1955 (3) TMI 41 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Government of Madras, as a branch of the Crown, qualifies as a "person" under rule 11(2) of the Rules of Cases I and II of Schedule D of the Income Tax Act, 1918.
2. The applicability of balancing charges under section 17 of the Income Tax Act, 1945, for the year of assessment 1947-48.
3. The interpretation of the term "person" in the context of the Income Tax Acts and its implications on the Crown's immunity from taxation.

Issue-Wise Detailed Analysis:

1. Whether the Government of Madras, as a branch of the Crown, qualifies as a "person" under rule 11(2) of the Rules of Cases I and II of Schedule D of the Income Tax Act, 1918:
The core issue is whether the Government of Madras, being a branch of the Crown, qualifies as a "person" within the meaning of rule 11(2). The appellant company argued that neither the Crown nor any person exercising the functions of the Crown is a "person" under rule 11(2). Conversely, the respondent contended that the Crown is included within the term "person" for the purposes of this rule.

Lord Oaksey concluded that it must necessarily be implied that the Crown is included within the term "person" in rule 11(2). He reasoned that excluding the Crown would result in the taxpayer being deprived of balancing allowances and remaining liable to balancing charges, which could not have been the intended outcome of the legislation.

Lord Macdermott emphasized that the word "person" in rule 11(2) should be construed to include the Crown, as excluding the Crown would lead to an unreasonable result and disrupt the basis of assessment. He noted that rule 11(2) is not a charging provision but rather a rule for terminal computations when a trade changes hands.

Lord Reid concurred, stating that the word "person" in rule 11(2) does not necessarily have to mean the same as in the charging provisions of Schedule D. He argued that the rule is intended to provide for the computation of tax payable by taxable persons in the event of a trade succession, regardless of the successor's tax liability.

Lord Tucker and Lord Keith of Avonholm also agreed that the word "person" in rule 11(2) should include the Crown. They emphasized that rule 11(2) is not a charging provision and should be construed in its ordinary and natural meaning, which includes the Crown.

2. The applicability of balancing charges under section 17 of the Income Tax Act, 1945, for the year of assessment 1947-48:
The appellant company was assessed to income tax for the year 1947-48 in respect of balancing charges claimed due upon the sale of its plant and machinery to the Government of Madras. The company argued that if the Crown is not a "person" under rule 11(2), the balancing charges could not be assessed for the year 1947-48.

Lord Oaksey noted that if rule 11(2) applies, the "basis period" for the year of assessment 1947-48 would be the period from April 6, 1947, to August 29, 1947, in which the sale took place, making the assessment competent. If rule 11(2) does not apply, the balancing charges would escape assessment.

Lord Macdermott highlighted that rule 11(2) is decisive for determining the "basis period" for the year of assessment 1947-48. He stated that if the Crown is included as a "person" under rule 11(2), the assessment for balancing charges is competent.

Lord Reid, Lord Tucker, and Lord Keith of Avonholm all agreed that the assessment for balancing charges for the year 1947-48 is competent if the Crown is included as a "person" under rule 11(2).

3. The interpretation of the term "person" in the context of the Income Tax Acts and its implications on the Crown's immunity from taxation:
The respondent argued that the Crown is included in the term "person" in the Income Tax Acts and that the Crown's immunity from taxation arises from the prerogative right to claim such immunity. The appellant company contended that the Crown is not included in the term "person" in the charging provisions of the Income Tax Acts.

Lord Oaksey found it unnecessary to decide whether the Crown's immunity from taxation depends on the construction of the statute or arises from the prerogative. He concluded that the term "person" in rule 11(2) must be construed to include the Crown to avoid depriving the taxpayer of balancing allowances.

Lord Macdermott stated that the meaning of "person" in the charging provisions of Schedule D does not include the Crown, as there is no express provision or necessary implication to make it include the Crown. However, he argued that the word "person" in rule 11(2) should include the Crown to provide for terminal computations in the case of a trade changing hands.

Lord Reid argued that the rule of construction that an Act does not bind the Crown unless expressly stated or by necessary implication applies to the charging provisions of Schedule D. He concluded that the word "person" in rule 11(2) should include the Crown, as it is not a charging provision and does not prejudice the Crown.

Lord Tucker and Lord Keith of Avonholm agreed that the word "person" in rule 11(2) should be construed in its ordinary and natural meaning, which includes the Crown. They emphasized that rule 11(2) is not a charging provision and should be interpreted to provide for the computation of tax payable by taxable persons in the event of a trade succession.

Conclusion:
The appeal was dismissed, with the House of Lords concluding that the term "person" in rule 11(2) of the Rules of Cases I and II of Schedule D of the Income Tax Act, 1918, includes the Crown. Consequently, the balancing charges under section 17 of the Income Tax Act, 1945, for the year of assessment 1947-48 were correctly assessed. The interpretation of the term "person" in the context of the Income Tax Acts does not exclude the Crown, and the Crown's immunity from taxation does not affect the applicability of rule 11(2) in this case.