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Davies Jenkins & Co. Ltd. Versus Davies (Inspector of Taxes)

Dated:- 15-3-1967 - Viscount Dilhorne, Lord Macdermott, Lord Morris of Borth-Y-Gest, Lord Guest And Lord Upjohn JUDGMENT APPEAL from the Court of Appeal. This was an appeal by the appellant, Davies Jenkins & Co. Ltd., from an order of the Court of Appeal (Diplock and Winn L. JJ., Harman L. J. dissenting) dated May 6, 1966, dismissing an appeal by the appellant from an order of the Chancery Division (Stamp J.) dated December 21, 1965, allowing an appeal by the respondent by way of case stated .....

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ntitled 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 construc .....

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under Case I of Schedule D for the years 1959-60 and 1960-61 in the sums of £ 5,000 and £ 20,000 respectively. The sole question for the decision of the special commissioners was whether certain payments made by the company under a subvention agreement were in the circumstances allowable deductions under section 20 of the Finance Act, 1953, in computing its profits for the purposes of Case I of Schedule D for the years 1959-60 and 1960-61, the payments having been made after the paye .....

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. (6). Two payments were made under that agreement by the company to " Wood Brothers Glossop, " the first of £ 13,327 on February 24, 1960, in respect of the accounting period April 1, 1958, to March 31, 1959, and the second of £ 12,395 on March 28, 1961, in respect of the accounting period April 1, 1959, to March 31, 1960. From April 1, 1958, to March 28, 1961, all, Wood Brothers Glossop ordinary shares were held by Wood Brothers Holdings and all the company's shares w .....

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trade of Wood Brothers Glossop as cotton spinners was December 21, 1959. It was contended on behalf of the company that throughout the period from the beginning of " Wood Brothers Glossop's " accounting periods, in respect of which the payments had been made, until the making of the payments the company had been a subsidiary of Wood Brothers Glossop within the meaning of section 20(1), and the company was therefore an associated company in relation to Wood Brothers Glossop within .....

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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 subsi .....

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when the payments in question were made, it was not a company within the meaning of subsection (9), nor an " associated company " within the meaning of subsection (10); and that the payments in question should therefore not be treated under subsection (1) as trading expenses of the company. No deduction accordingly fell to be allowed therefor in the years 1959-60 and 1960-61 as claimed. The special commissioners took time to consider their decision and gave it in writing on January 10, .....

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cit for tax purposes during any accounting period of the company, and receives a subvention payment in respect of that period . . . ' Wood Brothers Glossop had such deficits during the relevant accounting periods; up to a date in the second accounting period (December 21, 1959) it was a company within the meaning of subsection (9); and it received the payments in question in respect of those periods. ' . . . receives a subvention payment in respect of that period from as associated compa .....

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of the first relevant accounting period of Wood Brothers Glossop and the date on which the second payment was made, the company was a subsidiary of Wood Brothers Glossop within the meaning of subsection (10). On 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 .....

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inance 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 1954 legislation is based on a mistaken view of section 20 of the Act of 1953. The payments in question should be allowed as dedu .....

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Act, 1953. 1. The first question that arises is the construction simpliciter of section 20(1), (9) and (10) of the Finance Act, 1953. The Crown's contention in its most general form that wherever the word " company " occurs in section 20 it means a resident and trading company is untenable, for if that were so the proviso to subsection (9) would lead to a contradiction. Both subsections (9) and (10) are concerned with definitions. Sub- section (10) defines what constitutes associa .....

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at subsection in that they were related by shareholding. For the purposes of subsection (1) the concluding words thereof show that all that is relevant is the accounting period. 2. Section 20 contemplates that a subvention payment will not be made until after the accounting period to which it relates, for it cannot be quantified with any precision until the accounts have been made up. The Crown's contention involves the proposition that there can never be a subvention payment within section .....

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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 legisla .....

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y language : see Astor v. Perry [1935] A. C. 398, 416, 417; 51 T. L. R. 325; 19 T. C. 255, H. L., per Lord Macmillan. Where a resident and trading company has a deficit during any accounting period of the company, prima facie, that is a company which qualifies for relief. The company has, in effect, been designated. It is not necessary that the company should be trading at the date of receipt. Reliance is placed on the judgment of Harman L. J. [1966] 1 W. L. R. 1094, 1096-1099; [1966] 2 All E. R .....

