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1938 (12) TMI 16

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..... of the business of those companies, together with their freehold land, factories, plant, and so forth. Putting it shortly, they took over the whole of the assets, and they took over the staff of the two subsidiary companies, and thereafter continued to manufacture the same class of goods in the same factories, which had previously belonged to those two companies, and with the same machines. The products of the two factories were sold by the respondents in their shops, but of course there was this difference in the position after April 1, as compared with the position before April 1, namely, that, whereas in the former period there was a sale by the two subsidiary companies to the parent company whenever the products were sold, now the shoes reached the retail purchaser without any such intermediate sale having taken place. For the purpose of their internal accountancy, the respondents keep separate accounts for the manufacturing at these two factories, treating them for accountancy purposes as though they were separate concerns, and those accounts are kept in a way which is very common, indeed almost universal, in well organised concerns of any size. They are kept by treating the f .....

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..... ent rule 11 (2) provides as follows : If at any time after the said April 5, (1928) any person succeeds to any trade, profession or vocation which until that time was carried on by another person and the case is not one to which para (1) of this rule applies (that is the paragraph which deals with changes in partnerships), the tax payable for all years of assessment by the person succeeding as aforesaid shall be computed as if he had set up or commenced the trade, profession or vocation at that time. 4. I need, not read the rest. That rule is contemplating that, when schedule 1) comes to be applied, it will be possible to find that the person sought to be assessed is deriving taxable profits from a trade, profession or vocation to which he has succeeded. Taking that sub-rule in connection with the first paragraph of schedule D itself, it is contemplating that there will be a charge to tax in respect of the annual profits or gains arising or accruing to the person succeeding to the trade from the trade to which he succeeds. If, for instance, the trade which he has acquired has come to an end, it is not possible to say of him that he is deriving any profits from it. The rul .....

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..... tence which appears to answer that question: These two companies (the subsidiary companies), whose works were in Kettering and Leicester respectively, were manufacturing wholesale concerns which sold the whole of their finished products to the respondent company . 7. That sentence is, in my view, a finding that the business of those two companies was that of manufacturing wholesale concerns . The circumstance that they are said to have sold the whole of their finished products to the respondent company I do not read as being part of the description of the business, but merely as a statement of fact as to the way in which the wholesale manufacturing business was in fact carried on. The important description is manufacturing wholesale concerns and, writing that out a little more at length, it seems to me that that quite clearly means manufacturing concerns which dispose of their products wholesale. The first question, therefore is whether or not the business of manufacturing and disposing of their products wholesale is a business which after April 1, was carried on by the respondents. The special commissioners answered that question in the negative, and Lawrence, J., has .....

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..... business, within the meaning of the rule, is no longer extent. That is what the Commissioners have found, and in my judgment, they were perfectly right. 8. There is another angle from which the matter may be viewed, and it is this. The rule is a rule the object of which is to fix the method by which profits or gains are to be assessed in a particular case. The profits or gains are the profits or gains earned by means of a trade to which the tax-payer in question has succeeded. 9. Accordingly, the question arises whether or not, it is possible to put the finger upon some taxable profits arising from a trade and to say of those profits that they arise from the trade which was taken over. In the present case, Freeman Hardy and Willis Ltd., realised a profit by the sale in their retail shops of boots and shoes which they manufactured in the two factories which they acquire but that profits was not realised by the businesses which they took over. The businesses which they took over, before they took them over, were realising a profit of a different character and on a different scale- namely, the profit of a manufacturer selling his goods wholesale. The profit that Freeman, Hardy a .....

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..... . 12, which was introduced I think in 1918 to meet a special case. The Commissioners, in dealing with that matter, said this : We were further of opinion that in the year 1935-36 the respondent company made one profit only, and that that profit could not for income-tax proposes be divided into a manufacturing profit and a retail profit. 11. I entirely agree with that conclusion. 12. Reliance was placed, on behalf of the Crown, upon some authorities, particularly Bell v. National Provincial Bank of England. That was a case where the National Provincial Bank had acquired the business of a banking company at Wolverhampton called the County of Stafford Bank. After that acquisition, they continued to carry on business on the premises of the County of Stafford Bank. They took over, I think, the staff and books. Profits were there made, but those profits were merged in the entire profits of the business of the National Provincial Bank, and were not kept distinct. The Crown took the view that the National Provincial Bank had succeeded to the business of the County of Stafford Bank. The Commissioner found that there was no succession, but the matter eventually came to the Court .....

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