1956 (2) TMI 72 - DSC - Income Tax

Summary

Issues Involved:
1. Nature of the payment of lb16,138 4s. 2d. received by Anglo-French Exploration Company Ltd.
2. Whether the payment was a capital receipt or a trading receipt.
3. Applicability of Schedule D of the Income-tax Act, 1918.

Detailed Analysis:

1. Nature of the Payment of lb16,138 4s. 2d. Received by Anglo-French Exploration Company Ltd.:

The primary question in this case pertains to a sum of lb16,138 4s. 2d. received by Anglo-French Exploration Company Ltd. in 1949. The sum was part of a larger amount of lb20,000 paid by Philip Hill Securities Corporation Ltd. in consideration for Anglo-French's resignation as agents and secretaries of Kleinfontein Estates and Township Ltd. This payment was not part of the purchase price of shares but was a separate consideration for the resignation from the agency and secretarial position.

2. Whether the Payment was a Capital Receipt or a Trading Receipt:

The appellant argued that the lb20,000 was a capital payment for the destruction of the agency agreement, which was a source of income, thus constituting a capital asset. The Commissioners, however, found that the sum was a trade receipt received in the ordinary course of Anglo-French's business.

The court examined several precedents, including *Inland Revenue Commissioners v. Newcastle Breweries Ltd.*, *Short Brothers v. Inland Revenue Commissioners*, and *Inland Revenue Commissioners v. Northfleet Coal & Ballast Co. Ltd.*, which emphasize that sums received for the cancellation of an agency or similar agreements entered into in the ordinary course of trade are generally considered trading receipts unless the transaction involves a substantial part of the business undertaking.

3. Applicability of Schedule D of the Income-tax Act, 1918:

The court considered whether the sum of lb16,138 4s. 2d. falls under the scope of Schedule D of the Income-tax Act, 1918, which taxes annual profits or gains arising from any trade. The court found that the payment was indeed a profit arising from Anglo-French's trade activities. The agency contract was part of the company's ordinary business operations, and its cancellation did not materially affect the company's profit-making apparatus.

Conclusion:

The court concluded that the Commissioners were correct in finding that the sum was a trading receipt. The payment was received in the ordinary course of Anglo-French's trade and did not involve the parting with a substantial part of its business undertaking. Therefore, the sum was taxable under Schedule D of the Income-tax Act, 1918.

The appeal was dismissed, affirming that the payment was a trading receipt and subject to tax accordingly. The judgment emphasized that the nature of the payment in the recipient's hands is the determining factor for tax purposes.

Separate Judgments:

- Jenkins L.J.: Agreed with the judgment and had nothing to add.
- Birkett L.J.: Also agreed with the judgment and had nothing to add.

Final Decision:

The appeal was dismissed, and leave to appeal to the House of Lords was granted.