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ners v. Clifforia Investments Ltd. [1963] 1 W. L. R. 396; [1963] 1 All E. R. 159; 40 T. C. 608] Roy Borneman Q. C. following. (1) The approach to be adopted in construing incometax provisions. If the provision in question is a relief section a taxpayer is entitled to come within it unless he is expressly excluded. As to the Income Tax Acts as a whole, there is presumption that they apply to all taxpayers alike. Incometax is not a discriminatory tax and the Acts relating thereto do not give discr .....

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ubsection (1). Subsection (9) describes the type of company to which subsection (1) is applicable but it does not impose a condition. The function of subsection (2) and (10) as handmaidens to subsection (1) is to make plain that the legislative scheme is to give a right to relief and that right is to be tested in relation to the period 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 .....

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a, 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 diver .....

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ion 20 of the Finance Act, 1953. The result was a large crop of such payments and this led the Crown to take a closer look at the language of section 20. In the Crown's approach to the construction of this section it is not sought to add a single word to subsections, (9) or (10). The appellants formulated their argument under three heads. As to (2), it is conceded, as Stamp J. [1966] 1 W. L. R. 446, 453; [1966] 1 All E. R. 716 observed, that anomalies can arise on the Crown's constructio .....

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453, 454. To qualify under section 20(1) the payment must have been received in a period when the company can satisfy the requirements of subsection (9). Further, for the purposes of subsection (10) the word " company " bears the meaning it is given in subsection (9). Subsection (10) so construed must then be read into subsection (1). It follows that unless both companies are resident and trading companies they cannot be associated companies. The Crown's contention may be summarise .....

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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 t .....

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nition 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 not be said that a company which had become a public company could claim the benefit of the section. The only possible subject of " and receives " is " a company " and that by the definition in sub- section (9) means a resident and trading company. F. Heyworth Talbot Q. C. replied. Their Lordships took time f .....

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ade Wood Brothers (Glossop) Ltd. had ceased to carry on a trade. They maintain that section 20 only applies to companies which at all relevant times and at the time of receipt of the payment come within subsection (9) of that section, that is to say, companies resident in the United Kingdom and carrying on a trade wholly or partly in the United Kingdom. Such a company can conveniently be referred to as a trading company. Section 20(9) further provides that a company " whose business consist .....

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al times, including in particular the time at which the payment is made, have either been subsidiaries within the meaning of section 42 of the Finance Act, 1938, of a third company or one the subsidiary of the other. The appellant company was at all material times, including the time of the making of the payments in question, a subsidiary of Wood Brothers (Glossop) Ltd. Sub-section (2) of section 20 provides that such payments are only to be treated as subvention payments within the meaning of t .....

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rsuant 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 .....

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t, 1958. Wood Brothers (Glossop) Ltd. had deficits for tax purposes in two of its accounting periods and the appellant company had surpluses for tax purposes in its corresponding periods. They were both trading companies within the meaning of subsection (10), but Wood Brothers (Glossop) Ltd. ceased to trade towards the end of its second accounting period and bad ceased to trade when it received the payments from the appellant company. From the beginning of the relevant accounting periods, and at .....

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t for tax purposes and another a surplus in the corresponding period. Then, if a payment is made pursuant to an agreement which comes within sub-section (2) and one company is the subsidiary of the other or both are subsidiaries of a third company, the payment can be treated as a trading receipt of one company and a trading expense of the other. The proviso to sub-section (2) of the Act of 1953 provided that the payment had to be made within or before the year of assessment following that in whi .....

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trading expense of the companies. Provided that the payment is made within the prescribed time, and provided that then one company was still the subsidiary 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 reve .....

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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 containing what are now section 18 of and paragraphs 3 and 3 of the Fourth Schedule to the Finance Act, 1954, if the revenue had not at the time held the view that .....

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or which they now contend. Whatever be the result of this case, one cannot help but feel some sympathy with the unfortunate taxpayer, the appellant company, which no doubt acted in the belief, as originally the revenue thought was the case, that it was entitled if it made the payments in question to treat them as trading expenses, and which now finds itself involved in this litigation, with the result so far that it has been held not entitled to do so. The revenue now seek, not by securing parli .....

