TMI Blog1967 (5) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... taxpayer's father retired from his employment in 1939. His financial resources were modest and some years prior to April 4, 1960, the taxpayer had formed the intention of assigning to him the rights in respect of one of his books. As a result of material gathered by the taxpayer during a visit to the Persian Gulf in 1953, he commenced, in September, 1958, to write the book subsequently entitled The Doomed Oasis. He worked on this until the spring of 1959 and, after an interval, resumed work in September, 1959. By April 4, 1960, he was engaged in the final revision of the book, which was then in typescript but had not been submitted in any form to a publisher. Prior to this date the taxpayer decided that he would assign the rights in respect of this book to his father as a gift. He was unable to state with any particularity when this decision was made, but on April 4, 1960, he executed an assignment in favour of his father in consideration of natural love and affection . Except that the rights in The Doomed Oasis were disposed of by way of gift the work was produced by the taxpayer in the same manner as his other works. There were included in the deductions claimed by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernher did not apply where profits were computed for the purposes of income tax by reference to actual receipts and expenditure, i.e., on a cash basis . (4) That the carrying on by the taxpayer of his profession did not bring stock-in-trade into existence. (5) That as the rights in The Doomed Oasis were intended to be assigned by the taxpayer by way of gift to his father, the taxpayer's activities in producing the book did not take place in the course of his profession of an author. (6) That the appeal should be allowed and the assessment discharged. 6. It was contended on behalf of the Crown (1) that the effect of the decision in Sharkey v. Wernher [1956] A.C. 58; [1955] 3 W.L.R. 671; [1955] 3 All E.R. 493; 36 Tax Cas. 275; [1956] 29 I.T.R. 962, H.L. (E.). was not limited to cases in which there was a disposal of stock-in-trade by a trader. (2) That the taxpayer in the course of his professional activities had produced and disposed of a valuable asset, namely, the rights in The Doomed Oasis. The principle of the decision in Sharkey v. Wernher [1956] A.C. 58; [1955] 3 W.L.R. 671; [1955] 3 All E.R. 493; 36 T.C. 275; [1956] 29 I.T.R. 962, H.L. (E.) applied to this disposal an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... just as much as the trader or professional man who sells his product for a fee. The proposition is limited to the case where the disposal is not a disposal for the purposes of the trade or profession but is a private or personal disposal. It may be commercially expedient for a trader to make free gifts. An artist might paint his wife in such circumstances that it was quite outside his profession, or he might paint a picture within his profession and give it to a benevolent fund thereby benefiting professionally; in those circumstances there would not be a receipt. But if a picture is painted in the course of the artist's profession and the artist then decides to give it away to a friend, there would be a receipt. If a barrister appears for no fee or a nominal fee, may be appearing for the Crown, that may be properly regarded as part of his professional obligations; again a surgeon would often perform an operation free out of a sense of professional obligation. There may be a distinction between the rendering of services and the case where an asset is produced. [RUSSELL L.J. What if the taxpayer threw his transcript away for some eccentric reason?] He faces the same liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petrotim Securities Ltd. v. Ayres [1664] 1 W.L.R. 190, which also shows that Sharkey v. Wernher [1956] A.C. 58; [1956] 29 I.T.R. 962 goes beyond the self-supplier. Withers v. Nethersole [1948] 64 T.L.R. 157; [1948] 1 All E.R was a case of a post-cessation receipt and Stainer's Executors v. Purchase [1952] A.C. 280; [1951] 2 T.L.R. 1112; [1951] 2 All E.R. 1071; 32 T.C. 367, H.L and Carson v. Cheyney's Executor [1959] A.C. 412; [1958] 3 W.L.R. 740; [1958] 3 All E.R. 573; 38 T.C. 240; [1960] I.T.R. 115, H.L. 400; 28 Tax Cas. 501; [1948] 16 I.T.R (Supp.) 92 H.L were both cases of post-cessation receipts after death. The revenue would be reluctant to agree that a profession has ceased, but if the present taxpayer had ceased his profession before assignment there would have been no assessment; the situation would not be covered by the Finance Act, 1960, ss. 32 to 35. The issue in Carson v. Cheyney's Executor [1959] A.C. 412; [1958] 3 W.L.R. 740; [1958] 3 All E.R. 573; 38 T.C. 240; [1960] I.T.R. 115, H.L. 400; 28 Tax Cas. 501; [1948] 16 I.T.R (Supp.) 92 H.L was very different from the present case; but Lord Keith's analysis [1959] A.C. 412, 435 shows that there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imonds in Sharkey v. Wernher Ibid. 68. This principle can only be displaced by express statutory provision or by compelling precedent, of which Sharkey v. Wernher [1956] A.C. 58 itself is the only possible example. Sharkey Wernher [1956] A.C. 58 did not lay down any general rule directing how to arrive at the full profits which are assessable. It merely decided how to value one particular item in the accounts if, and only if, it has properly to be brought into the computation of a trader's profits viz., stock-in-trade. It is not even authority for saying that the stock-in-trade must be valued. There is no rule of law that stock-in-trade must be brought in. It is only a rule imported from the ordinary principles of commercial accounting: see per Lord Clyde in Whimster Co. v. Inland Revenue Commissioners [1925] 12 Tax Cas. 813, 823. The fair inference from Lord Radcliffe's speech in Sharkey v. Wernher [1956] A.C. 58, 76; [1966] 29 I.T.R. 962 is that that case was concerned only with the basis of valuation on the assumption that something had to be brought in. The horses were already in the books, some receipt had to be brought in, they could not just disappear. