TMI Blog1940 (2) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant company. The steel company at the date of its acquisition by the appellant company had in its books a sum representing trading losses of the steel company, in respect of which relief under Section 33 of the Finance Act, 1926, had not been given. The strip company had a similar item in its books in respect of which relief had not been given. In addition to this item, the strip company was entitled to a deduction for wear and tear of plant, but it had not been possible, owing to the losses incurred by that company, to give effect to this deduction. The appellant company claimed the right to set off these three sums against its own profits. The Special Commissioners found that the appellant company succeeded to the trades of the steel company and the strip company and falls to be assessed as if a new trade had been set up or commenced. They accordingly held that the appellant company was not entitled to the deductions claimed. Lawrence, J., differed from the Special Commissioners as to the wear and tear claim, but otherwise upheld their decision. The Court of Appeal reversed Lawrence, J., as to the wear and tear item and decided against the contentions of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of allowances arising in years of assessment before that which must be taken to be the new trade was set up or commenced. It was, however, strenuously argued on behalf of the appellant company that rule 11 introduced by Section 32 of the Finance Act, 1926, did not relate to the method of computation of profits, but merely altered the basic year of assessment in cases where there was a succession to a trade. I confess I had some difficulty in following the argument. In computing the tax payable upon the profits or gains of the trade, part of the process is the deduction of any allowances permitted by the income-tax provisions. As long as the profits and gains under Schedule D were computed on the basis of an average of three years, the deduction was made from the figure resulting from the taking of the average, and the balance was the amount of the profits and gains on which tax was charged. When the profits or gains of the year preceding the year of assessment were substituted for the average of the three preceding years, the process was the same so far as a deduction for wear and tear was concerned. The words of the new rule 11 enacted by Section 32 of the Finance Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). The appellants' claim is to carry forward and set off against their own profits the losses incurred by the 1915 steel company and the strip company before the amalgamation, and also to deduct from their profits the unapplied balances of the wear and tear allowances of the strip company. The Court of Appeal have decided both these questions in favour of the Crown, varying an order of Lawrence, J., who was in favour of the tax- payer with regard to the allowance for wear and tear. There was a further point suggested, namely, that the appellants were entitled to succeed by virtue of Sections 153 and 154 of the Companies Act, 1929, a contention which was described by the Court of Appeal as somewhat starting. I am content with the judgment of the Court of Appeal on all points, and shall trouble your Lordships only with a few observations relative to the claim as regards the wear and tear allowance under rule 6. I will begin by observing that the right under rule 6 is not a chose in action or an asset of the taxpayer, and that it could not be assigned to the appellants. It relates only to deductions allowable to a taxpayer in charging the profits or gains of a trade as repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s if the trade, profession or vocation had been discontinued at the date of the change and a new trade had been then set up or commenced and that the tax so computed for any year shall be charged on and paid by such of them as would have been charged if such discontinuance and setting up or commencement had actually taken place . If such notice is given the tax shall be computed, charged, collected and paid accordingly . Sub-rule 2 applies to the case of any person (which includes a company) succeeding to any trade previously carried on by another person, and it provides that the tax payable for all years of assessment by the new owner shall be computed as if he had set up or commenced the trade, profession or vocation at that time, and the tax payable for all years of assessment by the person who until that time carried on the trade, profession or vocation shall be computed as if it had then been discontinued . I am clearly of opinion that if the proviso to sub-rule I is brought into operation by an appropriate notice the new partners cannot obtain the benefit of allowances or deductions available prior to the new trade being commenced. It will be noted that the proviso sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment, or within what may be called the basic period, were all treated on the same footing, whether there was any continuity of ownership or not ; that is, irrespective of the question whether anyone who was an owner before the change was also an owner after the change. By the new rule 11 a sharp distinction is drawn between the two cases : para. 1 deals with the cases where continuity of ownership exists ; para 2 deals with the cases where there is a complete break in the owner ship of the trade. In the first case the tax payable by the new owners is computed according to the profits earned during the basic period, that is, earned by the then owners of the trade. The proviso, however, gives an option, if all the owners old and new wish it, of dealing with the matter on the footing of the trade having been discontinued and a new trade set up at the date of the change. Para. 2 of rule 11, however, prescribes only one method of computing the tax payable. It postulates that one person has succeeded to a trade which until that time was carried on by another person , that is, it postulates a complete break in the ownership. In such a case it provides that the tax payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncaster Amalgamated Collieries, Ltd.; Donoghue v. Doncaster Amalgamated Collieries, Ltd.([1939] 108 L.J.K.B. 845; 10 Comp. Cas. 33) was rightly decided. The right here claimed is not only personal to the old companies, but is a right which can only be asserted in relation to income-tax payable by them in respect of the profits of the trades carried on by them respectively; and even assuming that the order of Eve, J., operated to vest that right in the appellants, it does not become in transitu a right exercisable in regard to income- tax payable by the appellants in respect of the profits of the trade carried on by the appellants. There remains the claim for allowances in respect of losses carried forward by the old companies. This was rested solely upon the order of Eve, J., and Section 154 of the Companies Act, 1929, and must fail with the other claim. For these reasons I would dismiss the appeal. LORD WRIGHT.- The main argument of the appellants was as to the true construction of rule 11(2) as enacted by Section 32 of the Finance Act, 1926. The words are in my opinion quite plain. In the most unequivocal language they sharply divide the trade carried on by the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever had profits or gains from which the deductions now claimed in whole or in part could have been made. The appellant company has been carrying on its own trade as from 1930, and it is in respect of the profits of that trade that the allowances are claimed. The old companies never had any interest in that trade. Their own trade ceased in 1930. This I think is a sufficient answer. It would, however, have been a strange result if the Companies Act, 1929, had by a side wind amended in a substantial particular the Finance Act, 1926. To effect such an amendment express and apposite words would have been necessary. The appellants relied as supporting their construction of the Companies Act, 1929, on the decision in Nokes v. Doncaster Amalgamated Collieries, Ltd.; Donoghue v. Doncaster Amalgamated Collieries, Ltd.( *[1939] 108 L.J.K.B. 845; 10 Comp. Cas. 33) That was a decision of the Court of Appeal constituted by the same members as those who gave the judgment under appeal. The powers of Section 154 were there held to extend to dealing with a purely personal right, namely, a contract of employment. If it were material I should desire most carefully to consider what was there dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onger seems merely to contemplate, as did the old one, a change in the ownership of a continuous trade, but seems to enact that tax shall be payable as though there had been a change in the trade itself. This was the construction put upon the rule by the Court of Appeal, and in my opinion it is the only possible construction. I am unable to attach any importance to the fact that in the proviso to para. 1 of the rule the word new occurs and that it does not occur in para. 2. If the successor is to be treated for income- tax purposes as if he commenced the trade at the time of the succession, I am unable to see how the trade then commenced can for those purposes be regarded as being other than a new trade. This being so it is obvious that there can be no deductions allowed in respect of the trade carried on before the succession took place. Such trade has for the purposes of taxation to be treated as though it were a different trade altogether from the trade being carried on by the appellants. As to the contention of the appellants based upon Sections 153 and 154 of the Companies Act and the Order of Eve, J., of August 16, 1930, a contention that relates to the losses incurred b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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