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n (9) to the rest of section 20. They say that in consequence of this sub-section the company which receives the payment referred to in sub-section (10) must at the time of the receipt have been a trading company; and, secondly, that in construing sub-section (10) one must apply sub-section (9), with the result that both companies must he subsidiaries of a third company or one the subsidiary of the other and both must be trading companies within sub-section (9) at the time the payment is receive .....

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its 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 .....

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b-sections of the section, which one might call the operative part. Similarly, if the contents of sub-sections (9) and (10) were included in a separate section, commencing with the words "For the purposes of section 20," it would be clear that they were only intended to apply to that section. I refuse to infer that the effect of these two sub-sections is different from that which their contents would have if in one sub-section or in a separate section, and I am therefore of the opinion .....

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nt in respect to that period from an associated trading company which has a surplus for tax purposes for the corresponding period. If the words "the company" appeared before the word "receives" in the sub-section, then one would be compelled to the conclusion that at the time of the receipt of the payment the company must have been carrying on a trade for the section to apply. On the other hand, if the word "it" appeared before the word "receives," one wou .....

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as if the word "company" appeared before the word "receives" imports a further condition into the second condition stated above by the inclusion of the words "while carrying on a trade" after the word "must." I do not think that, the language of the sub-section read with sub- section (9) requires this to be done or that it has this meaning. As I have said, there is no valid reason for imposing such a requirement. If company A has a deficit for tax purpose .....

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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 a .....

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claim to relief under section 20(1) of the Finance Act, 1953, in respect of the subvention payments it had made to another company of which it was a subsidiary (and which for brevity I will call Glossop) failed because at the time these payments were made Glossop (as was admitted) had ceased to trade. This contention was based, in turn, on sub-section (9) of section 20, which says that "(9) For the purposes of this section...references to a company shall be taken to apply only to a company .....

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ment in respect of that period..." It was not disputed, and there can be no doubt, that the word "company" as it is used twice in this part of the sub-section means, by virtue of sub-section (9), a resident and trading company. Glossop had a deficit during an accounting period while thus qualified and the first condition of sub-section (1) was accordingly satisfied. The second condition begins with the words "and received," and here it is that the main issue emerges. On .....

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that the trading qualification need not, therefore, continue to exist until 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 ov .....

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[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 payment shall be treated as a trading receipt and a trading expense of the payee and paying companies respectively, A company might well cease trading after receipt of a subvention payment and before the accounts had .....

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t;and receives" be excluded merely on the language of the enactment? And, secondly, there is nothing, at any rate that I can discern, in the language of section 20 to preclude, on this issue of construction, a consideration of the policy and purpose of the legislature as revealed in the enactment itself. Stamp J. at first instance and Diplock and Winn L.JJ. in the Court of Appeal seem to have taken a different view on the ground that the words of the statute were plain and unequivocal and o .....

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ourse, trite to say that statutory definitions can, on occasion, produce unexpected results that seem to work against the apparent tenor of a particular context. But I do not think the language of sub-section (9), which, as Harman L.J [1966] 1 W.L.R. 1094, 1096 pointed out, is rather odd, can be said to have this kind of draconian effect. If I am right in the view already expressed, it has to be applied with some degree of selectivity and, in any event, it begins with the words "For the pur .....

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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 w .....

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should be read and applied accordingly. For these reasons I think Harman L.J. was right, and I would allow the appeal. LORD MORRIS OF BORTH-Y-GEST. My Lords, at all relevant times all the ordinary shares in Davies Jenkins & Co. Ltd. (the appellants) were beneficially held by a company, Wood Brothers (Glossop) Ltd. At all relevant times all the ordinary shares in that latter company were beneficially held by Wood Brothers (Glossop) Holding Ltd. There are two accounting periods of Wood Brothe .....

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oses" (within the meaning of section 20) in the corresponding period. In respect of that period the appellants made a subvention payment of £13,327 to Wood Brothers (Glossop) Ltd. The payment was made on February 24, 1960. Wood Brothers (Glossop) Ltd. had ceased to trade on December 21, 1959. Their deficit for the accounting period was such as to absorb the £13,327. The second relevant accounting period of Wood Brothers (Glossop) Ltd. is the period from April 1, 1959, to March 3 .....

