TaxTMI 
TaxTMI 
1955 (3) TMI 41
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....nder section 17 of the Income Tax Act, 1945, in respect of the sale by the company of its undertaking and the machinery and plant belonging to it to the Government of Madras on August 29, 1947. The undertaking was sold as a going concern, and was taken over and carried on as previously by the purchaser, and it is agreed that the purchaser succeeded to the trade of the appellant company on August 29, 1947. It is agreed that in these circumstances the company was liable to balancing charges in respect of the sale of its plant and machinery, and further that such balancing charges were correctly assessed for the year of assessment 1947-48 if the purchaser of the company's undertaking was a "person" within the meaning of rule 11(2) of the Rules of Cases I and II of Schedule D of the Income Tax Act, 1918. If, however, the purchaser was not a "person" within the Rules, such balancing charges could not be assessed for the year 1947-48 as, unless rule 11(2) applied, the basis of assessment for that year would be the profits of the previous year which would not include the said balancing charges. The point in issue in the appeal is, therefore, whether the purchaser, the Government of....
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....d the assessment for that year in respect of the balancing charges will admittedly be competent, the joint effect of rule 11(2), if it applies, and section 31(1)(a) of the Finance Act, 1926, being that the year of assessment in which the sale takes place is its own "basis period". If, however, rule 11(2) was not applicable to the succession by the Government of Madras, the "basis period" for the year of assessment 1947-48 would, according to the rule for computing profits in the normal case when not displaced by rule 11(2), be the preceding accounting year, namely, the year to December 31, 1946. As the sale of the plant and machinery did not take place in that period no assessment could be made for a balancing charge on account of it for the year of assessment 1947-48, and the assessment for that year which was made would not be competent. An assessment for the year 1948-49 would also not be competent, as in that year the appellant was not carrying on a trade. Accordingly, if rule 11(2) was not applicable, the balancing charges which would otherwise have been assessable for 1947-48 escape assessment. The Income Tax Act, 1945, enacted a revised and extended general code of cap....
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....contentions on behalf of the respondent in support of the assessment before the Special Commissioners were as follows:- "(1) that on August 29, 1947, there was a succession to the company's trade, which brought into operation the provisions of rule 11(2) of the Rules applicable [to Cases I and II of Schedule D; (2) that by virtue of the said rule 11(2) the tax payable by the company for all years of assessment fell to be computed as if the trade had been discontinued on that date: (3) that by virtue of section 31(1)(a) of the Finance Act, 1926" (which deals with the permanent discontinuance of a trade), "the company fell to be charged to Income-tax for 1947-48 on the amount of the profits or gains for the period beginning April 6, and ending August 29, 1947, and that that period was the company's basis period for 1947-48; (4) that the sale of the company's plant and machinery occurred in its basis period for 1947-48; (5) that accordingly the assessment was correctly made, subject to final adjustment of the figures." The contentions on behalf of the appellant company before the Special Commissioners in opposition to the assessment w....
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....s excluding the Crown." My Lords, I agree with my noble and learned friend, Lord Tucker, that it is unnecessary in this case to decide whether the Crown's admitted immunity from taxation depends upon the construction of the statute or arises from the prerogative in some other way. In the present case the only question is whether rule 11(2) applies to the case of a succession by the Crown to a trade previously carried on by a person taxable under the Income-Tax Acts. I have come to the conclusion, though not without some doubt, that, whatever the construction of the word "persons" in the charging provisions of Schedule D may be, it must necessarily be implied that the person succeeded is not deprived of his right to balancing allowances and remains liable to balancing charges when the Crown succeeds to his trade. It cannot, I think, have been intended that in cases where the Crown succeeds to a trade the taxpayer whose trade is taken over should be affected in the matter of income tax. Either that must be the necessary implication of the statute or the Crown would be entitled by asserting the prerogative to claim to make the balancing charges but not bound to allow the balanc....
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....ce Act, 1926, would operate to make the relevant basis period that which began on April 6, 1947, and ended when the appellants' machinery and plant had been sold. Rule 11(2) therefore becomes the crux of this litigation. [His Lordship read the paragraph and continued:] The applicability of this rule, accordingly, depends on whether the transfer to the Crown of the appellants' undertaking comes within the words "If at any time..............any person succeeds to any trade............which until that time was carried on by another person............". And this, in turn, depends on whether the word "person" as first used in this context includes the Crown. That is the governing issue. If the Crown is included the assessment is competent and the appeal fails. If the Crown is not included rule 11(2) does not apply, the assessment is bad and the appeal succeeds. For the appellants it was contended that in the charging provisions of paragraph 1 of Schedule D in respect of the annual profits or gains arising or accruing "to any person residing in the United Kingdom" the word "person" did not, on its true construction, include the Crown, and that there was nothing in the langu....
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....rposes in connection with which it was used. It may, indeed, be said that for most purposes it matters little whether one attributes the Crown's immunity from taxation to the existence of a prerogative right or to a construction of the taxing statute that respects that right. In the present appeal, however, the choice between these ways of explaining the position of the Crown is relevant to the issue and was regarded by both parties as having an important bearing upon it. My Lords, I consider the appellants to be right on this particular matter. Whatever ideas may once have prevailed on the subject it is, in my opinion, today impossible to uphold the view that the Crown can find in the prerogative an immunity from tax if the statute in question, according to its true construction, includes the Crown amongst those made liable to the tax it imposes. The appropriate rule, as I understand it, is that in an Act of Parliament general words shall not bind the Crown to its prejudice unless by express provision or necessary implication. That, however, is and has long been regarded as a rule of construction, and such being its nature its application to the charging provisions of parag....
