectly plain that where the word "secondly" occurs the word "company" refers back to the company already defined, i.e., it must be read as "that company," and to introduce again the words of the definition is a misuse of language. The construction of ....
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....o as a definition section and so, in a sense, it is but as it applies in the same sub-clause to an investment trust company as though it was a resident trading company, as a matter of construction it is loose and, in my view, it was intended as no more than a "qualification" section. It merely defines those companies who are qualified to obtain the benefits of sub-section (1). This consideration is an additional or, indeed, independent ground for disposing of the Crown's claim, in their main argument. To my mind, also, sub-sections (9) and 10 are quite independent of each other and cannot be read as a whole so as to produce the result already mentioned and accepted by Stamp J. Sub-section (9) sets out the qualifications which companies within a group must satisfy to claim the benefit of the section. Sub-section (10) is dealing and dealing only with the question whether companies are associated or subsidiary. For the first and only relevant time, apart from the proviso to sub-section (2), sub-section (10) rightly brings in the element of the importance of the time of payment. If at the moment of payment the payer company is no longer within the group or family there is no reason....