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ssop) Ltd. absorbed £6,669 of the £12,395. The two subvention payments were made pursuant to a subvention agreement which was dated March 17, 1955, and was an agreement which satisfied the requirements of sub-section (2) of section 20. The question which has arisen is whether the special commissioners were right in holding 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 circumstanc .....

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reated" 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 .....

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aid by the appellants to Wood Brothers (Glossop) Ltd., on February 24, 1960, is, in computing for the purposes of income tax the profits or gains or losses of the companies, to be "treated" as a trading receipt receivable by the latter company on March 31, 1959, and as a trading expense of the appellants incurred on March 31, 1959. It is said, however, by the revenue that the words of sub-section (1) of section 20 preclude this result for the reason that on the date of receipt by Wood .....

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on, 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..." The word "where" clearly does not refer to a place. It is used in the sense of "if" or "whenever." The word "then" is not used as referring to time. It prescribes results or consequences which are to .....

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-section (9) to sub-section (10) 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 a .....

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eceive" 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 late date limit as laid down by the proviso to sub-section (2). I see no need to read in or to insert words so as to require that receipt must be before a company has discontinued trading. On the facts of the present case the application of section 20 may be c .....

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unting period does not affect the issues now arising). Did Wood Brothers (Glossop) Ltd. receive subvention payments in respect of those periods? The answer is in the affirmative. At all times between April 1, 1958 (the beginning of the payee company's accounting period), and March 28, 1961 (the date of the second payment), was one of the two companies the subsidiary of the other? The answer is in the affirmative. In sub-section (1) it is made clear that the receiving company must be a compan .....

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is prescribed in sub-section (10). In order that the paying company is to be treated as an associated company of the other, one of them must have been the subsidiary of the other (or both of them subsidiaries of a third company) at all times between the beginning of the payee company's accounting period and the making of the payment. That additional requirement was satisfied. The fact that the payee company ceased to trade did not affect the "subsidiary" relationship. It seems to .....

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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 latte .....

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as between one company that could be described as above and another company that could be described as above there will at some time have been a subvention payment. In a sub- section clearly designed for a particular purpose I cannot think that from the word "making" there should be extracted the requirement that the receiving company must be continuing to trade at the moment of receipt. At the time when section 20 is being applied and administered the events being considered will all .....

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at the use of the word "receives" does not denote the present tense in a temporal sense. The receipt of a payment will almost inevitably be made at some future time after the end of the accounting period which has resulted in a deficit for tax purposes. After the receipt of a payment it may be treated as a trading receipt receivable for the past period. It will be the fact, of receipt that will be of importance and not its date. To insist on a requirement that the receipt must be befor .....

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of the Finance Act, 1953, that the recipient company should be trading at the time of receipt of a subvention payment. This, in my view, neither relieves the courts from giving free and untrammelled consideration to the interpretation of section 20 nor does it furnish material for their guidance in so giving it. It is well 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 approa .....

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pany 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, b .....

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pany 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 ...(9) For the purposes of this section, 'company' includes a .....

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on to be treated as a trading receipt or a trading expense shall be treated as a payment chargeable under Case VI of Schedule D or as an expense of management, as the case may be. (10) For the purposes of this section, a company making a subvention payment to another shall be treated as the other's associated company 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 the .....

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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) requ .....

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incurred under the first limb of the section, becomes a "designated company," as it is called, for the rest of the subvention procedure and, having so qualified, it matters not that it had ceased to be resident and to trade when the subvention payment is received. I cannot so read the sub-section. This interpretation flies in the very face of the grammatical construction of sub-section (1). It would result in the two verbs "has" and "receives" in the first and secon .....

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unting period and the making of the payment, whereas in the former case nothing is said about the period during which the company must be resident and trading. I can see no force in this distinction, and I would point out that for the purposes of sub-section (10) it was necessary to provide the period during which association had to exist. Merely to have provided for association simpliciter would have been meaningless. The necessity for the company being resident and trading up to the date of pa .....

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ay run counter to what may be supposed to have been the intention of Parliament. But the intention of Parliament can only be deduced from the words used. These words are, in my view, quite clear. It is also said that this interpretation may result in the anomaly that the subvention procedure can never be available during the terminal period of the company's trading life. I recognise this anomaly but, if it is an anomaly, it is for the legislature to correct it, not the courts. Although it ma .....