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....sons I am of opinion that the assessment was competent and I would therefore dismiss the appeal. LORD REID. My Lords, the appellants have been assessed to income tax in respect of balancing charges under section 17 of the Income Tax Act, 1945, arising from a sale of plant and machinery, which was in use by them in their electricity undertaking in Madras until the Government of Madras, who are admitted to have been the Crown, in 1947 exercised an option to purchase the undertaking. It is admitted that the Crown succeeded to the appellants' trade within the meaning of the Income Tax Acts, and it is further admitted that if the appellants' successor in their trade had been anyone else but the Crown there would be no ground for the present appeal. The sole point at issue in this case is the meaning of the word "person" in rule 11(2) of the Rules applicable to Cases I and II of Schedule D. That rule provides--[His Lordship read the paragraph and continued:] It is common ground that if the word "person" where it first occurs in that rule includes the Crown the appeal fails, but if it does not then the appeal succeeds. It is not disputed that the Crown is in law a person ....
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....ion to the words "extend to, or bind the King." It is not a matter of the King preventing the operation of an Act which extends to the Crown, but of the scope of provisions which prejudice the Crown being so limited that they never extend to the Crown. The respondent relied on Coomber v. Berkshire Justices[1883] 9 App. Cas. 61. In that case it was held that the justices were entitled to plead, against the Crown, immunity from taxation in respect of certain buildings used for what were held to be Crown purposes. Lord Blackburn there speaks of "the exemption, by virtue of the prerogative," Ibid. 66 of Crown property and of "an implied exemption on the ground of prerogative," Ibid. 71 and Lord Watson speaks of "the privilege of the Crown." Ibid. 77. But I do not find in any of the speeches anything to suggest that this exemption or privilege only comes in after the Act has been passed to limit the operation of provisions which, until so limited apply to Crown property or that it does not limit the scope of the Act by preventing it from ever applying to such property. The case is notable in that the justices successfully invoked the prerogative against the Crown. This is intelligibl....
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....as waiving his immunity. But I am not the best interpreter of what I said. It must stand. I can only say that I do not read anything in that case as supporting the respondent's present argument (which was not submitted in that case). Indeed, I rather think that, if it had been submitted and were right, I should have been able to decide the case the other way. The question was whether the Custodian was liable to pay when he paid the tax. If the true view were that the Acts apply to Crown income unless and until the prerogative is invoked, then it would seem to me that the Crown or its servants must be liable under the Acts unless and until the prerogative is invoked. In the Bank voor Handel case [1954] A.C. 584; [1954] 1 All E.R. 969 the prerogative was not invoked before payment and payment was made, in this view, under the Act. That seems to me to be very like paying what the Custodian was then liable to pay. It is true that a variation of the respondent's argument was submitted to the effect that although an Act applies to the Crown, the prerogative comes into play automatically to prevent the Act from operating and, if the Crown wishes the Act to operate in a particul....
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.... with the appellants' argument. Rule 11(2) is not a charging provision. It does not say that the person succeeding to a trade shall pay tax. For example, let me suppose that instead of being bought by the Crown, the appellants' undertaking had been bought by an Indian company which had no connexion with this country. It is admitted, and rightly, that the company would have been a person succeeding to the trade of the appellants within the meaning of rule 11(2) but that company would not have been taxable under rule 11(2) or any other provision of the Act. In effect, what rule 11(2) provides is only this: if the person succeeding to the trade is taxable in this country, his tax shall be computed in a certain way. And there is nothing to exclude the application of the rule to the seller if it so happens that the purchaser is not liable to pay tax; whether or not the purchaser is taxable, the tax payable by the person who sold the business is to be computed as if the business had been discontinued at the time of the sale. The appellants found on a passage in the speech of Lord Macmillan in Income Tax Commissioners for City of London v. Gibbs [1942] A.C. 402, 419; [1942] 1 A....
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....I can see no reason why the word "person" in those parts of the Acts which do not impose a charge to tax should be construed otherwise than in its ordinary and natural meaning, which clearly includes the Crown. Rule 11(2) does not prescribe what persons shall be chargeable to tax. It deals with the computation of tax payable by taxable persons in a certain event, viz., when a succession to a trade takes place. It is quite immaterial to the computation of the tax payable by the person who previously carried on the trade whether the successor is or is not a taxable person. Similarly, it is immaterial to the computation of tax payable by the successor whether the previous trader was taxable. It is in this context that the words "if any person succeeds to any trade" occur. This is the natural way to describe a trade succession--an event upon the happening of which a computation of the tax payable by taxable persons is to be made. My Lords, this appears to me to be the natural and reasonable construction of rule 11(2), whatever may be the correct approach to the construction of the word "person" in paragraph 1 of Schedule D, which is the charging provision. I would accordingly ....
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....d by the Act. Thus, while it was common ground that the prerogative operated to prevent the Crown being taxed under the statute the dispute was as to how it did it. Much authority was cited on this matter. But as, in my opinion, none of the cases was directed to the aspect of the matter raised by this appeal, I do not find them very helpful. In Mersey Docks and Harbour Board Trustees v. Cameron [1865] 11 H.L. Cas. 443 references are made by the consulted judges and by their Lordships of this House, in almost identical terms, to the rule that the Crown not being named in a statute is not bound by it. But in Coomber v. Berkshire Justices 9 App. Cas. 61 the emphasis is laid on the exemption by virtue of the prerogative. Lord Watson states the matter thus Ibid. 76. "The exemption of the Crown from the incidence of rating statutes is a general privilege, and is nowise dependent upon the local or imperial character of the rate. It takes effect in all cases when the Crown is not named in the statute, or, I should prefer to say, in all cases where the enactments do not take away the privilege, either in express terms or by plain and necessary implication." The matter will be found simil....