1948 (7) TMI 9 - HC - Income Tax

Summary

Issues Involved:
1. Proper valuation of fully paid shares received as consideration for income tax purposes.
2. Whether the shares must be immediately realisable to be valued for income tax purposes.
3. Correct principle and method for the Commissioners to determine the value of shares.

Issue-wise Detailed Analysis:

1. Proper Valuation of Fully Paid Shares Received as Consideration for Income Tax Purposes:
The main question was whether fully paid shares acquired by the Trust under agreements with other companies should be valued for income tax purposes and, if so, at what figure. The Trust argued that no asset such as a block of fully paid-up shares could be represented by a cash figure in the year of the transaction unless it was readily convertible into money within that year. The Commissioners had initially valued the shares at their par value, equating to the agreed consideration of lb800,000. The respondent conceded that the valuation should not be bound by the par value stated in the agreement but should be determined based on various factors, including market conditions and the potential realisability of the shares.

2. Whether the Shares Must Be Immediately Realisable to Be Valued for Income Tax Purposes:
The court rejected the appellant's argument that an asset must be immediately realisable to be valued for income tax purposes. The judgment emphasized that the inability to realize the asset promptly does not mean it has no value. The valuation should take into account the circumstances at the time of the transaction, including any restrictions on realisation. The court cited several cases, including *Californian Copper Syndicate v. Harris* and *Scottish and Canadian General Investment Co. v. Easson*, to support the principle that the asset's value should be assessed even if it is not immediately realisable.

3. Correct Principle and Method for the Commissioners to Determine the Value of Shares:
The court determined that the Commissioners should not be bound by the par value stated in the agreement but should consider all relevant factors to arrive at a fair valuation. The principle established was that the asset should be valued as at the end of the accounting period in which it was received, considering factors such as prospective yield, marketability, and the general outlook for the business. The court concluded that valuation is an art, not an exact science, and the Commissioners should express their estimate in monetary terms based on the evidence before them.

Separate Judgments:
- Viscount Simon: He emphasized that the valuation should consider all relevant circumstances and not be bound by the par value. He suggested referring the case back to the Commissioners for a proper valuation.
- Lord Uthwatt: Expressed complete agreement with Viscount Simon's conclusions and reasoning.
- Lord Oaksey: Agreed that the case should be remitted to the Commissioners, emphasizing that the valuation should be based on what could be realized in money during the years in question and not on future estimates.

Conclusion:
The appeals were allowed, and the case was remitted to the Commissioners to reconsider and fix the proper figure for the valuation of the shares, taking into account all relevant circumstances and evidence. No costs were awarded in respect of the appeals to the House.