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e 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, usuall .....

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basis of computation on income tax principles for the purpose of making annual assessments of profits or losses of companies. To remedy this state of affairs and in justice to the taxpayer, Parliament enacted section 20, whereby, putting it generally, within the group and for income tax purposes the profitable company could claim an allowance for its payments to the company making the loss but, in justice to the Crown, this had to be taken into account as part of the trading receipts of the comp .....

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ly owned subsidiary of Wood Bros. (Glossop) Ltd. (I shall call it Glossop), which later was a subsidiary of the parent company, Wood Brothers Holdings Ltd. By virtue of a subvention agreement made between the member companies of the group in 1955 the appellant company made two payments to Glossop: (1) in respect of the accounting period April 1, 1958, to March 31, 1959, the sum of £13,327 on February 24, 1960; (2) in respect of the accounting period April 1, 1959, to March 31, 1960, the su .....

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re the end of that period. The sole question, therefore, is whether the appellant company is unable to claim the benefit of section 20 by reason only of the fact that Glossop 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 e .....

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puting 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. (2)...Provided that a payment in respect of any accounting period of the payee company shall not be treated as a subvention payment unless made in .....

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therefrom, as if that business were the carrying on of a trade, and in the case of such a company, any payment which is directed by this section to be treated as a trading receipt or a trading expense shall be treated as a payment chargeable under Case VI of Schedule D or as an expense of management, as the case may be. (10) For the purposes of this section, a company making a subvention payment to another shall be treated as the other's associated company if, but only if, at all times betw .....

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that a subvention payment made to Glossop after it had ceased to trade still qualified under section 20. The Crown appealed from their decision. Stamp J. reversed the decision of the commissioners and held that the appellant company were not entitled to any allowance in respect of their payments to Glossop as at the moment of payment Glossop was not trading and, therefore, was not qualified as payee by sub-section (9); nor was it qualified as an associated company at that moment of time (as he h .....

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nt 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 r .....

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his point of view very clearly when he said [1966] 1 W.L.R. 446, 454C-D : "Sub-section (9) requires one to 'take' (note the words 'shall be taken') the reference to a company in sub-section (1) as applying only to a company (note the present tense) 'resident in the United Kingdom and carrying on' (note again the present tense) a trade there; and before sub- section (1) can apply you must find the case to be one where, reading sub-section (9) into sub-section (1),  .....

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absence of some contrary indication, I would conclude that the paying, company must have the qualification of being an associated company at the moment of receipt and payment. Sub-section (10), however, of course requires that qualification to subsist as well over the whole period between the beginning of the payee's accounting year and the payment." My Lords, I find myself quite unable to accept these views of the matter which seem to me to do complete violence to the words of the sec .....

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, i.e., the payment must be made within two years, and to sub-section (10), where it must be established that at the moment of payment the companies must be associated. So I approach the enacting sub-section (1) with this in mind, that the moment of payment does not seem to be of any importance provided it has been made. Had Parliament thought that the moment of payment was vital to claim the benefit of the section in the sense that the company must then be a resident trading company, I note tha .....

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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 "t .....

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s it gives what is, to my mind, a wholly misleading construction to the section, for it introduces, sub silentio (on the Crown's argument already mentioned), the further condition that the company must be a resident trading company not only during the relevant accounting period but also at the moment of time of payment of the subvention, which for the reasons I have already mentioned seems utterly irrelevant to this matter. Therefore, construing this sub-section in the ordinary way and givin .....

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n given by Stamp J. in his judgment for reaching his conclusion, He said, [1966] 1 W.L.R. 454E and in fairness to him I set it out in full: "Moreover it is to be noted that it is the word 'payment' which is grammatically the subject of the sentence which one finds in sub-section (1), and it is 'the payment' which is to receive the treatment prescribed; and if the question be asked, 'At what moment of time is the company which receives the payment to have the qualificatio .....

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rred to 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 clai .....

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so 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 why it should be entitled to the benefit of the section. So I pose to myself the question posed by Stamp J. I answer it by saying that for the reasons I have already stated I cannot see any relevance in the time of payment. I look for the purposes of the enacting sub-section (1) to .....

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