TMI Blog1958 (4) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... he same nature and effect as those in relation to the first two appeals. The facts, stated by Viscount Simonds, were as follows: This appeal related to assessments to income tax made upon the appellant company for the years 1948-49 and 1949-50 and to profits tax for the chargeable accounting periods April 1, 1947, to March 31, 1948, and April 1, 1948, to March 31, 1949. Upon each of the assessments the same question arose. The material facts as found by the Commissioners for the Special Purposes of the Income Tax Acts were that the appellant company was at the relevant times a property-dealing company, that during the war certain of its properties suffered war damage and that under the provisions of the War Damage Acts, 1941, 1943 and 1949, it received value payments from the War Damage Commission in respect of a number of these properties. The short question was whether these value payments ought to be treated as trading receipts in computing the profits or gains of the company for the purpose of the assessments in question. The respondents contended that they should, the appellants that they should not. The commissioners held that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all purposes as capital: section 66(1) of the Act of 1943. Section 28 of the Act of 1949, consonantly with the scheme of the Acts, proceeds on the basis that a contributor receives his payments out of the fund in the same capacity as that in which he made his contributions into the fund, namely, as the owner of a proprietary interest in land and on the plane of capital. Since the contribution is to be treated as an outgoing of a capital nature for all purposes, including, presumably, a computation of profits for the purposes of taxation, it must be implied that any payment is similarly to be regarded as of a capital nature for the same purpose. Since under section 28 of the Act of 1949 expenditure on making good war damage is not to be allowed as a deduction so far as it is covered by a war damage payment, it is a necessary implication that in no circumstances can such payments be treated as trading receipts for tax purposes. The value payments received by the appellant company were not profits arising from its trade. The character of the payments is to be determined at the moment of receipt and at that moment the payments were not profits or gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition. There is no express statement to that effect in section 28 of the Act of 1949 or elsewhere. For the appellant company it is said that the payments were received by it in its capacity as landowner. But everything which such a trader gets he receives in his capacity as a landowner because the land is his stock-in-trade. As to the point of the non-deductibility of the contribution for the purposes of income tax, that is counterbalanced by the fact that the insurer is the State which is entitled to the tax. As to the provision in section 28 of the Act of 1949 for bidding deduction, that is analogous to the provision in rule 3(K) of the rules applicable to Cases I and II of Schedule D. See also section 101 of the Income Tax Act, 1952, as to allowance under Schedule A for maintenance, repairs, insurance and management. The argument for the appellant company attaches too much importance to section 68 of the Act of 1943 in suggesting that it makes all receipts capital, even when received by traders: see section 42 of the Act. If a trader sustains a loss in respect of which he receives a value payment which he can do what he likes with, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on anomalies or hardship but essentially on the conclusions to be drawn from the war damage legislation. Section 2 of the Act of 1943 is concerned with war damage quite generally. The value payment need not be used in making good the damage. The test is: Is the payment, when used a profit or gain of the trade. War damage payments were intended for the restora- tion of buildings. A national fund had been created and the payments in and out were capital. Their Lordships took time for consideration. April 24. VISCOUNT SIMONDS, having stated the facts and the findings of the commissioners, continued: My Lords, this determination may well appear to produce an equitable result, but it has not been found possible to support it in any court, and there is in fact no via media. The value payments as a whole are to be treated as trading receipts or as a whole are not. Upjohn J. has held that they are not, the Court of Appeal that they are. I agree with the Court of Appeal. My Lords, I have no doubt that the commissioners were right in saying that the payments were prima facie trading receipts. It was the business of the company to dispose of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore appear reasonable that the total net contribution to the Exchequer should not be in effect reduced by allowing the contributor to bring it into account as an income payment for income tax purposes. A more serious argument was founded on section 28 of the Act of 1949, which replaced section 113 of the Act of 1943. Section 28 was made retrospective and is applicable to the present case. It is a section which relates to income tax and profits tax and excess profits tax and nothing else, and I think that I must cite a substantial part of it. It provides that, in computing the amount of the profits or gains or of the income from any source of any person for any purpose of the taxes I have mentioned, no sum shall be deducted in respect of any payment or expenditure therein mentioned. It then provides, by sub-section (2), that no sum shall be included in respect of any payment or expenditure to which the section applies in computing (inter alia) (b) the cost to any person of maintenance, repairs, insurance and management in respect of which relief may be claimed under or by reference to Rule 8 of No. V of Schedule A and by sub-section (4), (so far as relevant) that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r through inadvertence, the case of the property dealer being over- looked or incompletely regarded, there is, in my opinion, no provision, express or implied, which enables him to exclude them from his computation of profits. In the course of the argument there was some discussion of rule 3(K) of the General Rules of Schedule D to the Income Tax Act. It was suggested that it provides a useful analogy to section 28. Perhaps it does. But I am content to abide by what appears to be the plain meaning of the statute. I would dismiss this appeal with costs. LORD MORTON OF HENRYTON. My Lords, I agree with the speech which has just been delivered by my noble and learned friend on the Woolsack and I have nothing to add. LORD REID. My Lords, I regard this as a difficult case. Apart from the provisions of section 28(4) of the War Damage (Public Utility Undertakings, etc.) Act, 1949, I should have no difficulty. It may be true that a person who does not trade in property, but carries on another trade within property owned by him, may pay or receive money in his capacity of owner and not in his capacity of trader. But when the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the property as a site and in its damaged state would be increased if reinstatement was carried out. And the Act goes on to provide that in certain cases value payments shall be made although the general rule would require a cost of works payment, and vice versa. Both kinds of payment are normally payable to the owner; but a cost of works payment can only be made when the sum involved has already been expended on the property, whereas a person receiving a value payment is free to do as he likes with it--he may, but need not, spend it on repairing the property. I should add that 1939 values are used in these calculations, but there is provision for increasing value payments so calculated by 45 per cent. It appears to me that, if a value payment received by an owner who is a trader in land is a trading receipt, then a fortiori a cost of works payment received by such owner must be a trading receipt. But I need not elaborate that because I understood that that was not disputed by counsel for the respondent. Section 28 of the 1949 Act, which replaced an earlier provision in the 1943 Act, is designed to deal with the income tax position of owners who receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent to deny that. Where a trader in land receives a cost of works payment there appears to be no need for section 28, and it would introduce confusion and injustice if it were applied literally. The 1943 Act contemplates that he, like other owners of war- damaged land, will carry out and pay for the reinstatement, and will then receive the cost of works payment. Apart from section 28 the trader in land would in his tax account enter the cost of reinstatement as an outgoing and enter the cost of works payment as a receipt. That would produce a just result. But section 28 prevents him from showing as an outgoing the cost which he has incurred and paid, but contains no express authority for excluding the cost of works payment from the other side of his account. And, being a trading receipt, it must be included unless there is authority to exclude it. If it is not excluded, then a fictitious profit will result. I understood counsel for the respondent to admit that this is an impossible result, that in practice the payment is always omitted and that section 28, must be so interpreted as to authorise this omission. He pointed out that in many cases the owner does not in f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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