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of their own which can be taxed under Case III. That argument was rejected. Watson Q.C. following. Some figure had to be brought in in Sharkey v. Wernher [1956] A.C. 58; [1956] 29 I.T.R. 962 because the horses were already in the books; that case is only an authority on valuation. The question of principle is whether when as here the account is complete in itself, something should still be brought in. The extention of Sharkey Wernher [1956] A.C. 58; [1956] 29 I.T.R. 962 beyond trades to professions and vocations would mean the liability to tax being decided by reference to the taxpayer's motive in giving his services for under value. Monroe Q.C. in reply: If the professional man produces something for value in the course of his profession but appropriates it to his own use instead of for value then that appropriation is tantamount to a receipt. Whether or not there is a profit cannot depend on the form of the accounts. It is said that authors are only assessed on a cash basis, but in Carson v. Cheyney's Executor [1959] A.C. 412; [1960] 38 I.T.R. 115 royalties were treated as receipts on the date due. Often debts are treated as paid when due. If there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sight that elementary principle seems to cover this case. Mr. Hammond Innes did not receive anything from The Doomed Oasis. But in the case of a trader there is an exception to that principle. I take for simplicity the trade of a grocer. He makes out his accounts on an earnings basis. He brings in the value of his stock-in-trade at the beginning and end of year: he brings in his purchases and sales; the debts owed by him and to him; and so arrives at his profit or loss. If such a trader appropriates to himself part of his stock-in-trade, such a tins of beans, and used them for his own purposes, he must bring them into his accounts at their market value. A trader who supplies himself is accountable for the market value. That is established by Sharkey v. Wernher itself. Now, suppose that such a trader does not supply himself with tins of beans, but gives them away to a friend or relative. Again he has to bring them in at their market value. That was established by Petrotim Securities Ltd. v. Ayres [1964] 1 W.L.R. 190; [1964] 1 All E.R. 269; 41 T.C. 389, C.A.. Mr. Monroe, on behalf of the Revenue, contends that that exception is not confined to traders. It extends, he say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Cheyney's Executor [1959] A.C. 412; [1958] 3 W.L.R. 740; [1958] 3 All E.R. 573; 38 T.C. 240; [1960] 38 I.T.R. 115, H.L.. The House of Lords held that when an author dies or discontinues his profession, he is not taxable on moneys received after the date of discontinuance. That was altered by section 32 of the Finance Act, 1960. He becomes chargeable on sums arising from his profession, even though he receives them after he had discontinued it. This provision does not apply when he gives a book away. If the legislature had thought he was chargeable on its value, I should have thought it would have covered that case too. I hold that Mr. Hammond Innes is not chargeable with tax on gifts which he makes of copyright in his books. I think that Goff J. and the commissioners came to a right decision. I would dismiss this appeal. DAVIES L.J. I agree. It is not in dispute that there is no specific provision in tax legislation to cover the present case. What is sought by the Revenue in this case is to extend what is said to have been the principle in Sharkey v. Wernher [1956] A.C. 58; [1956] 29 I.T.R. 962 to what I, like my lord, regard as being an entirely different set of cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect instead of adopting the alternative method of commercial sale and subsequent appropriation of the proceeds. I agree with my lord that that principle which was enunciated on the facts of that case, which was really concerned with the method of valuation rather than with anything else, can only be applied to a trader or to a person whose accounts are made up on an earnings basis and who has stockin-trade which he may other than in a commercial manner transfer to himself or for no consideration to a third party. If the position contended for by the Crown in this case ought to be the law, it seems to me that in the years which have elapsed since 1954, when Sharkey v. Wernher [1956] A.C. 58, 85 was decided provision should have been made to that effect by legislation in the various Acts that have been passed by Parliament. For those reasons, in addition to what has been said by my lord, I agree that this appeal should be dismissed. RUSSELL L.J.-- The Crown accepts that it is a general principle of income tax law that a man is taxed on the basis of what he receives and not on what he might have received. But the Crown says that the principles which led to the decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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